Posted by: David Welch on January 29, 2010
Tesla Motors CEO Elon Musk is finally preparing to take his car company public. On Jan. 29, Musk’s company filed for an initial public stock offering, which he has talked about as a possibility for a couple of years. He wants to sell $100 million worth of stock, which could help fund a new factory or some acquisitions as Tesla prepares to launch its Model S sedan in 2012. The company originally planned to launch the car in 2011. Tesla sells a $109,000 Roadster now.
A couple of things come to mind. First is the company’s profit history—or lack of profit history—and the risk it presents for stockholders. The company has lost $236.4 million on $108.2 million in revenue since its inception in 2004, according to its prospectus. The company also disclosed that it has not made money in any one single quarter. As an aside, the company bragged that it made a $1 million profit in July of 2009, but obviously couldn’t sustain it. Any investor needs to know that it will be difficult for an electric-car company to turn a buck, especially given the cost of developing lithium ion batteries and the power electronics needed to make these cars go.
The second issue is Tesla’s future sales prospects. Tesla is first to market with an electric car that uses lithium ion batteries. BMW’s Mini E came second and is only leased in small batches. The green crown eagerly anticipates the Model S. If Tesla gets the car to market, it would be much more usable that the two-seat electric Roadster. But green cars are still a very tough sell. After a decade of selling hybrids, they account for around 3% of the market in any given month. Toyota’s Prius is the only one that sells in volumes above 100,000 a year.
By the time Tesla is selling Model S, Nissan will have its Leaf on the market, boasting 100 miles of all-electric driving. General Motors will be selling the Chevy Volt. There will be a plug-in version of the Prius and a few other entries on the way all with green cred to sell. These cars will come from established carmakers with big dealer networks to offer customers many convenient locations for sales and repairs. Those companies also have long histories to prove that they will still be around to honor warranties. That’s a tougher sell coming from a startup that hasn’t made money. Tesla is backed by $465 million in government loans, which will keep it going while it develops its battery packs and the sedan. Another $100 million will just add to its liquidity.
The challenge will be selling enough cars to stand on its own in the long run. Tesla wants to sell 20,000 of the Model S a year at $49,900 apiece, it said in its public filing. It’s hard to see that happening. It took Toyota three years to get to that kind of annual sales clip with the Prius, and it sold for less than half the price.
Tesla was the first company since GM launched the EV1 to sell an electric car. That was an impressive feat. It will be even more impressive if they can make a buck doing it.
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