Tesla goes public. Mind the risk.

Posted by: David Welch on January 29, 2010

model s.jpg


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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Reader Comments

An Interested Party

January 29, 2010 07:28 PM

Of course you're making a pretty obvious mistake in your competitive analysis: none of the cars you mention compete with the Tesla products - they're all middle class vehicles. People with high net worth buy teslas as status symbols, and we currently have to wait MONTHS to get one. If Porsche or ferrari fields a similar product then that's something to consider.

Somniferous

January 29, 2010 07:56 PM

I give them four years, followed by a buyout for battery patent transfers; possibly continued as a stalking horse purchase.

Brad

January 29, 2010 08:01 PM

Tesla

Ed

January 29, 2010 08:21 PM

Great!

Costs 1/2 the price of a 2 bedroom house.

Why not lower the cost to the public, lose a profit on the hardware and make profit off of the energy supply. Solar power companies could supply the juice.

This would pseudo-model the next gen video game industry. The companies sold there game consoles to consumers, lost profit, then built revenue with the software. Look at how well they are doing now!

How about a solar power gas station?

Write your Boss =)

Outr8ged

January 29, 2010 08:33 PM

One good thing that Tesla has going for it is that it is partly owned by Daimler Group. If the company struggles as a standalone company, Daimler could absorb it, continue to market the cars under the Tesla brand, or leverage the technology for its Smart, Mercedes, and Maybach brands.

Jamie

January 29, 2010 09:27 PM

here you go...

tom

January 29, 2010 09:52 PM

I can't believe David Welch wrote this entire article without mentioning Fisker Automotive. Fisker is very similar to Tesla in that they are a startup company, received more than $500,000 in government loans and is competing head-to-head for the same market Tesla is going after. Fisker is actually farther along since they purchased a former GM plant in Delaware late last year.

Jack

January 29, 2010 10:22 PM

The problem is this - lithium ion batteries are not the way to go. They are expensive, and they wear out and must be replaced after only two or three years of regular use.

Myra Brown

January 30, 2010 01:20 AM

I dont get it...why has no one tried to manufacture an electromagnetic car????? Coasttocoastam had an article of a man who invented an electromagnetic car and took it to the 3 largest american car manufacturers and no one would sign w/it..i know money would be lost on the fuel issue because it used no fuel!!!!! hello cant anybody think outside the box.. Look at how much you are spending trying to get 1 car off the ground that most ppl cant afford.. do you know how fast E.M. cars would sell??? Hello whoever reinvents this idea will be in the same position as when the internet was first invented... Research the alternating current of magnets over long term use.. the research was amazing.. it is so frustrating to the public that everybody always has thier hands in our pocket an we must live w/substandard products unless we happen to be the top 3 or 4%.. How sad that we cannot move ourselves into the next generation due to greed... Nicola Tesla invented an E.M. car in the mid 1900's. There is no reason we cant find someone who has that same knowledge.. I pray you are still reading this because in my heart i believe the second generation of E.M. cars could be tireless!!! I beg you to seriously rethink this idea.. Electric is a scam for the way ppl live today.. Who will have the balls to step out of our dark ages of automobile manufacturing will go down in history... W.H.O. ???? Thank You so much for your time and may God touch your heart enough to do what would also help our earth... Take Care... Myra Brown

Mike Dielo

January 30, 2010 11:38 AM

Tesla is the only company to successfully design, engineer, build and market a 100% electric vehicle that has both excellent performance and useable range. The "S" now extends that technology and success. One can only hope that an established major automaker the likes of Mercedes, Ford, Mitsubishi, or ??? sees the advanatages and cost savings of Tesla's R&D and makes a successful bid to acquire this cutting-edge little company.

George Rupert

January 30, 2010 01:03 PM

Sorry to see the roadster go. While it will be difficult to get a bang for your buck on the IPO it still has to be tempting for electric car buffs. Maybe we should hang on to that buck and place an order.

Tom Mariner

January 30, 2010 02:00 PM

The Tucker concept reborn! Take an innovative engine (in Tucker, a helicopter engine) and shoehorn it into a body with some innovative features. Grab a bunch of venture money and then admit that you have built a bunch of prototypes, not a company.

I have developed embedded products for years and the one consistency is the management and investor underestimation of the effort needed to go from a prototype to a consistent production model.

Of course, in this case a half billion dollar gift covers up a lot of stupid development and management moves. But sooner or later, as the article states, Tesla has to produce a design that can be built, serviced, and sold, and kids that's way beyond the "early adopter" Ed Begley with more money than God and a mission.

But, I do have to admit that at least the Tesla folks have recognized that a vehicle like this is not just transportation -- the 0-60 time shows they understand the "yee haw" factor when that right foot goes down that translates into the "gotta have it".

