Tesla Announces its Biggest Capital Raise of $5 Billion Amid Sharp Rally

Tesla Inc, an American electric vehicle and clean energy company based in California, announced to raise $5 billion capital in new share sales to ease some future debt burden, taking advantage of its recent rally in stocks and soaring investors’ interest.

The largest company in the U.S. by revenue said in a filing with the Securities and Exchange Commission that the extra shares will be sold “from time to time” and “at-the-market” prices.

“We intend to use the net proceeds, if any, from this offering to further strengthen our balance sheet, as well as for general corporate purposes,” Tesla said, reported by CNBC.

This move comes just a day after a stock split of five-for-one brought into play. In February, Tesla had announced plans to raise $2 billion in a stock offering.

Tesla shares have gained more than 500% so far this year; it rose over 7% in pre-market trading on Tuesday.

Tesla stock forecast

Thirty analysts forecast the average price in 12 months at $278.84 with a high forecast of $566.00 and a low forecast of $17.40. The average price target represents a -41.54% decrease from the last price of $477.00. From those 30 analysts, four rated “Buy”, 15 rated “Hold” and 11 rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $272 with a high of $527 under a bull-case scenario and $102 under the worst-case scenario. Independent Research lowered their target price to $109.00 from $540.00.

Other equity analysts also recently updated their stock outlook. Canaccord Genuity raised the target price to $442 from $325, Jefferies upped their price target to $2500 from $1200 and Wedbush increased their stock price forecast to $1900 from $1800.

Analyst view

“We are positive on Tesla’s leadership across: EVs, Batteries & FSD and see an opportunity for TSLA to further penetrate these key TAMs. Why not OW? At its current valuation, we believe the market has already discounted a large part of Tesla’s growth potential. Further, competition in the EV market continues to intensify from traditional OEMs, startups & mega-tech firms,” said Adam Jonas, equity analyst at Morgan Stanley.

“We also continue to harbour concerns over the long-term efficacy of an auto business commercializing advanced tech that is economically sensitive within China. As Tesla expands production, they will likely need to raise more capital. While there is a strong appetite in the short-term, it will dilute shareholders in the long-run,” he added.

Upside and Downside risks

Upside: 1) Tesla China profitability surprises to the upside. 2) Europe Giga success Model Y margin accretion. 3)  Software margin accretion. 4) Tesla the Supplier? 5) Cybertruck – highlighted Morgan Stanley.

Downside: 1) May never make the leap to a shared mobility model, limiting itself to niche OEM status. 2) Execution risk / COVID-19. 3) The openness of capital markets to funding Tesla’s strategic ambitions. 4) Large & better capitalized technology firms emerging as competitors.