Goldman Sachs has increased its six-month price target for Tesla Motors Inc (NASDAQ:TSLA) in the wake of last night’s announcement. However, they remain Neutral-rated on the company and are expecting that the offering will dilute its earnings per share by about 15% over the next three years.

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Tesla price target goes to $170 a share

Analysts Patrick Archambault and David Tamberrino have increased their price target for Tesla Motors Inc (NASDAQ:TSLA) from $118 to $170 per share. However, that’s still significantly lower than today’s trading levels, even after the midday 1% decline in share price. They say their price target reflects an increase in multiple from 20 times to 30 times. They based that increase on increased liquidity, which improves the automaker’s risk profile and more confidence in its execution because of recent operating results.

The main reason investors have been in a frenzy over Tesla Motors Inc (NASDAQ:TSLA) is the company’s plans to build a gigafactory which would enable it boost production even further. The convertible note offering is aimed at paying for that factory. The automaker is doing it in two tranches—one due in 2019 and the other in 2021. In addition, it is buying a convertible note hedge to help prevent dilution up to 100% over the stock price for the 2019 notes and 120% for the 2021 notes.

Tesla earnings per share could be diluted

The Goldman Sachs team estimates that the convertible note offering will dilute Tesla Motors Inc (NASDAQ:TSLA)’s earnings per share by 15% over the next three years but just 4% in 2018, which is the year upon which they have based their valuation. Their new 2014 earnings per share estimate has declined to $1.40 a share. For 2015, they are now estimating $2 a share, and in 2016, they are estimating $4.50 per share.

They reduced those estimates because the note offering raises Tesla Motors Inc (NASDAQ:TSLA)’s “borrowing costs from the combination of increased cash interest expense as well as amortization of the original issue discount (OID) related to the embedded convert option.”