And the practical experience with high tech batteries and induction motor control has got to generate some significant IP.

Djula Kuruc

January 30, 2010 02:22 PM

respect. my name is Djula Kuruc live in Serbia have a private company, taxi, because I do not have the possibility to buy this car if there is a possibility to somehow come to an opportunity to test, test this or any other of your vehicle? hoping appreciate your understanding in advance Djula Kuruc

m.r.

January 30, 2010 05:02 PM

'electric dreams'!

Mike from NYC

January 31, 2010 08:56 AM

Wishful thinking by Tesla to think that well-healed buyers will buy a $50,000 all electric vehicle in the numbers it needs to possibly make a profit.

I don't see how many people would spend $50,000 for a limited use vehicle. Perhaps in metropolitan areas, but in other parts of the country where longer distances are required to be driven to commute, the vehicle will not be seen as a very practical car.

Besides, where is the infrastructure to support powering these cars except in the buyer's garage? Will public, co-op and condo garages have the necessary facilities to recharge batteries? Or is this car limited to those who have private garages and the necessary electrical hookups to recharge the batteries?

I wish Tesla luck and those who invest in the company - they are going to need it.

Frank A NYC

February 1, 2010 08:48 AM

I'm sure they will lure the enviro elites like Al Gore, the Google CEOs and the Hollywood crowd. Institutional investors won't touch a company with this type of track record. The comparison to hybrid sales is very telling.

Leslie in Canada

February 1, 2010 11:26 AM

Why can't I buy a semi-affordable conventional sedan that looks this great?

Asad Hamed

February 1, 2010 01:25 PM

Seriously, by the looks of this company, it really looks like a bad investment. I have never ever heard of the Tesla, and now news is they want to sell shares? Bad times, the financial crisis has not even cleared out, and this company is looking for more investors. Bad move, it even smells fishy.

Julian in Jersey

February 1, 2010 08:59 PM

Short the IPO.

Paul (Vw)

February 1, 2010 11:11 PM

I haven't followed this to closely, but from press reports I've read, Tesla is putting their plants in expensive places in California. Is that necessary? Normally I wouldn't care, but with a half a billion tax payer dollars on the line...

Karl

February 8, 2010 04:55 PM

One thing's for sure- Tesla's engines definitely won't be sludging like Toyota's engines, right? Anyone can 'Google' this- ENGINE SLUDGE, and go to the consumeraffairs website about 'Toyota Engine Problems' and read them, correct? P.S. Don't forget to click on- 'Airbags' when you're at that site and read all of those complaints too! Thank You

Mini Cooper auto parts

February 10, 2010 12:34 AM

right way of Tesla to give anew car generation to this world ,to stop pollution and save the petrol too.
Thanks


MarkInDallas

February 16, 2010 03:09 AM

It's wrong to look at the Tesla S as a "limited use vehicle". If they can achieve close to their goal of 300 miles on a charge, there's nothing the Tesla S won't do that a normal 6 passenger luxury sedan does.

Who drives more than 300 miles without stopping for an hour?

Plus it will be higher performance than a gas car and cost practically nothing to maintain.

EVs like the Nissan Leaf will do only 100 miles on a charge, are the size of a Civic and cost $28,000.

Are you telling me the Tesla Model S is not going to be seen as a serious upgrade to that? This is going to be a hot car when they finish it, and anyone who can afford a Lexus or Jaguar is going to want one.

Claude Jones

February 21, 2010 05:40 PM

Around the turn of the 20th century there were just about as many electric vehicles on the road as gasoline powered. They went about 50 to 70 miles on a charge, not a whole lot less than the EV of today. The lack of a good battery killed them then and I suspect, unless there is a great breakthrough, the same thing will kill them today. Why not spend all this money, provided by taxpayers, to develop the Fuel Cell vehicle. It has much greater promise. And besides that we could eliminate large power companies which I would really love to see. A unit about the size of your present HVAC system could generate all the power you need. And think of this, you could eliminate all those ghastly power lines that are always going down in ice storms leaving you in the cold. We need to think future, not past. Tesla may be a beautiful car, but it doesn't stand a chance when the only people that can afford it are the top 3%. That isn't how Henry Ford became numero uno with his Model-T.

allinejore

February 24, 2010 05:40 AM

WOOOOOOOOOOOOOOOOO,its a very nice car,i like this car degine and color.Thanks to shear your thought about this topic Tesla goes public. Mind the risk.

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Want the straight scoop on the auto industry? Detroit bureau chief David Welch , Dexter Roberts and Ian Rowley bring daily scoop, keen observations and provocative perspective on the auto business from around the globe. Read their take on such weighty issues as Detroit’s attempt at a comeback, Toyota’s quest for dominance and the search for an efficient car.

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