Oct 25 (Reuters) - Tesla Inc’s blockbuster quarterly results and ability to generate free cash-flow wowed Wall Street on Thursday, with several analysts saying the electric carmaker may not need to raise capital soon to boost Model 3 production.
The company’s shares rose 12 percent to $322.89 in premarket trading, putting the stock on track to add $6 billion to its market value.
The stock has been volatile in the past few months - it hit a record in August when Chief Executive Officer Elon Musk tweeted plans for taking the company private but slumped after he called off his bid weeks later.
Tesla reported free cash flow of $881 million in the quarter - the first time since the third quarter of fiscal 2016 - and Musk said the company will maintain that in the coming quarters.
Musk has been saying since May that Tesla does not plan to raise equity or debt, but most analysts have remained skeptical because of his failed promises in the past.
“Assuming R&D spending is not delayed and Tesla is not forced to introduce a lower price (Model 3) prematurely to maintain volume, Tesla could be self-funded,” Jefferies analysts wrote in a client note.
“The Tesla investment case is about growth, not free cash generation, so we expect cash to be invested in growth and support current leverage if Tesla demonstrates sustainably positive free cash flow,” they said.
Tesla reported profit of $311.5 million, or $1.75 per share, for the third quarter ended Sept. 30, compared with a loss of $619.4 million, or $3.70 per share, a year earlier.
Musk’s penchant for courting controversy with his erratic tweets put intense pressure on Tesla to convince Wall Street that the company could produce Model 3 cars in a cost-efficient manner and can indeed turn a profit.
“We believe the TSLA narrative is starting to change as the company transitions to becoming sustainably profitable,” Baird Research analyst Ben Kallo said.
While capital raise doesn’t seem strictly necessary for near-term operating purposes, it will be necessary at some stage to fund growth objectives, JP Morgan analysts said.
At least three brokerages raised their price targets on the stock. Of the 29 brokerages covering the stock, 10 have a “buy” or higher rating, nine on hold and 10 have a “sell” or lower.
The median price target was $316. (Reporting by Supantha Mukherjee and Jasmine I S in Bengaluru Editing by Saumyadeb Chakrabarty)