Tesla Motors IPO on Tuesday is giving investors and industry insiders much to talk about. Will shares rise during the first day over the announced price of $14-16? Will shares continue to rise or lose that value, much like last year’s A123 Systems offering? Will more cleantech companies be likely to file if Tesla’s IPO is a success?
While these are great story lines, in reality, Tesla’s raising of capital won’t mean much to the company’s future success or have a significant impact on future cleantech IPOs.
For a company that wants to sell tens of thousands of vehicles per year, the $178 million that Tesla Motors hopes to raise is a drop in the oil pan. Tesla is borrowing nearly 3x that much from the DOE to build the upcoming Model S sedan, and the offering represents a minority of the overall shares of the company. For Tesla to reach its goal of producing 20,000 Model S vehicles per year, it will likely have to acquire additional funding as the company had just $100 million in the bank at the beginning of the year, and with a burn rate of $3 million per month it will take $108 million just to get through 2012. That doesn’t include the additional costs from the planned expansion from 10 to 50 dealerships, as well as any marketing expenses related to the launch of its first mass market vehicle. Tesla Motors must also spend $116 million to produce the Model S and manufacture battery packs to get full access to the DOE loan.
Tesla Motors may need to rethink the pricing strategy for the Model S, which is supposed to sell at $57,500, or nearly $25,000 more than the Nissan Leaf. Yes, the Model S is a bigger car with longer driving range, but of concern to investors should be Tesla’s plans for producing up to 20,000 Model S cars in 2012. Pike Research estimates the entire U.S. market for EVs will only be 34,000 in 2012, and the Nissan Leaf and Mitsubishi I-MiEV will have a considerable advantage in coming to market sooner. When you consider that Tesla Motors has sold scant more than 1,000 cars in nearly two years in a market where the company was effectively alone, it will be a formidable challenge to sell 20,000 vehicles annually when contending with a field that will include fellow newcomers Coda Automotive and Fisker Automotive. If Tesla Motors significantly drops the price of the vehicle it may have difficulty selling the Model S at a profit, which would increase the challenge in finding other investors.
In its S-1 filing, Tesla also noted that the company is likely to see increased losses as it slows down production of the Roadster and transitions to start producing the Model S. The company got a reprieve of sorts in March when Lotus agreed to build an additional 700 chassis for the Roadster, which should carry the company into 2012 sales. But if the Model S doesn’t ship on time (a definite possibility), the company could face a period of dwindling revenue.
Tesla Motors may get a better deal on batteries thanks to partner Panasonic’s new manufacturing plant. This could boost opportunities for Tesla to sell complete battery packs to companies beyond Daimler, which is using Tesla’s technology for its Smart EV.
While Tesla Motors’ IPO is notable because of the scarcity of cleantech companies going public recently, we should expect more entrepreneurs to take the plunge in the coming months as the economy improves. Barring a wild swing (from either overly enthusiastic or skeptical investors) in the stock price, Tesla’s IPO will go down as just one necessary stop in the long journey towards building a successful enterprise. How the company recharges itself during the next few years will tell the tale.