Tesla up on surprise profit, reassurance on capital plans

October 27, 2016 9:27 AM EDT

A Tesla Model S charges at a Tesla Supercharger station in Cabazon, California, U.S. May 18, 2016. REUTERS/Sam Mircovich/File Photo


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By Tenzin Pema and Sayantani Ghosh

(Reuters) - Tesla Motors Inc's shares rose more than 5 percent in early trading on Thursday as investors welcomed the electric car maker's first quarterly profit in more than three years and its reassurance that the Model 3 sedan would not need new capital.

Tesla boss Elon Musk said on Wednesday the company's current plan didn't require new funding, after going back and forth this month about needing to raise money to fund the launch.

Tesla, whose shares have fallen nearly 16 percent this year, said its profits were helped by nearly $139 million in sales of clean car credits.

Tesla's shares rose to $213.40 in morning trade on Thursday.

Wall Street analysts, however, remained skeptical and said they expected the company to hit the market for money sooner than Musk had suggested.

"Management asserted that it would not need to raise cash, but our model forecasts Tesla ending 2018 with $575 mln, which we think is too close for comfort," Cowen and Co analyst Jeffrey Osborne said in a note. He rates the stock "underperform."

Tesla said it planned capital spending of $1.8 billion for the year - about a fifth lower than the automaker's previous forecast - with just over $1 billion of the outlay coming in the fourth quarter.

Tesla said it had $3.08 billion in cash and cash-equivalents as of Sept. 30, compared with $3.25 billion at the end of the second quarter.

KITCHEN SINK EFFORT

"The bulk of 2016's capital spending will occur in the fourth quarter, which likely leaves 2016 cash flow negative and Tesla needing capital market infusion in 2017," CFRA Research analyst Efraim Levy told Reuters.

"It was a kitchen sink effort to get the third quarter to look good ahead of the deal vote," he said.

Tesla ended the third quarter with positive free cash flow (FCF) of $176 million, but is FCF negative for the nine months ended Sept. 30.

Analysts, however, said the third-quarter profit - the company's second ever - and a forecast that it could turn a profit again in the current quarter would improve the odds of investors approving Tesla's deal to buy debt-laden solar panel maker SolarCity Corp.

"The positive optics in this print ... and likely lower-than-expected SCTY cash drain on Tesla may help improve investor sentiment, and therefore improve the chances of SCTY merger approval," Barclays analyst Brian Johnson said.

Tesla and SolarCity's shareholders are expected to make a final vote on the SolarCity deal on Nov. 17.

Of the 20 brokerages covering the stock, 4 rate the stock "buy" or its equivalent, 9 a "hold" and 7 a "sell". The stock has a median price target of $205.

(Reporting by Tenzin Pema and Sayantani Ghosh in Bengaluru; Additional reporting by Narattam Medhora; Editing by Saumyadeb Chakrabarty)



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