While some investors may be optimistic on Tesla’s Model 3 car release, a Citi Research analyst says the electric car maker still needs to address one major thing before he can get bullish: the balance sheet.

Tesla needs to raise billions of new capital by next year to overcome its losses, the bank’s analyst Itay Michaeli said in a note where he initiated coverage on Tesla with a “neutral/high risk” rating Wednesday.

“Tesla is currently free cash flow negative and we believe the company will likely require additional external financing to achieve operating objectives. An inability to access capital markets could place substantial strain on Tesla’s financial condition,” Michaeli wrote in the note to clients.

“We’re positive on Tesla’s position as a Car of the Future leader and view the upside case to still be significant, however, we prefer to wait for a better entry point … a stronger balance sheet, which in our view would more favorably tilt the 12-month risk/reward equation,” he added.

The analyst started his price target for Tesla at $357, representing 10 percent upside from Wednesday close.

Michaeli predicts the electric car maker’s cash balance will fall to $1.1 billion at the end of 2017 from $4 billion at the end of the first quarter due to Model 3 production costs and operating losses. He estimates Tesla will not generate positive free cash flow until 2019.

The analyst said the company should raise $5 billion in capital next year to have “a proper cash buffer.”

Tesla did not immediately respond to a request for comment on this story. Its shares are up 52 percent this year versus the S&P 500’s 10.5 percent return through Wednesday.

— CNBC’s Michael Bloom contributed to this story.