Tesla Motors is betting on the fact that increasing interest in electric vehicle technology by both the government and consumers will help them sell approximately 10 million shares of the company in a June 29th initial public offering (IPO). Although several companies, including Tesla, have received stimulus funding to advance electric vehicle technology, the modern electric vehicle industry is still in its infancy and this makes investing in a Tesla IPO a bit risky, perhaps even too risky for many investors.
The Nissan Leaf and Chevy Volt are making media waves with their upcoming releases but Tesla has been selling its Roadster for about two years. Unfortunately, the vehicle’s six-figure price tag combined with the fact that it only seats two might be hindering sales a bit. Tesla delivered its 500th Roadster in June of 2009 and its 1,000th in January of this year.
To broad its market appeal, Tesla Motors is expanding beyond the two-door sports car with the upcoming Model S. The Tesla Model S seats seven, comes with a much more palatable price tag of $49,900 after the federal tax credit, and should be available sometime in 2012.
However, the plans for the Model S all rely on the company securing ongoing financing. Sales of the Roadster are not enough for the company to turn a profit. According to an article that appeared in the Wall Street Journal, Tesla Motors has “accumulated $290 million in total losses, on $148 million in sales. It expects net losses at least until 2012.” That is a long time to be operating in the red.
Tesla has another thing getting in the way of its success, the consumers that the company is targeting with its Model S sedan. A recent study by Deloitte Consulting reveals that only two percent of Americans surveyed would consider buying an electric vehicle made by Tesla. With price being one of the biggest drivers of vehicle sales in America, even a $50,000 electric vehicle is out of the price range of many Americans.
Although Tesla Motors has several things going against them as they prepare to host their IPO, there is something working in Tesla’s favor - Toyota. Toyota recently announced that it will be investing $50 million in the company. Tesla will surely benefit with a company like Toyota on its side. The fact that Toyota will be investing tens of millions of dollars in the company will likely boost investor confidence in the IPO.
The IPO is scheduled for June 29, 2010 and shares are expected to sell for between $14 and $16 a share. Combining the sale of all 10 million planned shares with Toyota’s investment, Tesla could see upwards of $200 million in new funding. Will this funding be enough to get the Tesla Model S onto the streets of America and the company out of the red and into the black?