In case you guys haven't heard, something happened in the stock market today that hasn't happened in a very long time. An auto company went public and listed itself on the NASDAQ exchange (in stark contrast to the auto companies that have be DE-listing themselves over the last couple of years). Tesla, the name that has become synonymous with rich and famous movie stars driving around $100+ all-electric cars is trying to raise money through an IPO to take its business to the next level. But before you begin clamoring for one of the most high profile IPO's since Chipotle, you need to look before you leap. All is not well with Tesla, and some things are weirder than other...
The Small Kid on a Very Big Block
The first and foremost concern I have about Tesla (TSLA) is the fact that it's in such an early stage in an incredibly competitive industry. The company has sold no more than 1,000 cars in it's history, and since its inception in 2004, it hasn't had a single profitable quarter. Now this may not be a huge deal for a company with a novel new technology that his incredible promise and can potentially landscape-changing for its industry (think Google or Dell back in its heydey). But, despite what you may think, Tesla's technology is hardly novel and far from promising. Several other, more established, names like Nissan and Chevy are vying to enter the electric car in the next 1-2 years. With their well-established supply chains, engineering muscle, and instant market credibility, they have the potential of pushing Tesla to the side and eliminating any first-mover advantage the California based company may have.
A Little Shadiness Thrown in There Too
Now I'm not the gossipy type, but when it's related to stocks, I think I can justify it. The founder of Tesla is Elon Musk - an entrepreneur whose claim to fame include founding Paypal and the X Prize. Now, you would think the founder of Paypal is a pretty wealthy guy. After all, Ebay paid $1.5 Billion for the online payment processor in 2002. But, there's a twist in the story. Mr. Musk is currently going through a messy divorce, and in recent filings, he states that he has spent his entire fortune on Tesla. As you may already know, issuing an IPO is a great way for the partners in a company to cash in the value of the company. Who's to say Mr. Musk isn't going forward with the IPO for more personal reasons to the detriment of his investors.
Tesla motors is a pretty hot commodity on Wall St. right now. It even had a great opening day - up 40%. But I do see some storm clouds on the horizon and would be weary of investing. The business model - assets made of promises and ideas rather than actual revenue and profits - smells faintly of the dot-com bubble. The fact that it is in one of the most volatile and competitive industries only exasperates the risk. On the other hand, if I'm wrong, there may be huge upside in the company. It is after all working on a sedan for approximately $50k to make the name more mainstream. Also, I even think it may be a good aquisition target for an automaker looking to jump start its electric vehicle program (Toyota has already invested a small amount in the name). But like I said, tread carefully.
What are your thoughts?
Questions/Comments/Feedback?
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The Standard Disclaimer:
The stuff I just wrote above is my opinion and my opinion only. Please do not take it as fact. Perform all necessary research and analysis prior to acting on anything I've said above. This includes consulting with a financial advisor.
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