- Tesla announced its long-awaited $US35,000 Model 3 on Thursday.
- Buried beneath the headlines was an increase in the required down payment.
- One Wall Street analyst says this could help alleviate the need to raise cash.
- Watch Tesla trade live.
The announcement was accompanied by a bevy of other headlines, including Tesla shuttering “many” of its 378 retail stores and Musk’s belief that the electric-car maker likely wouldn’t turn a first-quarter profit.
But buried beneath the headlines was news that Tesla would increase the required down payment to $US2,500 from $US1,000, a move that could alleviate one of the biggest overhangs on Tesla’s stock right now.
Wall Street analysts have long questioned whether Tesla will need to raise cash this year to help fund projects like its China Gigafactory as the company has $US920 million of debt coming due in March.
“In our opinion, a capital raise could reduce many investors’ concerns about financial pressure during a critical time of market expansion and strategic partnership,” Morgan Stanley analyst Adam Jonas said in December, suggesting the automaker would need to raise at least $US2.5 billion to keep its investors happy.
Those comments came before Tesla’s fourth-quarter released at the end of January, in which Tesla said it has “sufficient cash to comfortably settle in cash our convertible bond that will mature in March 2019.” That contradicted a Bloomberg report from December that stated Tesla would pay the debt with a mix of equity and cash.
In a note to investors out Friday, Jonas suggested the increased down payment was a “pseudo-capital raise.”
“We don’t doubt that reducing the price point and cutting price could help pull-forward cash and delay a painful working capital outflow that may have otherwise accompanied an abrupt slowdown in production,” Jonas added.
“In addition to the support of working capital, Tesla appeared to raise the required deposit amount to $US2,500 (from $US1k previously). If orders jump by 100k units (which we believe is possible), that alone can pull in $US250mm of cash onto the balance sheet. While only 1/10th of the $US2.5bn we have forecasted Tesla to raise in the equity market in 3Q… it’s nevertheless a material sum.”
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