It's time for Tesla to bite the bullet and raise a ton of cash, one analyst urged Thursday.
While investors are still in love with the stock, Tesla should forgo its pattern of nearly annual, medium-sized equity offerings in favor of a large offering that allows the company to stuff its coffers with cash, Morningstar analyst Dave Whiston told CNBC.
Whiston said he is sure that at some point Tesla will have to hold another equity offering to cover its capital expenditures, since the company has had one "pretty much every year since they went public."
A single, massive offering would give the company the cash it needs to protect itself from tough economic times, and fund its ambitious growth plan, he said.
"Tesla is still a very young company so you just want to see them protected against a downturn as much as possible," Whiston said. "So why not just do one big offering? They are still young enough that the market would forgive the dilution, and that way you take tail risk off the table, you eliminate the need to continually do these offerings every year — or at least eliminate the need to do one for many more years."
The company has a lot of major projects on the horizon that will require a lot of cash. Whiston ticked off the Tesla bus, the truck and a crossover vehicle known as the Model Y. Tesla is also building a much bigger Gigafactory than it had originally intended— and the company has said itself that it is going to need more Gigafactories.
So far, the company has been very good at getting partners and suppliers, such as Panasonic, to invest in the Gigafactory, where it hopes to begin making battery cells early next year. But a large pile of cash would protect the company if those sources dry up, he said.
At the end of June, Tesla had $3.25 billion in cash on hand, and said it expects to log another $2.25 billion in capital expenditures this year as it accelerates its Model 3 production schedule.
Tesla also has a relatively small count of shares outstanding, 145.9 million, compared with 4 billion for Ford, more than 3.3 billion for Toyota and more than 1.6 billion for General Motors, and Whiston expects the market would forgive the dilution of the stock.
"You go to the market when the market lets you, not when you want to," Whiston said. "Get the money while you can, while the market still loves your stock."