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Tesla shares soar in IPO

Investors push the electric sports car maker's stock up more than 40% in its first day of trading. Many potential roadblocks to the company's success remain, analysts say.

June 30, 2010|By Tiffany Hsu, Los Angeles Times

Wall Street found a new darling Tuesday in Tesla Motors Inc., an electric sports car maker whose shares surged more than 40% on its much anticipated first day of trading.

Shares of Tesla, the first American automaker to go public in more than half a century, shot up $6.89 to close at $23.89 despite a plunge in the global markets. The Palo Alto company has yet to post a profit since it was co-founded by Internet entrepreneur Elon Musk in 2003.

Still, investors snapped up Tesla shares amid what analysts said was more hype over the first public offering by an electric car maker than the potential for it to alter the auto industry. The offering was the first from a U.S. automaker since Ford Motor Co. went public in 1956.

Wall Street's eagerness won't necessarily translate into a smooth road ahead for Tesla, said Jacob Grose, a senior analyst with emerging technologies research and consulting firm Lux Research in Manhattan.

"By no means does a successful IPO mean that Tesla will be the next GM or Toyota," Grose said. "The company still faces a number of challenges and is still losing tremendous amounts of money."

Tesla will require much more investment and time before investors see a return, other analysts said.

"There will be some regression over time as the enthusiasm is tempered by reality. This is a chapter in a longer story," said John Gartner, a senior analyst for Pike Research, which focuses on clean technology.

For now, it was a good start for electric vehicle advocates and Tesla, which wants to elbow into competition with major automakers while expanding beyond its luxury niche market, where it currently sells limited numbers of $109,000 Roadsters. Tesla has sold just 1,100 of the vehicles (buyers include actors George Clooney and Matt Damon) since they were introduced in 2008.

Before the public offering, Tesla and its shareholders sold 13.3 million shares, raising $226 million. The company said in a Securities and Exchange Commission filing that it would use the proceeds to produce the $57,000 Model S sedan, with sales beginning in 2012.

The public offering "was a great opportunity for Tesla to get their name back out there as a mover and shaker in the electric vehicle space," Gartner said. "They had started slipping off some people's radar, but this will get them back in the conversation."

In recent months, Musk, Tesla's chief executive, has been in the headlines more than his company. Musk, who made his fortune by selling electronic payment system PayPal Inc. and founded Hawthorne-based spacecraft-development company Space Exploration Technologies Corp., has been embroiled in a bitter divorce with novelist Justine Musk.

According to divorce papers, Musk now claims he is broke and his friends are paying his living expenses. He has said in the past that he has sunk millions of his own dollars into Tesla.

Musk, who rang the opening bell Tuesday on the Nasdaq market, did not return calls for comment.

Analysts questioned whether Tesla had the experience to mass-produce a car. And the company would still face uncertainty over whether the general public would be willing to make the switch to electric vehicles, they said.

"It's still a very open question whether electric vehicles will be adopted on a large scale," said Grose, the Manhattan analyst. "They're expensive, there are safety concerns and they require behavioral change from people used to pulling to a gas station and not really thinking about it."

The Model S will be able to accelerate from zero to 60 mph in under six seconds and will have a range of 160 to 300 miles on a single charge, according to the company. And it will qualify for a $7,500 tax credit.

Tesla will begin making the sedan next year after it reopens the New United Motor Manufacturing Inc. plant in Fremont, Calif., formerly operated jointly by Toyota Motor Corp. and General Motors Corp.

Toyota bought $50 million worth of stock in a private placement, giving the Japanese automaker a 3.6% stake in Tesla.

But Tesla still has to renovate the factory, train workers, install equipment and deal with glitches, a process that has caused delays for Irvine-based Fisker Automotive with its plug-in hybrid luxury sports sedan, analysts said.

And even if Tesla manages to get the Model S on the road "in a timely fashion, we're still talking two years before they sell cars and make money," said John O'Dell, a senior editor at auto information and pricing company Edmunds.com.

"It's all the hype that's been built up, the first-day craziness," he said of Tuesday's stock surge. "I would not take what's happening as a referendum on the EV market overall."

tiffany.hsu@latimes.com

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