Investing.com -- Jefferies analysts said in a note Thursday that Tesla (NASDAQ:TSLA) should capitalize on its recent stock rally by raising equity, citing the company's significant share price recovery and the favorable conditions post-election.
Tesla's stock has rebounded 30%, bringing its valuation above $1 trillion, positioning it well for an equity raise. Jefferies writes, "Assuming markets remain competitive, de-regulation raises the growth path but also the investment requirements for Tesla and competitors."
Consequently, they believe Tesla could benefit from additional capital to support its expansion into high-cost ventures like autonomous vehicles and robotics.
Tesla has largely funded its growth internally since 2019, but the Jefferies report points out that 42% of its cumulative free cash flow since then has come from Zero Emission Vehicle (ZEV) credits, a funding source that may wane if emissions regulations shift.
Tesla's current $26 billion net cash balance is boosted by the $13.1 billion raised in 2019-2020, and, per Jefferies, additional funds could be raised "at market" under favorable conditions.
Doing so, the investment bank suggests, would reinforce Tesla's "low-risk balance sheet" amid intensifying competition across multiple business areas.
Tesla's expanding ventures—such as its Megapack storage systems—are becoming significant contributors to free cash flow, while further growth opportunities lie in battery advancements and FSD (Full Self-Driving) technology.
Jefferies highlights that while Tesla's reach into battery technology, robotaxis, and humanoid robots promises long-term growth, returns are not yet clear.
Furthermore, Tesla's unique position between China and the U.S. under the Trump administration could present both growth and potential governance challenges.
In response to rising growth potential, Jefferies raised its Tesla price target from $195 to $300 based on higher projected earnings, increased software and storage revenue, and a lower discount rate of 7.5%.