Written by Bryan Sozzi
First published 20 May 2019
Tesla CEO Elon Musk should keep the phone line open with his banker buddies.
“We believe Tesla will have to raise another $1 billion in capital,” Wedbush analyst Dan Ives told Yahoo Finance’s “On the Move.” The former Tesla super bull slashed his price target on the stock again on Monday to $230 from $275, which sent shares of the money-losing auto outfit down as much as 5%.
The analyst only a month ago cut his rating on Tesla’s stock to Neutral from Outperform.
Ives’ cash projection is somewhat startling considering Tesla is fresh off a badly needed capital raise. Earlier this month, Tesla raised about $860 million by selling new stock and $1.84 billion through the issuance of convertible debt. Both efforts came despite Musk contending throughout most of 2018 that Tesla didn’t need to raise capital.
But with a stock price continuing to languish and terrible first quarter earnings in the books, Musk clearly had to take some form of action to shore up Tesla’s finances. Keep in mind Tesla’s cash pile plunged $1.5 billion in the first quarter of 2019 from the fourth quarter 2018.
Indeed, a weak cash position is the last thing Tesla needs ahead of a Model 3 production ramp, forays into robo-taxis and car insurance, and whatever else Musk dreams up. Slowing demand for Tesla’s pricey electric cars doesn’t help the company’s fundamentals.
Ives doesn’t expect Tesla to file bankruptcy (somewhat reassuring for the diehard Tesla bulls…) and foresees it returning to profitability.
“If demand comes back and they cut costs in other non-strategic initiatives I think they can be profitable,” Ives believes. Recently, Musk has implemented a new round of cost cuts at Tesla to save money — which he is personally undertaking.
But, Tesla getting to that point of profits that Ives envisions will likely take longer than the market expects and require more cash.
“It will take some pretty significant navigating throughout this perfect storm they are hitting,” Ives says, voicing concern over slowing product demand and Tesla’s “bloated” cost structure.
A Tesla spokesman declined to comment on Ives latest note.
The bright side
Sourced from finance.yahoo.com