Tesla Motors IPO: Don't Expect a Healthy Jolt to Your Returns

Last Updated Jun 28, 2010 5:31 PM EDT

Tesla Motors' six-figure battery-powered cars are becoming must-have items among rich and pious do-gooders who want to get around town in something sporty. You may not have $109,000 for one of their cars, but the stock, which will trade under the symbol TSLA, is expected to set you back a more modest $14 to $16 a share when Tesla's IPO is priced Monday afternoon.

The stock may turn out to be quite expensive too because Tesla is selling itself not as a carmaker but as a technology enterprise. The company is based in Silicon Valley, and it has some big tech names and big tech money behind it. Tesla's high-profile backers include Larry Page and Sergey Brin, co-founders of Google (GOOG).

Tesla's chief executive, Elon Musk, is a serial entrepreneur who made his fortune in such businesses as PayPal, the Internet payment system that is now part of eBay (EBAY). He may or may not still have that fortune; Musk is going through a divorce and says he's pretty much tapped out except for his Tesla shares.

In a recent pitch to investors, Musk said: "We are a Silicon Valley company, closer to an Apple or Google than to a GM or Ford in the way we operate the company."

Well, not exactly. Apple (AAPL) and Google make money consistently. Tesla, which was founded in 2003, has never had a profitable quarter, and its losses have been growing. In that way - it even got a big loan from the federal government - it's a lot more like General Motors and Ford (F).

Big Ideas, Not Big Bucks
Tesla's financial history also may seem familiar to those who remember the first wave of Internet companies that had their initial public offerings in the late 1990s. They too had earned nary a penny and were sold on the fancifulness of the concepts underlying them rather than on prospects of commercial viability.

Like them, Tesla has no profits, but it does have a plan. The company has a Model S on the drawing board with an anticipated sticker price of $50,000 that could be suitable to eco-warriors of more modest means.

The Model S indeed may be coming to a socket near you, and it may be a big seller. The problem for investors, however, is the same one they discovered too late a decade ago.

The Internet IPOs allowed ordinary folks the chance to own a piece of really cool companies in the early phases of their lives when such opportunities until then had been restricted to venture capitalists and other swells. As things turned out, small investors were buying the stocks retail and not at the bargain-basement prices that venture capitalists insist on.

Many of those Internet companies didn't survive, and few of the ones that did paid off in the long run for investors who bought their IPOs. Tesla's stock may have a better fate, but there's something about green technologies - faddishness, difficulty turning a profit - that recalls the failures of Internet stocks.

Not that this is a way to select investments, but the company's choice of namesake can't be a good omen. Nikola Tesla was a brilliant inventor, but he knew way more about making electricity than making money and died deeply in debt.

  • Conrad Aenlle

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