Tesla is not full self-sufficient enough to fund its growth ambitions, Morgan Stanley says.
Last week, after reporting a profitable quarter — marking the first time it has achieved two consecutive profitable quarters — Tesla said it would be profitable in “all quarters going forward.” The electric-car maker also said it has sufficient cash on hand to pay for $920 million worth of convertible bonds set to mature in March 2019 — the biggest debt payment in its history.
While Tesla is confident about its profitability and its ability to generate cash, Morgan Stanley says the company will still need more capital.
“We forecast Tesla 1Q19 free cash flow to be negative $600 million driven by a sequential decline in profit and working capital leakage,” said Adam Jonas, an analyst at Morgan Stanley. He pushed out his forecast of a $2.5 billion equity capital raise to the third quarter of the year.
Jonas sees Tesla’s full-year 2019 free cash flow as negative $246 million, up from his previous estimate of negative $809 million, saying he made the adjustment in large part due to a materially lower forecast for capital expenditures this year.
Tesla had $3.69 billion cash and cash equivalents on hand as of December 31, according to its newly released balance sheet. The company said its cash position improved by $1.45 billion in the second half of 2018.
Jonas noted that Tesla’s unstable executive group added risks for the company to achieve self-financing. The electric-car maker said during last week’s earnings release that CFO Deepak Ahuja would retire from the company for a second time.
“We do not believe investors will assume the company is fully self-sufficient without a more sustained period of execution,” Jonas said.
He reiterated his “equal-weight” rating and $283 price target — 11% below where shares were trading Tuesday. He added that believes Tesla is “fully-valued.”
Tesla was up 5% so far this year.
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