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Tesla Capital Raising Will Smooth, Quicken New Car Plans

Injection Of Money From Musk, Daimler Pleases Investors

Wannabe electric car manufacturer Tesla of California’s plan to raise up to $240 million in new capital augurs well for the company’s smooth transition from designer to actual producer of vehicles, investors said.

Investment bank Morgan Stanley said the two part move, to sell shares to the public, and a private placement of shares to current shareholders CEO Elon Musk and Daimler, takes some of the worry out of Tesla’s plans.

“The biggest risk for Tesla is exhausting available liquidity before they can ramp volume production. By raising $40 to $90 million more than the $150 million we had (expected) we estimate Tesla could withstand an additional three to six months delay in Model S,” Morgan Stanley auto analyst Adam Jonas said.

Tesla plans to start deliveries of the four-door Model S by the middle of next year. The Model X SUV prototype is expected by the end of this year, with commercial introduction by the fourth quarter of 2013, about six months earlier than initially expected. Tesla also sells battery packs and chargers to Daimler for its Smart and A class electric vehicles, and electric power-train systems for Toyota’s RAV4 EV.

Deutsche Bank auto analyst Rod Lache said it was a significant plus for investor confidence that Musk and Daimler stepped up to the plate to invest more money. Musk holds 26 per cent of Tesla now, and Daimler 7.2 per cent. Lache said before news of the new capital raising he expected Tesla’s funds to start running low by Model S launch time.

“We see this proactive offering as a positive from a risk standpoint, as well as potentially enabling an acceleration of future product launches,” Lache said.

Morgan Stanley’s Jonas agreed that the funding might enable an earlier launch for Model X than expected.

“Securing new permanent capital helps improve Tesla’s growth prospects while managing risk at the same time,” Jonas said.

Neil Winton – May 28, 2011

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