UBS: Tesla's new pricing strategy is setting it up to raise more money later this year

July 31, 2018

UBS: Tesla's new pricing strategy is setting it up to raise more money later this year

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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.
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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.