Here's Why United Was Just Named America's Worst Airline
The Smart 401(k) Rollover Option That Almost Everyone Forgets
The long awaited Initial Public Offering (IPO) of Tesla Motors (TSLA) stock hit the market at $17.00 a share and it is up in a down market, trading between $18 and $19 throughout Tuesday morning.I say stay away. First and foremost, investors should take note of the fact that most IPO's end up as losing propositions. In the case of Tesla, which lost over $55.7 million last year and will lose more this year, the bleeding has just begun.
The car manufacturing business is very capital intensive and Tesla only hopes to stem the tide in 2012 when it projects a production run of 20,000 Model S all electric sedans for $50,000 each.
The car will enter the market at a time when every major manufacturer and many minor manufacturers will be producing a competing car for less money.
Tesla would not be moving forward without a $465 million loan from the Department of Energy. The initial public offering raised $226 million. That means that if you ignore the existing debt load and just count the new loan its debt ratio is starting off badly, going to get worse, and Tesla will need additional capital before too long.
I think it is overly optimistic that Tesla can bring to market a car that is not fully designed and has no working assembly line, faster than its competitors. There is also a chance that it will never happen.
The upside versus the down side. The upside is the "cool factor". The downside is everything else.
If you were starting a business, would you be comfortable when the competition was numerous, better financed, more experienced, sold a cheaper product in greater variety and more options? Where is the sustainable competitive advantage? There is none. The cool factor is even nebulous. If BMW created an electric 3 series model I assure you it would be plenty cool, and the Tesla is so expensive they are making it easy for BMW to do so.
The IPO was great for the investment banks underwriting the deal. Goldman Sachs Group Inc. (GS), Morgan Stanley (MS), J.P. Morgan Chase (JPM) and Deutsche Bank Securities(DB) all made money. Tesla now has working capital and money to pay interest on financing. Even day traders have a new toy to play with. However, investors that think they are getting in on something unique with a highly profitable future should think twice. Instead of juicing your portfolio, you could very well get shocked by this electric marvel.
| 3 years | |
|---|---|
| 4 years | |
| 5 years | |
| never |
| Yes | |
|---|---|
| No | |
| It will be acquired by Toyota. |
| $50,000 Tesla S sedan | |
|---|---|
| $45,000 BMW "3E" Elec. sports sedan |
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture and planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: He own shares and options of GS.
Goldman Earnings Sink After Buffett Dividend
Johnson & Johnson's Income Falls 23%
Burberry Shares Leap on Sales Update
Reader Comments (Page 1 of 1)
6-29-2010 @ 9:43PM
william lindblad said...
You make a good point. Ever hear of a Cord or Tucker?
Tesla is a very nice idea, but also the proverbial dead duck and anyone taking a chance on this has to be optimistic and fringe.
The concept of electric vehicles has been around for a long time and in fact, an electric vehicle set a land speed record on the Daytona beach - albeit that's a long time ago. Maybe I am wrong - it might have been a steamer? In any case neither technology went much beyond the early part of the 20th century although both have been actively pursued right up to the present day.
Problems that persisted in the electric area are very simple and that is the storage device. Batteries, up until the present day, have either been acid or alkyline. Better known as lead acid or Edison cell and both are heavy with limited duration. The exotic types of today are much lighter, but cost a great deal more and require exotic material to create and still only represent a 25% improvement. Plain and simple - there is no storage battery that can run, power and supply heat, air conditioning and lighting for any vehicle and still make it go 200 miles without a charge. So, whether it be a tesla, a beemer 3E, chevy volt or whatever anyone wants to call their product, nothing is going to be a consumer revolution until said product can produce 400 miles to a plug in charge and do so in less than 4 hours.
You know, you are really going nowhere. This type of thinking sounds great, but one has to keep in mind that the power comes from somewhere also. Hate to tell all, but that source is primarily coal.
Personally, I think Pickens has the right idea in Nat. Gas.
We go plenty! It will power vehicles too!.