Can Tesla make it as an IPO?

Steve Henn Jun 29, 2010

TEXT OF STORY

Kai Ryssdal: Our last story comes with a bit of history attached to it. Today for the first time in 54 years, an American car company went public — offered its shares for sale to investors. The electric car maker Tesla started trading today under the ticker symbol TSLA. Did pretty well, too. On a day when the major indices took a drubbing, Tesla shares gained more than 40 percent from their offering price. So, obviously there was a pretty good amount of interest in both the company and the IPO itself.

Marketplace’s Steve Henn reports.


Steve Henn: One of the ways Tesla butters up reporters and investors is by putting them behind the wheel of one of their $100,000 dollar electric roadsters.

Khobi Brooklyn: This is our Bright Orange Roadster Sport. This car goes zero to 60 in 3.7 seconds.

Khobi Brooklyn, a Tesla PR exec, met me in the company’s Palo Alto parking lot. It’s ridiculously small.

Henn: I almost fell.

Getting into is like slipping into an electric body rocket.

Henn: OK, alright. So now we are going to test the zero to 60. Oh my God!

Henn and Brooklyn laugh

Henn: It works!

Tesla’s investors could be in for a wild ride too. Silicon Valley hasn’t seen many IPOs like this one in more than a decade.

Brett Arends: They had a Delorean in the “Back to the Future” movies. If they make another “Back to the Future” movie they should use a Tesla, because this is such a 1999 IPO.

Brett Arends is a columnist for the Wall Street Journal who’s studied this deal.

Arends: It’s very speculative, it’s got lots of glamour, excitement, you know, sexy names, sexy ideas.

But like the great high tech IPOs of the past, there is one thing Tesla’s missing.

Arends: Absolutely no profits. No profits to-date and no profits for the foreseeable future.

Before today, Elon Musk, one of Tesla’s founders, had run out of cash. That matters, because he had been one of the company’s main financial backers. Musk made a fortune building and selling PayPal. But in the past few months he’s had to borrowed $7.5 million from Goldman Sachs and even more from friends just to pay his own personal expenses.

Jacob Grose an analyst at Lux Research says starting a car company isn’t like launching an Internet firm from your basement.

Jacob Grose: You actually have to manufacture something, and the capital costs to do that are usually prohibitive.

So far Tesla’s sold just over 1,000 of its very expensive, handmade electric sports cars, many to celebrities like George Clooney and Brad Pitt. But its racked up close to $300 million in losses.

Today’s IPO and a big loan from the federal government will finance Tesla’s plans to bring a $50,000 sedan to market within two years. Tesla also has deals to supply electric power-trains and batteries to Mercedes and possibly Toyota. Tesla’s success on the stock market today isn’t just good news for the company. Silicon Valley venture capitalists were also watching closely.

Mark Hessen: This industry needs 100-plus IPOs a year to truly be a successful entity.

Mark Hessen is president of the National Venture Capital Association. In Silicon Valley, most start-ups depend on venture funding. VCs look to their own investors to raise cash. Those investors need a healthy market for IPOs to get their money back. But during the financial crisis that market for IPOs dried up. And Grose, the Lux analysts, says in the first half of 2009 only 13 companies went public.

Grose: It’s been really challenging that’s for sure. But when you talk about clean tech IPOs the market is starting to thaw a bit.

Still, any real recovery for initial public offerings looks pretty fragile. In the past few weeks, several other green-tech firms have postponed selling stock. But Tesla’s Elon Musk, who certainly needed the cash and pocketed more than $20 million today, decided to ignore the volatile markets and press ahead.

Musk: If one follows the day to day movements of the stock market, you are sort of asking to be schizophrenic. I don’t think one should get too wrapped around the axle if you will.

So maybe that means Musk isn’t taking Tesla’s $1.6 billion valuation this afternoon too seriously.

Henn: Just zip in front of that person.

But here in Silicon Valley, the question other entrepreneurs are asking is, “Has Wall Street really regained its appetite for risk or do the normal rules of the road simply not apply if you’re driving a Tesla?”

Henn: Woah! I just blew through a stop sign.

In Palo Alto, California.

Henn: No cops.

I’m Steve Henn for Marketplace.

Henn: I wonder if my insurance rates will go up?

Brooklyn: Yeah they might.

Henn: Normally, I drive a mini-van.

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