Are These Upgrades Proof Tesla's Decision to Raise Debt Was the Correct Move?
Nothing can defy logical Wall Street valuations like a good story stock. And you'd be hard pressed to find a better story stock, and story teller, than Tesla (NASDAQ: TSLA) and its CEO Elon Musk. With production currently ramping up for its lower priced Model 3, the electric automaker is quickly approaching a critical make or break point in its short lifespan. The automaker's story comes with a significant price tag as producing automobiles is not an easy or cheap task, but with its recent debt raise one thing has become clear: Wall Street is still buying into the Tesla story.
Quickly after Musk acknowledged on Tesla's recent earnings conference call that the company would look to raise capital but wasn't considering an equity raise, it was confirmed that the automaker would opt to raise $1.5 billion in debt to help fund the acceleration of Model 3 production. If you're looking for a positive spin, the move to take on more debt protects shareholders from more dilution. The rule of thumb is, essentially, if you believe your company will be hugely successful long term you'd often opt for debt over sharing its lucrative future returns with more shareholders. Further, Tesla has already tapped the equity markets and diluted its shareholders a decent amount as you can see below.
Source: Fool.com
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As a result the target price of 46 € shows a slightly positive potential of 10.23% compared to the current price of 41.73 € for General Motors Corp.
