Morgan Stanley Sees $2.5 Billion Equity Raise for Troubled Tesla

(Bloomberg) -- Tesla Inc. could raise funds as soon as this year as Elon Musk’s company ramps up production and prepares for maturing debt, analysts at Morgan Stanley predict.

The company, whose stock has slumped 25 percent in the past six weeks amid a string of controversies, could raise $2.5 billion in equity in the fourth quarter from investors that have a strategic interest in its business model, Morgan Stanley analysts including Adam Jonas wrote in a note dated Tuesday outlining various possibilities.

Musk has repeatedly said Tesla doesn’t need to raise capital as the electric-car maker’s finances improve. Musk said last month he expects the company to generate positive free cash flow in the second half of this year, and become sustainably profitable for the first time in its 15-year history. He also said he expects to be able to use cash flow to repay around $900 million of convertible debt maturing early next year.

“Bulls may say that if Tesla generates enough cash,” it doesn’t need to raise equity, the Morgan Stanley analysts said. “In our view, it is far better for a company to raise when it doesn’t need to.”

The analysts said they don’t have knowledge of any specific transactions under consideration, offering the scenario as part of a forecast for an “event path” unfolding in the next several quarters that could result in Tesla’s share price fluctuating between $97 and $441.

Morgan Stanley reiterated the equivalent of a hold rating for the stock with a target price of $291. The shares fell 3.4 percent to $284.96 on Tuesday.

On Tuesday, Bloomberg News reported that the U.S. Justice Department had started an investigation over public statements made by Musk and the company. Federal prosecutors are said to have opened a fraud probe after Musk tweeted last month that he was contemplating taking Tesla private and had “funding secured” for the deal, only to later abandon the idea.

Tesla has also been hit by several executive departures, and Musk drew criticism for his decision to smoke marijuana on a comedian’s podcast this month. This week, Musk was sued for defamation by an English cave diver whom the Tesla CEO called a pedophile.

Morgan Stanley was among the advisers Musk had tapped for his plan to study taking the company private, a person familiar with the matter said last month.

©2018 Bloomberg L.P.