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Tesla Motors Set to Go Public

Written By Jeff Siegel

Posted June 25, 2010

Parked under the shade of a solid Red Oak in a Whole Foods parking lot, a radiant red Tesla Roadster caught my eye.

Completely electric and boasting a solid range of 245 miles on a single charge, I’m a huge fan and have contemplated getting one for myself in the very near future.

But after getting a peek at the company’s Model S sedan, I’m thinking about holding off until they start delivering this beauty — with a 300-mile range — in 2012.

This is the vehicle that Tesla announced it will now be manufacturing in California, thanks to a $465 million loan from the Department of Energy.

Tesla also announced earlier this year that it would be going public. The company plans to offer 11.1 million shares between $14 and $16 a share on June 29 — with $50 million of the stock immediately being sold to Toyota.

You may recall that, just last month, Toyota announced it wanted a piece of the electric car maker for $50 million…

Toyota reps said they hope the combination of the company’s expertise in innovation and Tesla’s entrepreneurial skills would help Toyota’s efforts in making alternative energy vehicles.

There’s been a lot of hype over the past few months about this IPO. After all, despite major hurdles, the folks over at Tesla produced a real game-changer with the Roadster.

Until the Roadster came along, most people saw electric cars as nothing more than glorified golf carts. And the major automakers certainly made little effort to disprove this image.

But Tesla did not accept the status quo of mediocrity and complacency. And their hard work should be applauded by both environmentalists and forward-thinking investors.

Of course, a lot has changed since the Tesla Roadster first started turning heads…

Today, we’re getting ready to see GM deliver the Chevy Volt and Nissan (NSANY.PK) deliver the all-electric LEAF, not to mention pretty much every other major automaker has an electric vehicle planned for a debut within the next 3 to 5 years.

Even if you question the early stages of electric vehicle development (cost, battery chemistries, etc.), make no mistake about it — electric vehicles represent the next evolution of personal transportation.

And investors are eager to get a piece of this burgeoning market.

But is Tesla the way to go?

There’s no doubt that an electric vehicle-related IPO can put the asses in the seats.

Back in September 2009, high-performance battery manufacturer A123 Systems (NASDAQ: AONE) soared more than 50% on its opening day, and kept heading north in the days that followed. For a lot of folks, it looked like A123 was unstoppable.

But around late January, reality started to set in. What once reached a high of $28.20 fell hard to well below $10 a share.

Today, the stock’s going for about $9.00 and has fallen to as low as $7.50.

Blind optimism gave way to the sobering reminder that the company has never really been profitable and has a boatload of competition coming around bend.

Don’t get me wrong. A123 does have its strengths: major deals with auto manufacturers and utilities; some pretty impressive backing (private capital and government support); technology that could make it a major player in a very short amount of time…

So make no mistake: I am by no means bashing the stock, and in fact I think at current levels it is trading closer to where it should be. Anything below $8.50 is a very attractive entry point right now.

Moving on to the Tesla IPO…

Will we see a repeat of the A123 story?

Hard to say.

Despite the exceptional press Tesla has received over the past couple of years, I don’t believe we’re seeing the same kind of early hype that we saw with A123. Moreover, Tesla’s going public at a time where the broader market can be very unkind to the unknown.

Yes, Tesla is no longer a secret, and its success in bringing the Roadster to the forefront of the transportation conversation was a major accomplishment — because they had the bite to back up that bark.

But the fact is the company posted a net loss of nearly $30 million last quarter and profitability is not around the corner.

What’s worse, Tesla’s going public at a time when some very notable alternative energy IPOs are getting pulled.

Citing “ongoing uncertainties in the public capital markets,” Solyndra canceled its plans to go public and instead decided to raise $175 million by selling secured convertible notes to existing investors.

And Chinese wind turbine powerhouse Xinjiang Goldwind Science & Technology also recently pulled its high-priced IPO, due to volatile market conditions.

Basically, the Tesla IPO (which will trade under the symbol TSLA on the NASDAQ), will be swimming upstream against a very hostile and unpredictable broader market.

It will also be the focus of many bearish articles from both reputable analysts in the space and your typical bashers who still haven’t figured out that you can actually make a lot of money in alternative energy. It really is quite pathetic to watch “investors” choose political and social philosophy over profits.

Nonetheless, I think anyone who counts Tesla out at this early stage of the game could be in for a surprise.

Personally, I don’t see how Tesla can maintain the $14 to $16 price they’re putting on this thing. As much as I love the company, it’s hard to justify that kind of price tag for this stock.

However, this is also not a company that should be counted out before they even get out of the gate.

Consider that Tesla’s Roadster debuted at a Santa Monica airplane hangar in 2006… At that time, hardly anyone was talking about electric cars — and most who were thought for certain that this little start-up would get crushed under the weight of GM, Toyota, and Ford.

But that didn’t happen.

And I can assure you that there were plenty of suits in Detroit, perched on their overpriced leather chairs, looking forward to watching Tesla fail miserably.

Today, the suits in Detroit (after the taxpayers bailed out their failing companies), are building their own electric cars in their factories.

It’s the beginning of something very, very big. And Tesla — despite all the odds that were stacked against them nearly five years ago — has successfully evolved and progressed.

To assume that such a company would fail now, when the marketplace is actually less hostile than it was five years ago, is not a safe assumption to make.

Yes, I have no doubt that this stock may be able to shoot out of the gate, but it’ll lose steam fast. Although when it does, we might see a more appropriate price for the stock. And it is then that we can re-evaluate.

Because one thing’s for sure: If there’s any company that can thrive in a negative, bearish environment, it’s this one.

We’ll have more on Tesla in the coming months.

Until then, if you’re looking for a solid electric vehicle play now, check out this little Chinese player that’s manufacturing both electric cars and the high-performance batteries for those electric cars.

To a new way of life and a new generation of wealth…

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