Posted on Saturday, 3rd July 2010 by James Martin

Tesla (TSLA)

It has been fifty-four years since the last time that an auto manufacturer went public with a stock sale and this week, Tesla Motors Inc. (TSLA: Charts, News, Offers) broke that dry spell. The Tesla stock was initially offered at $17 a share, but quickly zoomed up over 40% to $23.83 in the first day of trading. On Wednesday, only the second day of the Tesla stock, the price hit $30.42 before pulling back to end at $24.94.

Daily Chart

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Stock Analysis

Tesla manufactures cars, but not the traditional combustion engine type. Tesla is a pioneer in the field of electric car manufacture. Tesla hoped to raise over $50 million with the IPO, even though the company has lost over $300 million following the founding of the company in 2003.

There are many aspects of the Tesla story that do not seem to support all of the buying, beginning with the admission that the company has not been profitable in any quarter and that that it is losing cash every month. Furthermore, Tesla only sells one model of electric car – the Roadster. The Roadster is a high end ($100,000+) vehicle and is favored by many of the wealthy elite, particularly high-end actors who are on the forefront of the expansion of green technology. News reports about Tesla often point out that the Roadster is owned by people such as George Clooney and Brad Pitt, however only a little over 1,000 of the Roadsters have been sold worldwide – that does not seem to be the way compete with Ford (F: Charts, News, Offers), Toyota (TM: Charts, News, Offers) and General Motors.

Tesla hopes that the IPO will help to change all of that. The stock is being purchased on potential, specifically the potential of Tesla to use the increased cash in order to expand operations to develop and manufacture a second electric-powered vehicle, the Model S. The Model S will be sold for half the price of the Roadster, but the car will not be available until 2012. CEO, Elan Musk emphasized the fact that Tesla is pouring money into the development of the Model S and other electric car technologies, “A lot of people were puzzled about why we were going public without profits. The reason we are not profitable today is because we are in the midst of expanding with the Model S.” According to Musk, Tesla is expanding 3,000 percent over the next two to three years and “It’s just not possible for the company as a whole to be profitable with that rate of expansion.”

Most of those purchasing Tesla stock are not looking for dividends or quick profits. It seems that they are more interested in supporting an innovative company that is trying to change the paradigm in this country, particularly regarding our relationship with energy. Their altruism is admirable, but from an investing stand point, is there any proof that electric cars will be the next big thing? There are many different energy sources being currently developed by other manufacturers who are experimenting with fuel cells, natural gas, etc. Tesla has put all of its eggs in the electric car basket and getting significant support from the US government as a company in the pursuit of an alternate fuel source. Tesla has secured a $465 million loan from the US Energy Department while IRS tax credits support the purchase of the Roadster and will support the purchase of the Model S when it hits the stores.

It is possible that Tesla will become a profitable and that those who jumped on this IPO will see large profits in the future, but there is no guarantee. Tesla is a well-marketed product with some serious genius at the helm in Musk. But is the green fad and good marketing enough substance for a company that has sold only a thousand cars and has produced only one proven product? Time will tell, but this emperor might be marching in a parade without a shirt.

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