Tesla Motors (Nasdaq:TSLA) had a huge IPO on June 29, 2010, opening at $19 and closing the session up to $23.89. As of June 30, the stock is still climbing toward the $30 mark. American built and cutting edge, this car was just what the doctor ordered for individuals looking to get some of their money off of the sidelines and back in play. But will an investment in this new motor company sizzle or fizzle?
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In its preliminary releases Tesla has stated that it has not earned a profit in its first eight years since being founded in 2003. In fact, Tesla doesn't expect to make a profit until at least 2012.
However, the company still has a lot of things going for it. For one, the U.S. government is on Tesla's side, as evidenced by the $465 million in low-cost loans the Energy Department bestowed on the company as part of the Advanced Technology Vehicle Manufacturing Program. The government is also offering tax incentives for buyers of electric and alternative-fuel vehicles. These incentives will not offset the higher cost of the cars, but they do increase the demand for them. With higher demand, Tesla will either sell more cars, or could even charge a little more for the cars it does sell.
The current model on the road is a small sport roadster with a $100,000 price tag. In the current economy, I'm not sure how much more they can charge, but the Model S, which is scheduled to arrive in 2012, will be much cheaper. The Model S has an after tax-credit price tag of $49,900. This could be affordable especially since it is a much more practical vehicle. It also doesn't hurt that the Model S sedan looks great. (To read about hybrids and their potential gas savings, see 7 Hot Hybrids: Will You Save Money On Gas?)
On May 20, Tesla bought a stake in the New United Motor Manufacturing (NUMMI) manufacturing plant in Fremont, Calif. The move is a collaborative effort with Toyota Motors (NYSE:TM), the company's former owners, to produce electric vehicles and parts. This could be very beneficial for Tesla and Toyota; Tesla gets its own production plant and Toyota rakes in some much-needed cash. (You might also want to check out IPO Market Steady Despite Correction.)
For Tesla, the road to an IPO has been a bumpy one. As mentioned above, Tesla has not earned an annual profit in its first eight years since being founded in 2003. In July of 2009, Tesla reported $1 million in profit on $20 million in revenue for the month of June 2009. This was after selling 109 Roadsters. But as you know, stocks rely on future expectations, and Tesla doesn't expect to make a profit until at least 2012.
Additional challenges for Tesla include a tragic plane crash in February of 2010, which killed three employees including a senior electrical engineer, a senior interactive electronics manager and an electrical engineer. This was a tragedy both for the families of the crash victims and the company as it navigates development and design of its new line of cars.
Tesla Battery Suppliers
The Tesla Roadster, the only model on the road right now, runs on 6,800 lithium-ion batteries smaller than a AA battery. The actual supplier of the batteries has not yet been announced, but the company has revealed that it is a Fortune 500 company. For the Model S, Panasonic (NYSE:PC) is set to supply the high density cells.
As time goes on you can expect further competition in power generation for vehicles, or at least a little hype and exuberance. For example, Johnson Controls (NYSE:JCI) and Saft Advanced Power Solutions work together to produce power systems for electric and hybrid vehicles, and this could be a stock to watch in the coming weeks. Other smaller battery companies - such as Advanced Battery Tech. (Nasdaq:ABAT) or Ener1(Nasdaq:HEV) - could also see a jump as speculation and hype builds up
The Bottom Line
There will always be hype around new IPOs. For investors, the decision lies in whether to trade the IPO, make a longer term investment in the company or buy one of its suppliers. This is not the first battery-powered car, so try not to get caught up in the hype, and instead worry about whether Tesla is a company that will pay off for its shareholders. (Find out what happened to these transportation pioneers, check out 5 Dead Auto Brands And Why They Died.)
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