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Should Tesla Motors Inc (NASDAQ:TSLA) seize the Model 3 moment to raise equity?


As Tesla Motors Inc (NASDAQ:TSLA) celebrates soaring Model 3 preorders, a key question about capital is quickly dominating debate. Will the company’s available funds be enough or will the company need to raise fresh funds to finance the production? Tesla entered 2016 with $1.7 billion in cash.

Model 3 preorders are flowing in fast and furious. In the first 24 hours after opening preorders, Tesla had already received orders for 198,000 units. In just three days, Model 3 preorders rose to 276,000 units. Tesla looks poised to breach the 300,000 units targeted by analysts at Barclays by the end of June.

According to Tesla’s celebrity CEO, Elon Musk, they are targeting to generate a profit on non-GAAP basis in full-year 2016. As such, he expects cash balance at the end of this year to be higher than at the end of the last year. Musk further said that they plan to meet $1.5 billion of the capex for this year without seeking outside funding.

However, analysts are increasingly questioning Tesla Motors Inc (NASDAQ:TSLA)’s ability to meet its capital needs without seeking fresh funding. The growing orders for Model 3 have particularly increased the spotlight on Tesla’s capital need.

Tesla Motors Inc (NASDAQ:TSLA) is struggling with strained production capacity. Although the company is expected to start delivering Model 3 preorders by late 2017, there are worries that the deliveries could delay if Tesla doesn’t sort out its production challenges quickly enough.

Need for fundraiser

While the management is ruling out need for outside funding this year, Tesla could take advantage of the investor goodwill triggered by Model 3 strong orders to raise more money. Some analysts believe raising equity at this point when investors are showing excitement over Model 3 orders could have neutral net impact on Tesla’s stock price. Therefore, now is a perfect moment for Tesla to raise equity without the fear of scaring away investors with the prospect of stock price dilution.

Last August, Tesla Motors Inc (NASDAQ:TSLA) raised $642 million in the equity market by selling 2.7 million shares.

Neha Gupta

Neha Gupta has been in the financial space for over six years now. Gupta earned her MBA degree from Symbiosis Centre of Distance Learning in 2009 and her passion for finance led her to pursue Chartered Financial Analyst (CFA) course. She has successfully completed Level II of her CFA. She is a veteran in article writing, which is depicted in her numerous pieces published on SeekingAlpha, Nextiphonenews, InsiderMonkey, MarketWatch, and Techinsider. Her crisp and eloquent writing finds its best place in Researchcows, where emphasis is given on developing rich content for various websites, products, business plans, trainings, and book writing.

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