30 June 2010

Tesla Motors Shares up 40% after Initial IPO

USA Today

DETROIT — In what may be a 1990s-like blip of irrational exuberance, investors sent shares of unprofitable electric-car maker Tesla Motors soaring more than 40% Tuesday even as the overall stock market fell sharply.

Shares were issued at $17 for the initial public offering and quickly rose to about $19 when trading opened. By midafternoon, the price started climbing again to close at $23.89.

"It says a lot about opening-day speculation and hysteria," says John O'Dell, senior editor for Edmunds' Green Car Advisor blog. "It doesn't say a lot about Tesla. And I'm not sure it says a whole lot about the collective wisdom of the market."

The company raised $188.8 million, according to a filing with the Securities and Exchange Commission, after IPO expenses. The original stockholders — folks allowed to buy shares before they hit the Nasdaq market Tuesday — earned $22.5 million.

There is much skepticism that Tesla can be an automaker. In two years, the company has sold just 1,000 two-seat, high-performance Tesla Roadsters, which start at more than $100,000. It has just one prototype of its Model S sedan, aimed to be more mainstream at about half that price. The Model S is planned to go on sale in 2012, an ambitious timeline even for established automakers, let alone a maker of cars that run on batteries.

Tesla hasn't made money in its seven years in business and has just 12 dealerships nationwide.

CEO Elon Musk told CNBC Tuesday that if the company weren't trying to expand and weren't investing in the Model S sedan, it would be profitable selling the Roadster.

"People need to appreciate that if we were just making the Roadster, we'd be profitable," Musk said. "But we're in massive expansion mode.

"I think people at this point ought to be a little more optimistic about the future of Tesla," he said. "We've confounded the critics at every turn. At a certain point, people have to get tired of being wrong."

The U.S. government is betting that Tesla will beat the odds: It awarded the automaker a $465 million loan to help develop the roadster.

"It remains to be seen if American car buyers will be interested in a sedan with a claimed range of just 160 miles in an environment where car battery-charging is still a lengthy process and battery-charging infrastructure is very limited at best," says Jack Nerad, executive editorial director and executive market analyst at Kelley Blue Book's kbb.com. "Tesla Motors should get high marks for its progress so far, but the future still represents a steep uphill climb."

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