Tesla jumps afters earnings beat - but analysts don't believe one of Musk's boldest claims
But analysts are skepitcal of Tesla CEO Elon Musk's claim that the company won't have to raise capital in the first quarter of 2017.
Musk said on Wednesday the company's current plan didn't require new funding, after going back and forth this month about needing to raise money to fund the launch.
"Our current promotional plan does not require any capital raise for Model 3 at all," he said on Tesla's third-quarter earnings call, adding "that's different from whether we should raise capital or not to account for uncertainty, to have a larger buffer, and to sort of de-risk the business."
Wall Street analysts, however, remained skeptical and said they expected the company to hit the market for money sooner than Musk had suggested.
"Management asserted that it would not need to raise cash, but our model forecasts Tesla ending 2018 with $575 mln, which we think is too close for comfort," Cowen and Co analyst Jeffrey Osborne said in a note. He rates the stock "underperform."
Tesla said it planned capital spending of $1.8 billion for the year - about a fifth lower than the automaker's previous forecast - with just over $1 billion of the outlay coming in the fourth quarter.
Tesla said it had $3.08 billion in cash and cash-equivalents as of Sept. 30, compared with $3.25 billion at the end of the second quarter.
Kitchen sink effort
"The bulk of 2016's capital spending will occur in the fourth quarter, which likely leaves 2016 cash flow negative and Tesla needing capital market infusion in 2017," CFRA Research analyst Efraim Levy told Reuters.
"It was a kitchen sink effort to get the third quarter to look good ahead of the deal vote," he said.
Tesla ended the third quarter with positive free cash flow (FCF) of $176 million, but is FCF negative for the nine months ended Sept. 30.
Analysts, however, said the third-quarter profit - the company's second ever - and a forecast that it could turn a profit again in the current quarter would improve the odds of investors approving Tesla's deal to buy debt-laden solar panel maker SolarCity Corp.
"The positive optics in this print ... and likely lower-than-expected SCTY cash drain on Tesla may help improve investor sentiment, and therefore improve the chances of SCTY merger approval," Barclays analyst Brian Johnson said.
Tesla and SolarCity's shareholders are expected to make a final vote on the SolarCity deal on November 17.
Musk said on the third-quarter earnings call that if the merger is approved, he expects SolarCity to be cash neutral or "perhaps a cash contributor" in the fourth quarter.
Of the 20 brokerages covering the stock, 4 rate the stock "buy" or its equivalent, 9 a "hold" and 7 a "sell". The stock has a median price target of $205.
(Reporting by Tenzin Pema and Sayantani Ghosh in Bengaluru; Additional reporting by Narattam Medhora; Editing by Saumyadeb Chakrabarty; Danielle Muoio contributed to this report)