Tesla goes IPO: Hype or Home run?

A Tesla Roadster is parked in New York's Times Square following Tesla Motors Inc's initial public offering at the NASDAQ market in New York, June 29, 2010. Shares of electric carmaker Tesla opened nearly 12 percent above their initial public offering price on Tuesday as investors bet that electric cars would define the future of transportation. REUTERS/Brendan McDermid (UNITED STATES - Tags: TRANSPORT BUSINESS)

Tesla Motors, the electric car manufacturer and maker of the $109,000 Roadster, entered the NASDAQ yesterday surpassing expectations and closing 40% up at $24 (from $17) during first day of trade while the Dow plummeted 230 points. Not a bad start.

At the same time, there’s been a lot of hype around this IPO mainly because it’s the first American car manufacturer to go public since Ford (1956) and because Tesla has become a poster child of the clean tech sector, bringing hope and promise to other green companies. But many claim that this is all just hype and merely false promises for the industry.

On the surface, it may be a great company and they are, undoubtedly, doing something very positive for the automotive industry (and ultimately the environment) but there are some major beefs and concerns about the company that undermines their current $2.2 billion valuation.

Here are a few:

Massive debt: Doing big things takes big risks and lots of money, understandable. But this company owes half a billion dollars (yes, that’s $500M) in debt. Even CEO Elon Musk was allegedly broke, according to recent divorce court filings, and has been borrowing money from friends. Borrowing money seems to be something these guys know way to well.

Far from profitable: Ok — points for honesty here but the fact that they are running at a significant loss and hemhoraging money should be a bit unnerving for an investor. This is from their S1 filing… ‘We have a history of losses and we expect significant increases in our costs and expenses to result in continuing losses for at least the foreseeable future. ‘

Made for the few: The Roadster and Model S sedan (coming up) serve a very, very small niche and simply don’t have the power to reach the masses. Not only because they are expensive but also because it requires a drastic change in consumer behavior –- a 4 hour waiting charging session after every 200 miles.

No significant competitive advantage: Marketing and celebrity publicity can help you make some noise but what happens when the novelty wears off and the big boys start producing similar products at significantly lower price points?

The concept of electric vehicles is nothing new but this is the first time we are seeing something with sex appeal driven by the likes of Brad Pitt and George Clooney. I give Tesla a  lot of credit for making something that has been historically unappealing into something innovative and very “cool” and shaking things up a bit in the automotive sector. I’m just not sure i’ll be buying any shares of TSLA anytime soon.


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