Tesla has big plans to expand production, and those plans cost money. A new report from Goldman Sachs analyst David Tamberrino says the electric car company might have to raise as much as $10 billion in the next two years to cover production costs for the anticipated Model Y, as well a new Gigafactory in China.
The report goes on to say that Tesla could “raise incremental funds” and refinance older existing debt, but these options may “weigh” on the company’s credit profile. While the company could issue bonds, convertible notes, or equity, Tamberrino writes, “issuing additional equity or convertibles at lower premiums would dilute current shareholders.”
For these reasons, he’s maintaining a “sell” recommendation for the company. The stock is down slightly this morning.
The report comes after a wave of Tesla news. Analysts were put off by the company’s most recent earnings call, during which CEO Elon Musk refused to answer analyst questions, opting instead for a discussion with YouTuber Gali Russell. Days after the quarterly call, Musk bought Tesla stock worth $9.85 million.
While Tesla has managed to lower its cash burn, it has still repeatedly missed production projections, much to analysts’ chagrin. On Tuesday, the electric car blog Elektrek published an internal Tesla email wherein Musk said it was “likely” the company would produce 500 cars this week. Then on Wednesday, The Soros Fund Management bought up $35 million in convertible notes from Tesla.
It’s worth noting that Tamberrino does offer an upside forecast. In the event that Telsa hits its targets, producing 5,000 Model 3 units per week in the second half of the year and ratcheting up to 10,000 Model 3 units per week in 2020, the company would probably be able to afford its expansion with debt. But given Tesla’s track record, it is difficult to predict whether those goals will be met.