With its 2010 IPO finally official, Tesla Motors Inc. (TSLA) has put the rubber to the road today and is trading public stock for the first time. Equity investors seem to be eager for a piece of this public IPO based on news this morning that demand for shares is high and that the offering is trading above initial pricing levels.
The Palo Alto, Calif., company announced Monday it was offering 13.3 million shares at $17 per share. The deal will raise $226.1 million for the hip electric vehicle, or EV, maker. That $17 per share figure actually is telling, as it is higher than the original estimate for a share price of between $14 and $16. Higher still is the increase in the number of shares in this IPO by about 20% over original estimates. The larger-than-expected number of shares at a higher-than-expected price show just how much the Street believes in Tesla as a viable IPO.
From Tesla’s point of view, it will likely use the capital to help fund operations and to expand its retail sales network. Tesla has 12 stores now and expects to have 50 by 2012. And unlike the traditional auto industry model of having franchised dealerships, Tesla plans to take direct control over its sales and service network.
Tesla will also likely use some of that capital to help fund the rollout of its next-generation EV called the Model S, a luxury sedan slated to become available in 2012. Right now, the company’s sole offering is its Roadster model, which comes equipped with a hefty $109,000 price tag. The Model S is expected to cost less than $50,000 after federal tax credits.
Nothing fires up the engines of the green crowd more than the thought of a high-performance, all-electric automobile, and that’s one reason why Wall Street is buzzing today about its newest high-profile IPO. But another big reason why Wall Street likes Tesla is due to the proven track record of CEO and majority shareholder Elon Musk. The charismatic 39-year-old is best known in investing circles for creating online payment company PayPal. Musk sold the company to eBay (EBAY) for $1.5 billion in 2002. Prior to the PayPal deal, Musk sold online directory provider Zip2 Corp to Compaq for $300 million. He then went on to invest and create private rocket firm SpaceX, solar provider Solar City—and of course, Tesla.
The Street certainly likes a winner, and Musk is no-doubt a man who delivers a winning results, so it should come as no surprise that Tesla is going to be one of this year’s hottest IPOs. The question for investors, however, is will Tesla shares continue powering up portfolios after the initial charge of the public offering runs down?
Certainly, the vanity aspect of investing in the green dream of a pollution-free car will appeal to some, but ultimately Tesla will have to make a profit if it wants to sustain investor interest. The same can be said about other alternative energy sectors such as wind power and solar.
Ultimately, profits will have to start rolling in to keep shareholders on board and buying.
Tesla has lost approximately $300 million since its founding in 2003, and the company has yet to post a profitable quarter. Moreover, Tesla doesn’t anticipate getting into the black until it begins selling the Model S in large volumes sometime in 2012. The capital raised from today’s IPO should help Tesla get several steps closer to that goal of profitability.
If you’re fortunate enough to have received some Tesla shares pre-IPO, then congratulations, you are likely going to be well rewarded by the keen interest in this hot offering. If, however, you are looking to establish a new position in this green-dream stock, it may be in for a long trip before you see profit-driven gains.