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Tesla's access to low cost capital means 'upward stock spiral': BofA analyst

·Markets Reporter
·2 min read
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Tesla (TSLA) shares are poised to closer lower on Monday, breaking their longest winning streak on record. The decline comes despite a price target increase to $900 from $500 at BofA Securities.

The stock is still up about 15% over the last 5 trading sessions after a massive run last year and strong vehicle deliveries for the 4th quarter of 2020.

Analyst John Murphy says the company’s access to no or low cost capital translates to accelerated growth and “an upward spiral for the stock.”

“It is important to recognize that the higher the upward spiral of TSLA's stock goes, the cheaper capital becomes to fund growth, which is then rewarded by investors with a higher stock price,” wrote Murphy in a note to investors.

Tesla raised capital last year through two offerings spaced about 3 months apart as the stock was rallying to new highs amid back to back quarters of profitability and inclusion in the S&P 500 (^GSPC).

The analyst says Tesla utilizes “its stock to raise capital through low-cost equity offerings in order to accelerate aggressive capacity buildout plans globally and drive units/revenue substantially higher, further cementing its status as the dominant EV automaker.”

A long row of unsold 2021 Model 3 sedans sits at a Tesla dealership Sunday, Dec. 27, 2020, in Littleton, Colo. (AP Photo/David Zalubowski)
A long row of unsold 2021 Model 3 sedans sits at a Tesla dealership Sunday, Dec. 27, 2020, in Littleton, Colo. (AP Photo/David Zalubowski)

“TSLA's hyper-growth is not necessarily self-funding, and really does not need to be when low cost capital is plentiful,” he added.

“Simply put, TSLA is a new disruptive (auto) company that may or may not be dominant in the long-term, but that does not matter as long as it can keep funding outsized growth with almost no cost capital driving capacity expansion,” wrote Murphy. He maintains a Neutral rating on the stock.

On Monday, Credit Suisse analyst Dan Levy doubled his price target on the stock from $400 to $800 based on “strong margins” and the company’s ability to raise capital.

Tesla shares were trading down about 5% by mid-session on Monday, breaking their 11-day winning streak as the overall markets opened lower.

Chinese competitor NIO (NIO) spiked to all time highs after unveiling its new sedan with a powerful battery pack over the weekend.

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