Shares of Tesla Motors Inc., an innovative electric-car maker, began trading today on the Nasdaq under the ticker symbol TSLA. At first glance, it may be surprising TSLA finished the day up some 40 percent: the Palo Atlo, California-based company has just one vehicle model currently in production; it has produced a net lost of $290.2 million since its founding in 2003; and there’s no guarantee the firm will get out of the red until 2012.
But Tesla’s CEO, Elon Musk, has a plan. The 38-year-old entrepreneur believes investors, with the right information, will see Tesla as a bigger opportunity than a risk. More specifically, as an investment, Tesla’s promise may hinge on 2012. That’s the year when the company expects to release its second vehicle, the more affordable, longer-range Model S. The 300-mile-per-charge electric car is set to be priced at $50,000 after federal tax credits — about half the sticker price of Tesla’s high-performance Roadster.
As the company went public today — the first time an American car company has done so since Ford Motor Co. had an initial public offering (IPO) in 1956 — Tesla’s IPO prices was $17, up 12 percent from what was expected. Even as the day showed weakness across the board, Tesla held steady, and was still up 10 percent through early afternoon. Shares finished the day up some 40 percent, a somewhat baffling showing, particularly given that, as noted above, the company has yet to turn a profit.
“A lot of people were puzzled about why we were going public without profits,” CEO Elon Musk. “The reason we are not profitable today is because we are in the midst of expanding with the Model S.”
But Model S expansion could be unplugged if shareholders don’t buy, and Tesla knows it. The day before going public, the car company increased the number of shares on offer by 20 percent, bringing the total to 13.3 million shares. Tesla is hoping to use this new equity to manufacture 20,000 Model S sedans each year at its new plant in Fremont, California.
Tesla hopes the promise of the Model S will encourage investors to buy its shares.
Tesla’s supporters could also play a role in convincing investors to plug their funds into the company. The electric-car maker recently purchased their Fremont plant from Toyota for $42 million as part of a deal that also has Toyota investing $50 million in Tesla. Tesla also has substantial support from the U.S. government, which provided a $465 million loan intended to help the company expand production of the Model S.
Why should we care whether Tesla succeeds or fails? America’s oil imports currently account for around half of the U.S. trade deficit. The electrification of cars and trucks is one way that, collectively, we could reduce our use of oil. Throw in some solar panels and wind turbines, and we may even get to the point where we’re running a portion of our cars not on oil from abroad or under the ocean, but on clean, domestic sources of energy. All prognostication aside, Tesla’s performance in the months and years to come will be a strong indicator of whether this outcome is realized.
The Tesla Model S is a good idea. Many vehicles including my Mazda B3000 pickup have a fule tank that holds around 15 gallons and gets about 20 miles per gallon of gas. If the Model S can travel for 300 miles before charging, that number is close to the miles I get from one tank of gasoline. The scary part however, is the after-tax-credit sticker price. $50,000 is still out of many persons’ price range when looking at the montly car payment. People who want to purchase one of these cars will have to look past the monthly bill and remember that their gasoline bill will be zero dollars. The cost of maintenance on the Model S is still unknown although oil changes would be a thing of the past as well as items such as spark plugs and wires, air filters, and radiator panel flushes. The new car buyer will have to pull out the calculator to see if the numbers add up to their advantage. For now, I’ll keep driving my little truck as I take care of my customers in the home repair business. Question: How about producing a Tesla truck?
RC