Wall Street analysts continue to butt heads with Tesla Inc (Nasdaq: TSLA), and Goldman Sachs was the latest to take a turn. Even after TSLA stock has plummeted 15 percent in the past three months, Goldman says it sees 30 percent more downside ahead and predicts Tesla may need to raise as much as $10.5 billion over the next two years.
According to Goldman analyst David Tamberrino, Tesla will not be able to generate enough cash flow from Model 3 sales to avoid burning through its remaining cash. Tamberrino is one of several analysts who are skeptical of Tesla CEO Elon Musk, who said earlier this month that he has no plans to raise additional capital.
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In the first quarter, Tesla reported a net loss of $784.6 million. The company has said gross margins on its Model 3 sales will be “highly positive” in the second half of 2018, and Musk has said those margins would hit 25 percent by the end of the year.
Tamberrino says Tesla will need a much larger cash cushion than the $2.7 billion it reported at the end of the first quarter.
“We believe this level of capital transactions may be funded through multiple avenues, including new bond issuance, convertible notes, and equity,” Tamberrino says. “Our preference is to express long views via the front-end convertible credit — and we continue to express a bearish view on the equity.”
In March, Moody’s Investors Service downgraded Tesla’s corporate family credit rating from B2 to B3, a rating corresponding to non-investment-grade speculative debt.
Following its most recent earnings report, Moody’s analyst Bruce Clark said Tesla hasn’t made enough progress in its Model 3 production to avoid raising capital.
“We continue to expect that Tesla will need to raise new capital approximating $2 billion — in the form of equity, convertible notes, or debt — in order cover a cash burn during 2018, and to refund a total of $1.3 billion of convertible debt that matures in late 2018 and early 2019,” Clark wrote.
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While Tesla may not have trouble getting access to the capital it needs, the cost of that capital could be a problem. Bond investors expect higher interest rates on more speculative debt, and equity offerings dilute existing shareholders and tend to drive stock prices lower.
Goldman Sachs has a “sell” rating and $195 price target for TSLA stock.
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Analyst Predicts Tesla Inc (TSLA) Stock Will Fall Under $200 in 2018 originally appeared on usnews.com
