Tesla: Another US$ 750 Million Capital Increase

Tesla Model X

A capital increase again: around US$ 750 million going to Tesla. Whether this will help provide the cash needed to build the Gigafactory for batteries – which is said to cost up to US$ 5 billion – seems doubtful. The increase also left a bitter aftertaste, as Morgan Stanley was the underwriter (placed the shares) of the “spontaneous” capital increase and, at the same time, a new study by an in-house analyst raised the target to US$ 445 per share. Besides, it is interesting to note how the shares fell in between from over US$ 280 to around US$ 195 (intraday) because of a generally weak stock exchange performance. It may be that the shares were sold short before the capital increase, so as to buy shares up again (only what I suspect, no guarantee that it is true).

In the meantime, UBS analyst Colin Laghan downgraded the shares to Sell – and the stock price to US$ 210. As I, he finds it curious that requests for information on the batteries are called “reservations.” Quote: “Misleading.” And: Many analysts would often project their very positive assessment onto 2020 – but who knows what will happen then.

Additionally, the marketplace is getting more competitive. Plus: Daimler ended its battery supply contract and is now buying directly from Tesla’s partner Panasonic.

New products such as the SUV X model (priced at between US$ 132,000 and 144,000) are intended to accelerate growth. The first sales could be expected for the fourth quarter, so that one can be curious how great the losses for the third quarter and the cash reserves (at the end of June 2015, at around US$ 1.15 billion after around US$ 1.9 billion at the beginning of last year) will be at the end of the quarter.
Conclusion: I believe that with Tesla’s market cap of over US$ 32 billion, any – even a greatly positive – development will already be included in the current evaluation. Vehicle sales, especially of new electric car models (2016 will also make the US$ 35,000 version available on the market), should less be referenced by quantity but by loss per vehicle unit. Until now, analysts have placed their rating focus more on quantities than losses (second quarter: around 500 more units sold than expected, but at the same time a market cap increase of US$ 4 billion!?). And: A recent very positive consumer report suddenly upped the stock price by over US$ 4 billion, which shows how easily it can be “influenced” and how even analysts can neglect fundamental factors. I do not think that is healthy for business.

The relevance to fuel cells and hydrogen is there, since the efforts by Toyota, Honda und Hyundai have led an increasing number of manufacturers (Daimler in 2017) to work on fuel-cell hybrid vehicles based on hydrogen. They are becoming serious competition for Tesla, and various announcements (as Audi’s one in recent times) of direct e-car competition could make it hard for the company to achieve its growth targets.

My assessment: Sell/sell options with the expectation that the stock price will continue to be at a high risk of a downhill slide over the coming years – especially when there are more of the bizarre capital increases like the one mentioned above.

This post was written in September 2015 by Sven Jösting.

Note on risk
When investing in shares, every investor must make their own risk assessment, and ensure an appropriate spreading of the risk. The FC companies and/or shares stated here come from the area of small and mid-caps, which means that they do not constitute standard values and their volatility is far higher. This report does not provide purchasing recommendations – and no guarantees are made. All of the details are based on publicly accessible sources, and in terms of the forecasts they only represent the personal opinion of the author.

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