Tesla raises $5bn in capital and slips in European rankings

Equities 6 minutes to read

Peter Garnry

Head of Equity Strategy

Summary:  Tesla shares are cooling a bit in pre-market trading after a 7% gain yesterday on no news. The EV-maker is raising $5bn in capital extending its cumulative capital raise this year to $12bn as Tesla is experiencing increased competition in its two key markets Europe and China. While the equity market is pricing Tesla for perfection the October sales figures in Europe show that Tesla is slipping in sales ranking not even making it to top 10 on fully electric sales.


Tesla shares were up another 7% yesterday on no news extending this year’s gains to 662% as sales of electric vehicles has defied the overall plunge in new car sales due to the Covid-19 pandemic. As a result, Tesla is expected to grow revenue by 26% reaching $31bn and analysts expect 2021 to see revenue growth accelerating to 49% y/y reaching $46.3bn in revenue. With Tesla’s market value now at $608bn on expected free cash flow of $2.6bn in FY21 and revenue of $46.3bn analysts must ask themselves what they are not seeing that investors are apparently seeing.

To bolster its balance sheet and expand faster as competition is seriously heating up in both Europe and China, its two most important markets except for narrow California, Tesla has decided to raise another $5bn in capital making it the third capital raise this year and bringing the combined capital raise in 2020 to $12bn. The cash balance will get close to around $20bn after this capital raise providing enough resources to meet competition and expand the line-up. Shares are down 4% in pre-market on the news of the capital raise.

Source: Saxo Group

Does the rubber meet the reality of the road?

The bull case often includes self-driving technology eventually catapulting Tesla from an ordinary EV-maker to a company leasing on-demand autonomous driving cars to the consumer globally. On top of that the bull case also often includes extraordinary battery technology (we wrote about Tesla’s Battery Day in September) and a significant energy business.

Uber’s decision today to sell its self-driving technology is another sign that the dream of self-driving cars is far into the future as the technology is more difficult to develop than initially thought. The biggest challenge in autonomous driving is what is called ‘corner cases’, that is situations that happens rarely but often turns into life threatening events. Due to the rarity of these events that are difficult to generalize well in deep reinforcement learning algorithms.

While Tesla seems to be advancing ahead of the competition for now in battery technology, we find it unrealistic that Tesla will continue to have a lead on battery technology as most hardware applications have tendency to converge over time. In terms of the energy, it has lately delivered high growth rates increasing to $579mn in FY20 Q3 up 44% y/y but generating only $21mn in gross profit. In other words, the energy business has an attractive outlook but has not reached a scalability or technology inflection point where it is a profitable business for Tesla.

The most dramatic develop for Tesla in 2020 and something we have recently flagged on our morning podcasts is how Tesla has slipped in sales ranking in Europe. In October, the plug-in vehicles share of new passenger sales reaching 13% with fully electrics reaching a 6.5% share. This makes the European penetration rate of PEVs twice as high as China an almost five times higher than North America. The numbers are clear, if you want to become the biggest EV-maker in the world you must dominate the European or Chinese market. Tesla is playing abroad in these two markets and our view is that consumers will tend to prefer local consumer brands or foreign brands. That is bad news for Tesla and our nervousness seems to be proving right with Tesla not even in top 20 on plug-in sales in October in Europe and not even in top 10 on fully electric. Volkswagen’s ID.3 and Renault Zoe are dominating the sales ranking in Europe and while it may be a timing issue that Tesla has slipped out of top 10 it is a big worry. Especially, because Tesla is priced for perfection in equity markets.

Source: CleanTechnica

From a technical point of view, Tesla’s put/call interest ratio fell to 1.39 yesterday, the lowest level in three years. The ratio measures the outstanding put options relative to call options with the ratio typically above one reflecting hedging demand from institutional investors. The current level reflects the strongest bull skew in the options market in three years. If you combine that the recent sales numbers in Europe and the increasing competition, then clouds look darker than 12 months ago.

Source: Bloomberg
Disclaimer

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
Most of our staff in Singapore are working from home to help limit the spread of the coronavirus. We remain at your service on the details below. Thank you for your understanding.

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.