Tesla Stock Rallies Despite Analyst Skepticism On Capital Raise

Tesla Stock Rallies Despite Analyst Skepticism On Capital Raise
<a href="https://pixabay.com/users/Blomst/">Blomst</a> / Pixabay

Tesla Inc (NASDAQ:TSLA) stock initially rallied on Tuesday immediately following the company’s Q1 production and delivery release. However, after several analysts cut their price targets for Tesla stock in response to that release, it later flipped into the red. Although the automaker said it doesn’t expect to need another capital raise this year, at least three analysts still expect one. Commentary around a China trade war didn’t help either, especially as CEO Elon Musk engaged President Trump on Twitter regarding the matter.

In general, the headlines for Tesla stock just aren’t good, and yet, it rallied after the market opened this morning.

Analysts slash price targets for Tesla stock

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Evercore ISI analysts slashed their price target for Tesla stock from $307 to $272, while RBC Capital cut its target from $380 to $305 per share following the Q1 delivery release. Others left their price targets the same, and in general, analyst commentary on Model 3 production and demand for Tesla’s vehicles spanned a wide range, leaving no real consensus about what to do with the shares.

Perma-bull analyst Romit Shah of Nomura Instinet maintained his Buy rating and $420 price target for Tesla stock, saying that Tuesday’s delivery numbers demonstrated to him important progress. The automaker boosted its total vehicle production 40% during the first quarter, manufacturing nearly 35,000 vehicles. Model 3 production grew fourfold sequentially to an average of 751 produced per week. In the last seven days of the first quarter, the company produced more than 2,000 Model 3s, which some see as a signal that the production problems are finally clearing up.

Even though he’s been a bull on Tesla stock for quite some time though, Shah said he “heavily” discounts Tesla’s forward-looking commentary. That demonstrates just how little weight CEO Elon Musk’s comments carry with analysts these days, despite his celebrity status among investors. However, Shah was also encouraged that the company is still aiming to be producing 5,000 Model 3s per week by the end of June.

Analysts call bluff about Tesla capital raise

Another interesting point about Tesla’s Q1 production release was the commentary on liquidity. The automaker said it doesn’t expect to require another capital raise this year, but analysts are clearly skeptical. Shah expects the automaker to report better-than-expected cash flow and an improved balance sheet when it releases its Q1 results, but other analysts are expressing skepticism.

Morgan Stanley analyst Adam Jonas said in his note that although another Tesla capital raise might not be needed, he still expects one by the second half of this year. He’s been a longtime bull on Tesla stock, but he seems especially skeptical now. He doesn’t expect the company to be producing 5,000 Model 3s weekly until late in the fourth quarter—about six months after the current target. He also expects a Tesla capital raise to the tune of $2.5 billion in equity during the third quarter. He expressed skepticism with the company’s statements about “high volume, good gross margin and strong positive operating cash flow” in the third quarter.

JPMorgan analysts also said they expect a Tesla capital raise this year, noting that the company did raise billions of dollars in 2016 after saying earlier in the year that it wouldn’t need one. They also trimmed their price target for Tesla stock from $190 to $185 per share in their note this week. Bank of America analysts also chimed in on the possibility of a Tesla capital raise, saying that they also expect one even though the company said it won’t need one.

Tesla stock rallied more than 3% in intraday trading today, climbing as high as $277.10 per share.

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