Tesla IPO
Research for Online Investors

by John Dalt

6/29/10

With the sour mood of the market today, why not write about something positive?  Tesla Motors (TSLA) went public at $17.00 per share.  TSLA raised approx. $202 million from the sale of 11.88 million shares.  Elon Musk, the founder, and other insiders sold an additional 1.4 million shares.  They (insiders) have also granted underwriters an option on an additional 1.995 million shares to cover overallotments.

The company is slated to sell $50 million in stock to Toyota (TM) in the next few days.  This sale was contingent on TSLA going public before the end of 2010.  Tesla bought 55% ownership in the New United Motors Manufacturing Inc. (NUMMI) factory in Fremont, California to manufacture their new Model S Sedan.  The factory was closed in April.  It was a joint venture between Toyota and GM.  After GM declared bankruptcy in 2009, they halted their share of production.  Toyota closed the plant in April 2010.  Toyota could not operate the factory efficiently at the reduced production rates supported by their needs.

The investment by Toyota in TSLA gives Tesla money to buy the tools and manufacturing equipment to bring the factory to life.  TSLA has sold 1,500 battery packs and chargers to Daimler for use in an EV (electric vehicle) version of the Smart Car.

TSLA is the first automobile stock to go public in the U.S. since Ford (F) in 1956.  Tesla has eleven retail stores and is planning on opening 50 more in the next few years.  Service is provided by their staff of “Road Rangers.”  They service the car on the owner’s premises.

The Tesla roadster retails for $110,000 and the new Model S sedan has a planned retail price of $50,000, production is planned to start in 2012.  The company has sold 1063 Roadsters in 22 countries and has orders for the 2,200 of the Model S, with a $5,000 refundable deposit.  Tesla plans to produce 20,000 cars in the first year at the factory.

Can Tesla sell 20,000 a year for $50 grand?

Tesla Motors has a $465 million dollar loan from the U.S. Energy Department to develop the Model S sedan.  They have drawn down $45 million of that loan as of June 14.  Tesla does not expect to turn a profit until 2012.  So far they have lost almost $300 million dollars.  They have generated $147.6 million in revenue in the past five years.

Elon Musk was the founder of PayPal, which he sold to EBay in 2002, and Zip2 Corp. which was sold to Compaq in 1999.

All the information in this letter causes me concern about the wisdom of buying TSLA.  They have never made a profit, they won’t make a profit for at least two years, they have to design and build a new car to make a profit, and the founder only owns 28% of the company going forward.  If it is such a great investment, why did Mr. Musk and other insiders sell stock?

There are a slew of companies you can buy with proven track records, that are profitable and pay dividends; why buy TSLA?

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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