Tesla set to rise another 16% amid signs it will use its high share price to raise funds, says BofA (TSLA)

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Location of the checklist

  • Bank of America on Wednesday raised its Tesla price target to $ 550 from $ 350, implying a rise of about 16% from Monday’s close.
  • Tesla on Tuesday announced plans to sell up to $ 5 billion in new shares, capitalizing on its recent rally.
  • The announcement “was proof of our thesis that TSLA will use its stocks to raise capital through low-cost stock offerings to accelerate aggressive global capacity building plans and escalate significantly units / revenues, thereby bolstering its status as a dominant automaker, ”analysts led by John Murphy wrote in a note.
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Tesla shares are expected to rise even more over the next 12 months following its $ 5 billion stock offering, according to Bank of America.

The company on Wednesday raised its Tesla price target to $ 550 from $ 350, which implies a rise of about 16% from Monday’s close. Tesla on Tuesday announced plans to sell up to $ 5 billion in new shares, capitalizing on its recent rally.

“In our view, yesterday’s announcement was proof of our thesis that TSLA will use its stocks to raise capital through low-cost stock offerings to accelerate aggressive capacity building plans in the world. ‘globally and driving significantly higher units / revenues, thus bolstering its status as a dominant EV automaker, ”analysts led by John Murphy wrote in a note.

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Tesla shares fell as much as 8% in intraday trading on Wednesday.

The new price target came as the Bank of America advanced its “sliding scale of valuation based on the theoretical growth opportunity offered to TSLA,” Murphy said. Bank of America reaffirmed its “neutral” rating on the automaker’s shares.

Bank of America said it sees Tesla using its high stock price to raise more money through the sale of stocks, which in turn stimulates cash that can be used to improve future earnings growth.

“It is important to recognize that the higher the upward spiral of TSLA’s stock, the cheaper capital is to fund growth, which is then rewarded by investors with a higher stock price,” said Murphy said. “The reverse of this dynamic is also true, and it is this self-fulfilling framework that seems to explain the extreme movements of the TSLA stock up and down. ”

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While “Tesla’s hyper-growth isn’t necessarily self-funded,” it doesn’t need to be as long as the company has access to plentiful, low-cost capital, Murphy said.

“Simply put, TSLA is a disruptive new (automotive) company that may or may not be dominant in the long run, but that doesn’t matter as long as it can continue to finance disproportionate growth at virtually no cost of ownership. capacity expansion ”. he said.

Tesla has gained around 435% since the start of the year.

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