Tesla’s new pricing strategy is setting it up to raise more money: UBS

REUTERS/Rebecca
Cook

• UBS analyst Colin Langan suggests Tesla‘s
  newly-revised pricing strategy is intended to set the company
  up to raise more money in the fourth quarter.
• Tesla is scheduled to report earnings on Wednesday, and
  investors will be closely watching results and subsequent
  commentary.
• 
  Follow Tesla’s stock price in real-time
  here.
  

Tesla‘s newly-revised pricing
strategy isn’t just intended to boost its near-term probability —
it’s setting the company up to raise more money in the fourth
quarter, says UBS.

Tesla recently adjusted the down payment requirement for Model 3
ordering. Instead of forking over a $1,000 down payment,
customers are now required to submit a non-refundable $2,500
configuration deposit.

UBS analyst Colin Langan estimates this will soften the cash burn
reported by Tesla as part of Wednesday’s earnings report. More
specifically, the firm now expects a cash burn of $900 million,
compared to $1.1 billion in the first quarter.

Langan then surmises that the new pricing structure and resulting
reduction of cash burn is being done with one ultimate goal in
mind: to raise more money through capital markets in the fourth
quarter. He notes that Tesla has historically tried to achieve
profitability before tapping the market.

“If Tesla is able to take advantage of high average selling
prices (ASPs) in Q3 or Q4 it is likely they become profitable for
the quarter, and we would expect a capital raise to follow,”
Langan said.

While a capital raise would certainly assuage investor concerns
over Tesla’s liquidity in the long term, Business Insider’s
Matthew DeBord is skeptical about the company’s
upcoming earnings report.

He says the carnage could match
or exceed the first quarter, when Tesla lost $3.35 per
share, with revenue of $3.41 billion. With that in mind, DeBord
also argues that Tesla’s stock is likely to stay resilient in the
face of immediate selling pressure, just as it did following the
first-quarter report.

Tesla shares are down 7.4% this year. 

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