Tesla IPO Raises $226 Million
Tesla became the first major American car company to make an initial public offering (IPO) in more than five decades, raising an impressive $226 million selling 13.3 million shares of stock. The last car company in the United States to go down the IPO path? Ford, which became a public company all the way back in 1956. Pricing for Tesla stock settled at $17 per share, which was close to $3 per share higher than initially projected. Tesla representatives had stated prior to the stock offering that expectations were for a sale of between $180 and $200 million in total stock, which in itself represented an almost 50 percent increase over predictions made in January of this year.
The IPO marks a major turning point for the electric car company, which has seen its share of growing pains over the past 12 months as it attempts to expand its lineup of battery-powered vehicles and deal with the realities of the post-recession automotive market. In some ways, Tesla's strong IPO performance is surprising given that the company has yet to turn a profit, echoing the boom-like mentality that surrounded tech stocks at the dawn of the new millennium. In fact, first quarter losses for Tesla in 2010 amounted to $29.5 million, which when compared to the $55.7 million loss posted by the company for all of 2009 would seem to be an ominous sign.
Several factors appear to have swayed investors when it comes to the fervor surrounding the company's IPO performance and ostensibly high valuation (riding at close to 60 percent greater than a comparable car company based on net tangible assets). The first is a federal loan secured by Tesla in the amount of $465 million, which was sourced from funds designed to increase the number of electric vehicles sold in the United States by the year 2015. The second is Toyota's public support of the Tesla IPO, purchasing $50 million worth of shares and hinting that the two car companies could collaborate in the future on the development of a battery-powered vehicle. In combination with the confidence of several other high profile investors, as well as Tesla's prominent profile in the world of entertainment and celebrity, this grouping of circumstances surrounding the company appears to have painted a sufficiently rosy picture of its future from the perspective of the financial community.
The $226 million raised by the offering represents a much-needed cash infusion for Tesla, which is currently developing the Tesla Model S sedan to complement its Roadster battery-powered sports car. The Model S is a 'make or break product'? for the company, as it will be priced at close to half the MSRP of sole current offering in order to appeal to a demographic outside that of the rich and famous. The sedan is due to hit the streets for 2012 and is predicted to offer a battery range of 160 miles, which would represent a significant breakthrough for commercially available electric car designs.
The IPO has also proved to be important for Tesla CEO Elon Musk on a personal level. A number of the additional shares that made it to market were drawn from Musk's private holdings, who is in the middle of a costly divorce that some had feared would impact Tesla's stock valuation. Despite having sold some of his stake in the company, Musk and other senior Tesla employees are mandated by the terms of the loan provided by the U.S. government to maintain at least 65 percent of their current Tesla holdings for as long as 12 months following the release the of the Model S. The stipulation was made to ensure technological leadership and continuity during the development and manufacturing process of the company's upcoming vehicle.