- Tesla shares were up more than 4% Tuesday after Macquarie initiated coverage with a $430 price target — more than 60% above where shares were trading.
- Analyst Maynard Um said Tesla is "uniquely positioned to emerge as the leader in vehicle ecosystem platforms" so long as it can clear its debt hurdle, and that the second half of this year is crucial.
- He says Tesla won't need to raise more cash this year.
- Not everyone on Wall Street agrees.
- Watch Tesla trade in real time here.
Tesla shares are surging Tuesday after Macquarie jumped aboard the bullish bandwagon, saying the electric-car maker is "uniquely positioned to emerge as the leader in vehicle ecosystem platforms."
The firm initiated coverage with an "outperform" rating and $430 price target — more than 60% above where shares were trading Tuesday.
Macquarie's note comes just after Tesla closed at its lowest level in more than one and a half years. Shares had plunged more than 35% since August 7, the day CEO Elon Musk tweeted that he had "funding secured" to take the carmaker private at $420 a share.
"We believe the auto industry is on the precipice of a multi-decade transformation driven by disruptive innovation and technology — the same dynamic forces that transformed many other technology industries," analyst Maynard Um said in a note sent out to clients on Tuesday.
"We believe those focused on the path to highly disruptive ecosystem platforms, including the necessary journey to electric & autonomous, will be the potential winners. We see Tesla as uniquely positioned given its lead in deep software platform integration into its electric vehicles and its position in autonomous with more than 8 million miles of real-world driving data per day."
But before it can get there, Um says Tesla must clear some very large hurdles — mainly the company's ability to repay its $11.5 billion of debt outstanding, which includes $920 million in convertible bonds that could become due if the stock price doesn't hit $360 by March 1 — and that the second half of 2018 will be a crucial period for the company.
He says its health coming out of that period will be determined by four key factors:
- Vehicle production ramp. Tesla has said it can ramp up production of its Model 3 sedan to 7,000 per week by year end and 10,000 per week by the middle of next year. Um says his model bakes in an average of 5,400 per week in the fourth quarter.
- End-market demand. The ending of lifetime supercharging could pull demand forward into the third quarter, Um says. He believes the coming reduction of tax credits in the US and the Netherlands could increase demand in the near term.
- Zero-emissions vehicle credits [and/or 4. Raising cash]. Um says Tesla could bring in $634 million of revenue in the back half of 2018 by selling its surplus of zero-emission tax credits.
"With a cash balance of $1.29 billion excluding customer deposits, our estimated free cash flow of $436.8 million through 1Q 2019, and over $1.2 billion in unused debt commitments, we believe the company should have enough cash to cover the aggregate debt coming due of $1.7 billion over the next three quarters ($189 million in Q3, $519 million in 4Q, and $1.02 billion in 1Q19)," Um concludes.
"While this would reduce the cash it has on hand, we believe this is enough to get Tesla over the hump to self-sustain without a need necessarily for an additional capital raise."
But not everyone agrees. Some analysts on Wall Street have been sounding the alarm on the need for more cash.
Alexander Diaz-Matos, an analyst at the credit research firm Covenant Review, suggested last month that Tesla could pledge intellectual property, similar to what Ford did in 2006, in order to provide "meaningful liquidity in a crunch."
And Morgan Stanley's Adam Jonas thinks the carmaker will raise $2.5 billion in the fourth quarter — even if it doesn't need the money — because it will be easier to do than when it's a dire necessity.
"We are increasingly of the view that the confluence of economic, competitive, regulatory, political, and technological forces may challenge Tesla’s status as a stand-alone entity," Jonas wrote. "Whether this results in a positive or negative outcome for existing shareholders vs. the current share price is much harder to determine at this time."