Jon Hadad

About the Author Jon Hadad

Jon Hadad graduated from the University of Delaware with a degree in political science. Prior to joining the Smarter Analyst team, he was an industry analyst at a New York research firm.

Tesla (TSLA) Stock: A Real Lift or a Dead Cat Bounce?


Tesla (TSLA) stock rose nearly 8% last week, after the electric car giant filed to raise about $2 billion of capital, including $650 million in common stock and $1.35 billion in five-year convertible  notes. This comes after the company disclosed in its most recent quarterly report that it may seek additional funding, as demand for its vehicles took a major U-turn for the worse and the company looks to further strengthen its balance sheet.

While Tesla has faced many challenges over the past year (as indicated by its up-and-down stock chart), its finances were seldom at the top of any list. Production, demand and internal troubles always made headlines, with balance sheet-related challenges taking a back seat. However, as the company continues to face demand questions, its taking a stronger look at its finances and suring anything up, in order to remain competitive and an attractive buy for investors.

Nomura analyst Christopher Eberle says “some may argue” Tesla’s capital raise “is being done from a position of weakness.” The analyst believes this “will de-risk Tesla’s balance sheet near term and extend the window for the company to reach scale, likely through end-2020.” Scale is extremely important for the company, as it is just beginning to offer an “affordable” electric vehicle designed to sell to the masses — the Model 3 and the (coming soon) Model Y. Tesla still needs time to bring the prices of these vehicles, but without additional capital the runway is short and risky.

The capital raise comes after a recent Q1 report, which the analysts says was “decently below subdued expectations, with deliveries, revenues, and gross margin (ex-regulatory credits) all missing both consensus and our estimates.” But while the analyst “came out of the report thinking that Tesla had a path to recovery over the remainder of the year…” he notes that the capital raise should give the company “some breathing room for 2019E financials.”

Tesla Q1 numbers were very disappointing, though not surprising. Demand and production for its high-margin Models X and S both fell drastically, which cut into revenue and more importantly margins. The Model 3 continues to be the company’s new hallmark, but is also facing tough challenges relating to demand and pricing. The company hopes with a longer runway, they will have enough time to bring down the price and increase demand, eventually making this a best-selling vehicle.

Nevertheless, Eberle maintains a Neutral rating on TSLA stock, with a $300 price target, which implies about 17% upside for the stock. (To watch Eberle’s track record, click here)

On Tesla, you ask two analysts and you get three opinions. Confusion is rampant on what to do with TSLA stock. One on hand, the numbers do not make sense. On the other hand, this could be the future of autos. But presently, TipRanks analysis of 26 analyst shows a Hold consensus, with eight analysts Buying, seven saying Hold and 11 recommending Sell. The average price target among these analysts stand at $280.29, representing a 12% increase from current levels. (See TSLA’s price targets and analyst ratings on TipRanks)

 

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