Tesla makes strong debut on Nasdaq; attracts green investors

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By Surojit Chatterjee | June 30, 2010 9:52 AM EST

US electric car maker Tesla Motors Inc. (NASDAQ:TSLA) made a strong debut on the Nasdaq on Tuesday. Its shares opened at $19, well above the price they fetched in the initial public offering (IPO).

On late Monday, the Palo Alto, California-based company had fixed the price of its shares in its IPO at $17 a share or well above the $14-16 a share price-band it had fixed earlier. Tesla had also raised the number of shares offered in the IPO by 20 percent to 13.3 million.

At 2:56PM (EDT), Tesla shares were trading at $21.89. In the morning session, the company's shares had dipped to the day's low of $17.54 but were still trading well above the price fixed for the IPO.

The company, which makes a $109,000 Roadster that it has sold to celebrities such as Brad Pitt and George Clooney, has raised about $226 million from the IPO on Monday night. The IPO values Tesla at $1.6 billion.

The company plans to use the proceeds of the sale for funding expansion of company sales outlets and increasing its production capacity as well as for general corporate purposes.

Market analysts had welcomed Tesla IPO with cautious optimism. They felt 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 1,000 Nissan dealers and thousands of Chevy dealerships in the US.

However, analysts concurred that Tesla's IPO is significant because it's the first ever IPO by a US automaker since Ford Motors Co. went public in 1956. It is also the first IPO by a US electric car maker and could be a "bellwether" as the company is "by far the highest profile electric vehicle startup," said Lux Research analyst Jacob Grose. A failure, Grose said, would have eroded the confidence of potential electric vehicle competitors for Tesla such as Fisker Automotive and Smith Electric Vehicles about their own IPO prospects.

Analysts also felt that Tesla's IPO was a refreshing change to the US auto industry which was in nearly terminal turmoil during the economic downturn 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.

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

Tesla has never posted a profit since its founding in 2003 and its aggregate losses have amounted to about $290.2 million. Nevertheless, analysts feel that the strong trading of Tesla shares on the NASDAQ indicated growing interest in green technology and battery-powered vehicles among clean energy investors.

Though electric car sales accounted for less than half a percent of the global auto sales last year, the niche has scope of growth, especially in the US where stringent regulations to reduce greenhouse gas emissions and to promote 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.

Tuesday's strong debut comes as good news to Tesla CEO and PayPal founder Elon Musk. Musk, who sold PayPal to eBay in 2002 for $1.5 billion, was under pressure to raise capital for the company whose books have been in the red since its inception. Tesla said last month that its first quarter loss grew 84 percent compared to the prior-year period. The company said it incurred a net loss of $29.5 million in the first quarter, greater than the $16 million lost in the first three months of 2009. Revenues were roughly flat at $20.8 million.

Shortly after ringing the Nasdaq bell on Tuesday, Musk told CNBC that the company has not been profitable because it has been focusing on creating its production facility for the Model S. Musk, who has invested $74 million of his money in Tesla to date, had earlier acknowledged that he had lost the entire amount on the company.

Tesla is hoping that its much-awaited Model S, a sporty $50,000 electric sedan, and other zero-emission vehicles, which it plans to roll out over the next few years, will turn around its fortunes. It has joined forces with Japanese auto giant Toyota Motor Corp., which will purchase $50 million of Tesla's shares, in a private placement at the IPO price, to cooperate in developing electric cars, auto components, production systems, and engineering support.

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