Wednesday afternoon saw Tesla announce the issuing of $1.4 billion in new shares in order to finance ramping up production of the Tesla Model 3. That's not surprising in and of itself, but in a curious bit of timing, it came after Goldman Sachs upgrade TSLA stock to 'buy' and that very morning.

Tesla's Palo Alto headquarters

While that rightfully should cause at least a moment of pause, given the well-documented shady practices in the financial sector, we wouldn't call it cause for alarm. The stock upgrade, which moved TSLA from 'neutral' to 'buy' with a six-month target price of $250/share (currently trading at around $210), came from Goldman Sachs analyst Patrick Archambault, who even noted that Tesla has been public about its need to raise capital to pay for the Model 3 ramp up — but seriously underestimated it at $1 billion. Goldman Sachs is a full service investment institution — not only do they manage the portfolios of individual investors, but they also handle public offerings from companies like Tesla (plus Twitter, Sears, Ford, Microsoft, and many others). These are all huge operations (Goldman Sachs has around 36,000 employees), not to mention separate departments.

That's not to mention that Goldman Sachs has had a long history with Tesla. The firm underwrote the Tesla Motors IPO in 2010 and has underwritten every one of Tesla's follow-on offerings (in 2011, 2012, 2013, and 2015).

So while it is possible there was some level of elicit colusion on the part of Goldman Sachs to provide a bump to TSLA stock right as they're about to reap several million in the latest expanded offering, we think the more logical conclusion is that it's merely a coincidence.

For reference, here's the Goldman Sachs note on the TSLA upgrade:

Putting in our reservation for the Model 3; upgrading TSLA to Buy

Source of opportunity

We upgrade shares of Tesla to Buy from Neutral with 22% upside to our 6-month price target of $250. While we believe the volume targets are ambitious, Street and investor expectations seem more grounded and following a 23% decline in the share price post the Model 3 unveil, we do not believe Tesla shares are fully capturing the company's disruptive potential. This combined with a more stable macro backdrop (relative to January/February) and increased confidence in Model 3 demand (from orders and our competitive benchmarking) drives attractive risk/reward. The company has publicly stated it might look to raise capital, and our detailed capex analysis points to capital needs of $1bn.


There are admittedly fewer visible catalysts than before, with the next Model 3 update potentially not until next year. We think the introduction of a mobility service is a possibility, though timing is uncertain as management comments on this have been limited. Ultimately we think the biggest fundamental near-term catalyst will be the ramp of the Model X. While progress appears to have been limited since the 1Q16 update (based on the cadence of April/May deliveries), expectations are low in our view with many on the Sell/Buy sides expecting a cut to Tesla's 80-90k delivery target. While we acknowledge this risk we view it as discounted and think any positive news on X production would strongly support the shares.


Our unchanged 6-month price target of $250 is derived from five probability weighted automotive scenarios plus stationary storage optionality, all of which embed a 20% cost of capital.