Tesla fixes IPO share price at $17

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By Surojit Chatterjee | June 30, 2010 4:27 AM EST

US electric car maker Tesla Motors Inc. has priced its shares in its initial public offering (IPO) at $17 a share or above the price-band on late Monday, indicating that it has caught the attention of many green investors. Tesla is the first ever US automaker to go public since 1956 when Ford Motor Co. went public in 1956.

The Palo Alto, California-based company, whose shares are set to begin trading on the Nasdaq on Tuesday under the symbol TSLA, had also increased, Monday, the number of shares offered in the IPO, raising the amount by 20 percent to 13.3 million. The company had set the price-band of the IPO between $14 and $16 a share earlier.

The company, which makes $109,000 Roadster and boasts of clients like Brad Pitt and George Clooney, has reportedly raised about $226 million from the IPO. The IPO values Tesla at $1.33 billion.

The proceeds of the sale will go towards funding expansion of company outlets, ramping up its production capacity and for general corporate purposes, Tesla had said in an earlier regulatory filing.

The company had also said it will sell $50 million of its shares, in a private placement at the IPO price, immediately after the public offer expires. The purchase will give Toyota nearly 3 percent stake in the company.

The underwriters of the offering are Goldman Sachs, Morgan Stanley, JP Morgan and Deutsche Bank Securities.

Prior to the IPO, market analysts had expressed concerns about Tesla's financial health. Tesla had said last month that its first quarter loss widened 84 percent compared to the prior-year period. The company said it incurred a net loss of $29.5 million in the first quarter, wider than the $16 million lost in the first three months of 2009. Revenue was roughly flat at $20.8 million. The company has never posted a profit, and net losses, since its founding in 2003, stand at about $290.2 million.

Analysts also said it is difficult to predict Tesla's success till the company launches its much-awaited Model S, a sporty $50,000 electric sedan, and other zero-emission vehicles. Tesla currently makes just one vehicle, the high-end $109,000 Roadster sports car, which has found only 1063 owners as of March 31, 2010.

They also warned that Tesla is operating in a capital-intensive business and faces intense competition from bigger rivals such as General Motors Co. and Nissan Motor Co. While General Motors plans to introduce its Chevrolet Volt plug-in car in October, Japan's Nissan is preparing to introduce its Leaf lithium-ion battery powered hatchback soon. What's more, Tesla has just 12 dealerships to sell and service its vehicles, compared with more than 1000 Nissan dealers and thousands of Chevy dealerships in the US.

However, Tesla's IPO is not only significant in the sense that it's the first IPO by a US automaker since 1956 but also it's the first ever IPO by a US electric car maker.

Analysts said US automakers were roiled during the economic downturn in the past couple of years. General Motors Co., Ford Motor Co. and Chrysler Corp. were forced to downsize and sell off several auto brands. They were also hit by a slew of vehicle recalls. Hence, Tesla's IPO has come as a refreshing change.

"This is the first time in my lifetime I'm watching an American car company be formed instead of disappearing," said Ben Holmes, president of IPO research firm Morningnotes.com. "It's a first mover in a brand-new industry."

The success of Tesla's IPO also reveals the growing interest in green technology and battery-powered vehicles among clean energy investors. Though the electric car sales accounted for less than a half percent of the total global auto sales last year, the niche market has scope of growth in the US where stringent regulations on greenhouse gas emissions and fuel efficiency have persuaded automakers to roll out advanced environment-friendly vehicles, the analysts said. US President Barack Obama has set a goal of getting 1 million plug-in hybrids and electric cars on US roads by 2015.

However, all analysts concur that investing in an electric vehicle maker is a risky prospect.

According to Lux Research analyst Jacob Grose, Tesla's IPO will be looked as a "bellwether" as the company is "by far the highest profile electric vehicle startup." A failure would have eroded the confidence of Tesla's rivals like Fisker Automotive and Smith Electric Vehicles about their own IPO prospects.

"The investment is a risk for investors, but some risks pay off," said Jeremy Anwyl, CEO of auto industry tracker Edmunds.com. "Even if this doesn't turn out well for investors, it's good for the country that Tesla has gotten so much attention for its innovative efforts."

While Scott Sweet, senior managing partner of the advisory firm IPO Boutique claims that Tesla's IPO success can be attributed to a "cult following," Damon Vickers, managing director of the hedge fund Nine Points Capital Partners feels that buying a Tesla share is like buying a "lottery ticket." "If you had to judge Tesla right now purely on its financials, they're still in development," Vickers said.

But Tesla need not worry. Even if the company's books are in the red right now, it has found strong backing from people and institutions that can bail it out. Tesla's supporters include the Westly Group, Draper Fisher Jurvetson, Google founders Larry Page and Sergey Brin, German automaker Daimler and Abu Dhabi’s Aabar Investments.

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