Tesla Stock Soars After IPO, but A123's Rise and Fall May Offer Lessons

Last Updated Jun 30, 2010 12:31 PM EDT

The excitement over the Tesla Motors IPO is contagious. But the giddy would-be investors who sent the stock soaring to $23.89 on Tuesday, its first day of trading, might want to consider what happened to the only other electric-car-related stock to go public in recent years -- battery maker A123.

Although, like Tesla, it was losing money, A123 was nonetheless riding high in 2009. It had a recently signed deal as battery supplier to Chrysler's hot new ENVI division, which was showcasing a sexy electric sports car along the lines of the Tesla Roadster. Plus, A123's batteries could boast of nanotechnology engineering that gave them a cutting-edge sheen. If you were smart, getting in and out early, you made money trading A123 stock. Launched at $13.50 in September 2009, it quickly soared to $20.29. But ENVI was a victim of Chrysler's bankruptcy and never plugged in. Today you can again buy A123 stock -- for $9.50. The company's batteries are going into the Fisker Karma, a high-stakes gamble that launches early next year.

People are now making money on Tesla stock, which trades above $27. But Tesla is also a gamble -- if the fact that the company has never made money (it lost $29.5 million in the first quarter) is relevant. The stock is trading on the Nasdaq Global Market as TSLA. Investors got in line to buy the 13.3 million shares offered (initially at $17), giving Tesla a market value of $2.22 billion. I had expected Tesla's shares to perform much as A123's did, and it's possible that they'll come back down to earth just as quickly as reality sets in.

The Motley Fool describes Tesla's IPO as "blazing hot," but it still recommends against buying the stock, urging investors to wait until the company is headed into the black.

I am ultimately bullish on Tesla. The company's partnership with Toyota is very promising, and a $465 million federal loan for the Model S will be a big help. The company's $109,000 Roadster is not vaporware, it's an exciting, innovative car that singlehandedly created buzz for EVs. (See my test drive of the Roadster here.) To date, it's the only plug-in car to have sold in any numbers.

But Roadster's sales -- 1,063 had been purchased as of March 31 -- appear to have slowed, and the company will finally face competition in the coming months from Fisker, Nissan (the Leaf) and Chevrolet (the Volt). Coda, Wheego, Think and others will also soon have plug-in cars on the market.

A lot rides on Tesla's more mainstream four-door Model S, which will sell for $49,900 when the $7,500 federal tax credit is factored in. The Model S has the potential to make Tesla a more mainstream automaker, and the company is describing it as a "platform" from which it can launch cabriolet, crossover SUV and van variants.

There's also an as-yet unnamed third model that promises to bring the company's glamour to entry-level buyers. But for now the Model S launch is soaking up all available cash, and that means profits will remain thin on the ground for the foreseeable future.

If I were the investing sort, would I put money on Tesla? Sure, why not -- a little of Elon Musk's risk-taking gene has probably rubbed off on me. But I think I'd wait until the dust settles before committing my cash.

Related: Photos: Tesla Motors
  • jim motavalli

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