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Tesla Motors Inc (TSLA) Must Go For One Big Equity Offering

Tesla Inc stock flies on china deal Model X Falcon Wing Doors

Tesla Motors Inc should forgo its pattern of nearly annual, medium sized equity offerings in favor of a large offering, which will allow the electric carmaker stuff its coffers with cash, told Morningstar analyst Dave Whiston to CNBC. On Thursday, he said that a single, big offering would give the automaker the cash it needs to fund its ambitious growth plan and protect itself from rough times.

Tesla Motors Inc (TSLA) Factory Freemont, California

Tesla will need a lot of cash for its projects

Whiston is sure that the firm will have to hold another equity offering to cover its capital expenditures at some time, since the automaker has had one “pretty much every year since they went public.” “So why not just do one big offering?”

They are still young enough that the market would forgive the dilution, and that way you take tail risk off the table, you eliminate the need to continually do these offerings every year — or at least eliminate the need to do one for many more years.”

What if partners back out?

As we already know, EV firm has many projects on the horizon, and they will require a good amount of money. The Morningstar analyst ticked off the crossover vehicle, which is known as the Model Y, the truck and the Tesla bus.  In addition, the electric car maker is building a much bigger Gigafactory than it originally intended. The automaker has itself said that it is going to require more Gigafactories, which in turn will require more cash and funds.

Tesla Motors Inc has been pretty good at getting suppliers – such as Panasonic – and partners to invest in the Gigafactory. The firm is hoping to start making battery cells in its Gigafactory early next year. Whiston said that a huge pile of cash would, undoubtedly, protect the automaker if those sources dry up.

Relatively fewer shares outstanding

Tesla Motors Inc had $3.25bn in cash on hand at the end of June. This year, it expects to log another $2.25bn in capital expenditures as it speeds up its Model 3 production schedule. In addition, the automaker has a relatively small count of shares outstanding, 145.9m. In comparison, the Ford has 4bn whereas Toyota and GM have more than 3.3bn and more than 1.6bn respectively. As per the Morningstar analyst, the market would probably forgive the dilution of the stock.

“You go to the market when the market lets you, not when you want to,” the analyst said. “Get the money while you can, while the market still loves your stock.”

In pre-market trading today, Tesla shares were in the red. Year to date, the stock is down over 3% while in the last one-year, it is down over 13%. The stock has a 52-week high of $271.57 and a 52-week low of $141.05.

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Aman is MBA (Finance) with an experience on both marketing and Finance side. He has work as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, playing PC games and cricket.