Larry Busacca/Getty Images for The New York Times Tesla CEO Elon Musk
- Tesla turned a profit in the third quarter, but many Wall Street analysts see a new funding round as pivotal for continuing the company's successes.
- Adam Jonas of Morgan Stanley says a $2.5 billion equity round could help "reduce many investors' concerns about financial pressure."
Tesla may have turned a profit on its most recent earnings report, but not all Wall Street analysts are convinced its sustainable.
With $920 million worth of debt coming due in March (and $11 billion in long-term debt looming behind it), Morgan Stanley sees a cash infusion of at least $2.5 billion in equity necessary to assuage nervous investors and help the company continue capital investments in things like a second Gigafactory in China.
"We acknowledge that in Tesla's most recent communications to financial analyst, they state the company does not need to raise capital and has no current intention of doing so, although they do not rule it out in the future" Adam Jonas, the firm's autos analyst, said in a note to clients Tuesday.
"In our opinion, a capital raise could reduce many investors' concerns about financial pressure during a critical time of market expansion and strategic partnership."
Read more: Tesla is reportedly planning to pay off its next chunk of convertible debt in an odd way
Jonas, who has an "equal-weight" rating for Tesla shares with a price target of $291, expects the company to report free-cash flow of $648 million for the current quarter, slightly below what it reported last quarter.
What's more, the "extraordinary efforts to delivery Model 3s before the end of the year" could drive that cash flow total "substantially higher," Jonas says.
"While we acknowledge the significance of Tesla's very strong 3Q result," Jonas said. "We do not believe investors will assume the company is fully self-sufficient without a more sustained period of execution."
Shares of Tesla are up 7.5% this year.
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