Wall Street turned uber-bullish on Tesla en masse from the moment it became clear that Trump had secured another stint at the White House, helped along by the pivotal role played by Elon Musk in the presidential campaign. Now, a Jefferies analyst wants Tesla to take advantage of its ongoing stock rally, one that has seen its market capitalization soar above $1 trillion, to raise fresh capital.
Jefferies Raises $TSLA PT to $300 from $195 - Hold
Analyst Comments: "Tesla should take advantage of shares re-rating 30% back >$1trn since Trump’s election to raise equity. Assuming markets remain competitive, de-regulation raises the growth path but also the investment…
— Wall St Engine (@wallstengine) November 14, 2024
Jefferies analyst Philippe Houchois wrote in a new investment note:
"In recent days, Tesla shares have looked like a proxy for Elon Musk’s wider interests on expectations of de-regulation driving growth across separate businesses."
Although a broad-based deregulation would raise the EV giant's growth prospects, the analyst believes that it would also increase the capital requirements for Tesla and its competitors.
Moreover, while Tesla has funded itself quite successfully since 2019, 42 percent (or $9.3 billion) of its cumulative free cash flow (FCF) since then has been sourced from ZEV credits, which remain "a less secure source of funds if emission rules change."
Furthermore, as per the analyst's estimation, Tesla's current net cash position of $26 billion includes the $13.1 billion in capital that it managed to raise in 2019-20.
Accordingly, Houchois believes that a new capital raise should be a no-brainer for Tesla at the moment, especially as its shares remain particularly frothy:
"Tesla should take advantage of shares re-rating 30% back >$1trn since Trump’s election to raise equity."
The Jefferies analyst goes on to note:
"In the current environment, raising equity could probably be done 'at market' like in 2020 and could secure an edge as investment needs and competition step up across multiple business units, considering Tesla’s commitment to maintaining a low risk balance sheet."
Finally, do note that Jefferies has now raised its price target for Tesla shares to $300, corresponding to some downside potential as the stock is currently trading at the $327 price level.
"We lift estimates on a mix of software, ZEV and Storage more than auto. PT raised to $300 on higher earnings and growth, and lower discount rate."
Today's note from Jefferies echoes that of Bank of America from last week, wherein BofA analysts admitted that Tesla might see potential upside going forward vis-à-vis "the federal regulation of autonomous vehicles and FSD, which aligns with Elon Musk’s push for a national standard for self-driving."
Similarly, earlier this week, Wedbush's Dan Ives raised his target for Tesla shares by $100 per share to $400, arguing that the "Trump White House win will be a game changer for the autonomous and AI story for Tesla and Musk over the coming years."
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