Tesla (TSLA) saw a surge in electric-car sales in China, while the automaker is taking advantage of its stock's meteoric rise this year to raise another $5 billion on the capital markets. Tesla stock rose.
Wholesale sales of new-energy vehicles, which include electric cars, soared 128% in November to 180,000 vehicles, according to media reports citing China Passenger Car Association data.
Tesla's Model 3 sedan was the No. 2 bestselling EV in China, the world's largest auto market, as sales jumped 78% from October to 21,604 units. It's second only to the joint venture of General Motors (GM) and Wuling, which sold 36,070 units of its $4,300 mini-EV.
Last month, Chinese regulators gave Tesla the green light to sell Model Y sport utility vehicles made in Shanghai in China. Tesla plans to start delivering its Model Ys in China next year.
China-based rivals reported November sales last week. Li Auto (LI) reported deliveries of 4,646 Li One EVs in November, up 25.8% from October. Nio (NIO) delivered 5,291, a 109% jump vs. a year earlier. Xpeng (XPEV) delivered 4,224, a 342% year-over-year increase.
A recent McKinsey report says the number of EVs sold in China could increase to between 2.4 million and 3.5 million by 2022 from 1.2 million in 2019. That's about 300,000 more than predicted before the pandemic.
Overall vehicle sales in China rose in November too, marking the fourth straight month of increases, helped by strong demand and government subsidies. Passenger car sales grew 8% to 2.1 million vehicles in November compared to the year-ago period.
It's been a tough year for automakers as the pandemic shut down factories and dampened sales early in the year. But as China got the virus under control, assembly lines returned to operation. And as the pandemic's spread slowed months later, sales began to recover. Now, as cases surge again in many parts of the world, automakers are depending on car sales in China to tide them over until vaccines stamp out the virus more effectively.
The Chinese industry group expects car sales to drop by 7% in 2020. But it's expecting growth of 7% in 2021. In the first half of the year, sales could jump about 30% because of easy comparisons vs. a year ago.
Analysts Hail Tesla Stock Sale
Shares reversed higher, closing up 1.3% at 649.88 on the stock market today. Tesla stock, which is an IBD Leaderboard stock, has rallied more than 550% this year. It hit a 25% profit-taking target at 557.50, according to MarketSmith chart analysis. The automaker has a Composite Rating of 99, while its EPS Rating is 76. Tesla's relative strength line is trending higher.
Among other electric-car stocks, Li shares jumped 5.8%, Nio stock rose 3.2% and Xpeng added 0.8%.
Tesla announced Tuesday it is returning to the capital markets to raise $5 billion. It's the third time this year Tesla is raising cash. The sale will be an at-the-market offering, which means shares will be sold over time at market prices.
Wedbush analyst Daniel Ives says the Tesla stock offering is another smart strategic move.
"This is in addition to the $5 billion raise from September and additional equity raises in a continued effort to build up its treasure chest and Cap Ex capabilities down the road," Ives said in a note.
He added that raising the capital "initially took the doomsday scenario off the table that Tesla was facing at the time and ultimately helped them navigate the build-out of the linchpin Giga 3 factory in China and enough time for the model to hit sustained profitability, which also earned them S&P 500 inclusion."
The capital raise is seen helping Tesla firm up the balance sheet to slowly get out of debt, "which throws the lingering bear thesis for Tesla out the window for now," Ives said.
Ives, who maintained a neutral rating on Tesla stock, has a price target of $1,000.
CFRA Research senior analyst Garrett Nelson called "the decision to do another equity offering prudent in light of the stock's meteoric run-up and Musk's ambitious plan to increase annual vehicle volumes by 40x by the end of this decade (from ~500K units this year to 20M) which will require copious capital levels."
