Tesla (TSLA) IPO: 6 Reasons Why I Wouldn't Touch It
Just over a year ago, Tesla Motor's controversial CEO Elan Musk was using down-payment orders for the company's $109,000 electric Roadster to pay the bills and keep the company afloat. A lot has changed since then, but not as much as you'd think, given today's $250 million IPO, give or take.
Sure, Tesla got a nominal investment from Daimler AG, a whopping $465 million U.S. government loan, and a $50 million investment from Toyota, along with a deal to acquire Toyota's newly shuttered NUMMI factory in Silicon Valley. That said, this public offering has so many red flags it's reminiscent of the Sirius IPO. It's surprising, really.
I'd even go as far as to say that, five years from now, if Tesla's market cap is anywhere near its IPO valuation of $1.5 billion or so, that can only mean one thing: that we're in the middle of a great big overhyped green bubble, as predicted in 10 Signs that 'Going Green' Is Just a Fad.
Regardless, here are 6 Reasons Why I Wouldn't Touch Tesla's IPO:
- So far, the company has built all of 1000 cars and generated roughly $100 million in revenue. Post IPO, according to my calculations, the company will have taken in more than $1.1 billion in capital, federal loan included. Assuming it's going to need all that cash to ramp up, if not more, well, let's just say breakeven's going to take a while ... a long while.
- Tesla's current plan leaves a one year gap, between canceling its current Roadster in 2011 and beginning to produce its $50,000-ish Model S sedan in 2012, when it will have nothing to sell. Maybe it can sell lithium ion batteries through its dealerships. Don't think so.
- The company has burned through over $230 million and lost money every quarter since its inception in 2003. And its burn-rate is only going to skyrocket as it ramps up to production volumes.
- Musk actually splits his time between Tesla and SpaceX, where he's CEO and CTO of the commercial space launch vehicle company that has a $1.6 billion contract with Nasa to produce the next space shuttle. He's also chairman of SolarCity, a solar panel installation company. Admittedly, he's a workaholic, but still, I've never heard of a company with so many challenges at such a critical stage having a part-time CEO.
- While I'm impressed with what Toyota accomplished at the highly-acclaimed NUMMI plant before GM abandoned it, it's a huge plant that costs a lot to operate in an expensive state in an expensive country. And Tesla has by no means figured out how it's going to make money executing its current business plan, shaky as it is.
- I do think the Model S sedan may be marketable at $50K, although Tesla isn't quite clear what it'll cost to make. In any case, especially in this economy, how many buyers can there really be for the six-figure electric Roadster that's essentially a novelty vehicle? And if it is in demand, guess what? There's already competition: Mercedes now has its SLS EV on sale worldwide, plus there's the former BMW designer's company, Fisker Automotive. That's serious competition.
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