Home > News & Commentary > Should you participate in a Tesla IPO? (GM, HMC, F, TM)

Should you participate in a Tesla IPO? (GM, HMC, F, TM)

Tesla Model S Sedan and Roadster

On Friday last week, high-end automaker Tesla announced that is was planning a $100 million IPO.  This will probably be one of the most anticipated IPOs of the year, as Tesla is the highest profile electric automaker, an industry that is already struggling to live up to expectations of rampant growth and mass acceptance. The question remains, should investors be interested in the growth potential, or should they run and hide from this highly speculative stock?

A lot has been sprung on investors with the release of the company’s S-1 as filed with the SEC to declare the intent to issue shares.  In August of last year, the company announced that it was profitable for the month of July, however it has yet to maintain profitability for a year or even a quarter.  The company is highly dependent on the continual stream of government incentives and the full drawdown of the DOE’s $465 million loan offer.  While President Obama has made alternative energy a top priority, nothing from the government should be taken for granted at this point with all the noise being made about deficit reductions.

The company’s flagship product, the Roadster, is slated to be discontinued in 2011 and a replacement will not be available until 2013.  And investors should be careful as small companies without infinite resources have a habit of missing deadlines.  The same caution should be applied to the forthcoming Model S sedan, on which it appears the company is pinning all its hopes.  The sedan, which few outside the company have driven, is expected to arrive in 2012 and would cost under $50,000 with a tax credit of $7,500.  This debut cannot be compared to the Volt, a ~$40,000 series hybrid sedan due next year, as the success (or failure) General Motors is not dependent on one car.

Bottom line is that, as with most IPOs, Tesla Motors’ stock will not be for the weak.  As we get closer to the (as yet unannounced) time when Tesla will actually sell the shares, we will get an indication of pricing and total IPO size, but right now this one feels a bit too risky for my blood.

Should investors crave exposure to companies heavily involved in moving the internal combustion engine into the 21st century, Honda (HMC), Ford (F) and Toyota (TM) spring to mind.  Honda has always been a champion of small, powerful and highly efficient naturally aspirated engines, and were the first automaker to sell a hydrogen powered car to the public (the Clarity).  Ford is championing their Ecoboost engines, which use turbochargers to gain class leading MPG while delivering great performance.  It may behoove investors to avoid Toyota until they work out their issues with this recall, however they are the leader in hybrid technology and have highly skilled engineering teams at their disposal.


Disclosure: Long HMC, no position in any other stocks mentioned


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