Tesla Overhang Disappears But Negativity Increases

Calling Tesla a "polarizing investment" is putting it mildly. There is no middle ground as far as Tesla is concerned, either as a company or as an investment.

Two days ago, Tesla announced that they would raise $1.15 billion in combined equity and convertible debt (including underwriter option) in a secondary to meet its capital requirements for the next year or so. Post the secondary, Tesla will end up with about $4.6-$4.7 billion in cash and equivalents.

Tesla management has guided cash burn for 2017 to around $2.3 billion, which means the company will have about two years worth of cash going forward. Of course, if the Model 3 is delayed, it would mean cash burn could accelerate and the company would more than likely need another trip to the secondary markets.

The Street has also equally polarized Tesla, despite the secondary, with one analyst calling the raise "not enough" and reiterating his "Sell" rating and $160 per share price target. Another said it removes the major liquidity concerns/needs overhang and reiterated his "Buy" rating and $368 per share price target.

No matter how one chooses to view the convertible offering, the fact that Tesla is still (for the second time in a year) able to tap into the debt/equity markets is testament to how far ahead of the competition Tesla really is. There is no other company (mainstream or otherwise) that has made the inroads into the electric vehicle segment like Tesla has. Sure, the GMs and Nissans of the world all have their EV models, but none with the global brand recognition and scale that Tesla does.

In addition, Tesla is already making plans to launch/unveil the Model Y at some point next year. According to reports, the Model Y will be a crossover vehicle and will be priced slightly higher than the Model 3's $35,000 price tag. Production on the Model Y is slated to begin sometime in 2018 and will be off the same platform as the Model 3.

Just as big is the company's massive investment in the Gigafactory, which most investors tend to overlook, and is on track to become an incredibly large part of Tesla's future. The investment that the company is making into the Gigafactory (reportedly $5 billion) will provide such a big advantage to Tesla in cutting the cost of EV batteries that most other competitors could more than likely end up buying their batteries from Tesla rather than from internal or any other external source.

Think about that for a moment.

A GM electric vehicle or a Toyota EV powered by a Tesla battery.

It's not out of the the realm of possibilities by any means.

As far as I am concerned, I am a believer in the greener future that EV's in general and Tesla in particular have on offer to consumers.

I expect a couple of positive research reports from the sell-side shortly, although the negativity from the boo-birds will also be a constant, along with "help" from the kindly folks who have missed the ride in Tesla, along with the majority of the rise in the overall markets and thus will advise everyone to head for the hills.

Words to the wise.

(Long tsla, long and short options)

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