For all its ambitions to revolutionize the electric car industry, Tesla Motors has only posted a profit once, back in July 2009. It has released just one car (the Roadster), and sells 10 vehicles per week. And yet Tesla’s first day of public trading on the stock market has been an indisputable success.
Tesla Motors stock zoomed to $25 a share on its first day of trading, closing at $23.89, a fat 40.5% increase from its $17 offer price. The performance is remarkable given the otherwise sluggish day on Wall Street and significant for the 7-year-old electric car company headed by CEO Elon Musk.
But not all that surprising, according to analysts who have been following the California company.
“I kind of expected this. We’ve had a lot of momentum going into the IPO,” said Greg Dietrick, company specialist for SharesPost.
Tesla’s purchase of Toyota’s car manufacturing plant in Fremont, the decision to offer 13 million shares instead of 11.1 million, and the initial pricing surpassing investors’ high-end estimate of $16 all pointed to a strong start. The valuation–more than 5.5 times its net tangible assets–is well above the median 1.82 times for automotive companies globally, according to Bloomberg number crunching.
Dietrick said he understood how underwriters got to that valuation number but added, “I have a tough time getting to that number myself. There’s a lot of hoping and it’s a big bet they can get the Model S out on schedule.”
That’s a big if. Tesla recorded a net loss of $29.5 million
in the first quarter of this year, and the perennial startup believes
it will record net losses every quarter until the Model S sedan begins
rolling off production lines in 2012.
Tesla intends to use the $226 million from its IPO, along with with a $465 million government loan from the Department of Energy, to develop the Model S. The family sedan would be able to go 0 to 60 MPH in 5.6 seconds, travel 300 miles before on a single charge and then re-charge again in just 45 minutes at a plug-in station. It would seat seven passengers.
Tesla is working on manufacturing prototypes now. The company intends to begin manufacturing them next year, producing as many as 20,000 vehicles a year by 2012. At that point the company could turn a profit, according to its SEC filing.
The sedan would go for $49,000 after federal tax credits and compete against other electric cars including Nissan’s Leaf, which is available now and costs $25,000, and GM’s Chevrolet Volt car, which is expected to be available later this year for $35,000, after tax credits.
Sticking to the production schedule is crucial for both the company–which missed deadlines when rolling out its first sports car the Roadster–and CEO Musk.
The departures of Tesla’s last two CEOs were related to the slow production schedule. This time around, the board tied Musk’s stock options vesting to hitting production milestones through 2012.
Musk pulled in more than $15 million by selling shares today–a welcome payday, given his earlier pronouncement that he’s broke and living off loans from friends.
As for the impact of Musk’s divorce on the company’s finances, none is expected.
Under terms of the federal loan, Musk and other principles must retain 65% of their stock in Tesla for a year after completing the Model S project. Musk’s divorce proceedings won’t result in the combined stake falling below 65% or have a material impact on his ability to serve as CEO, according to filings.
In short, if Tesla can start making money once it has a reasonably priced product on the road, investors’ cash will be well spent. But if the Model S sells anywhere near the same rate as the $109,000 Roadster, Tesla’s stock–and its reputation–will come crashing down.
Additional reporting by Lizette Wilson Chapman