It's official: Tesla Motors has scheduled its long-awaited IPO for June 29. According to documents filed with the SEC on Tuesday, the California electric-car maker plans to sell 11.1 million shares between $14 and $16 a share on that date, raising up to $178 million.
It's a pivotal moment for the Silicon Valley carmaker, and for the emerging electric car industry as a whole. Tesla is easily the most recognized of the new generation of electric-car startups -- heck, they're arguably the most successful car-making start-up since Lamborghini, in 1963 -- but how much is that worth, really?
Put another way, do they really have a chance? And should you buy in?
A huge achievement, a daunting future
Let's get something straight right now: For all of the knocks on Tesla -- and there are quite a few -- they have done something enormously difficult: They have successfully developed and sold an electric car that meets all U.S. and EU government regulations, has the range and performance to be usable as a real car, is from all reports a blast to drive -- and has a devoted following of very satisfied customers. And they've built a widely recognized brand in the process.
Not impressed? Name the other companies that have managed all of that, starting from scratch. (I can't think of any.)
To get as far as Tesla has gotten is a huge achievement. But here's where the harsh reality enters: That achievement hasn't translated into a sustainable business. Since its founding in 2003, Tesla has managed to sell just over 1,000 of its $100,000-plus Roadsters. The company's total revenue -- again, since 2003 -- is a bit less than $150 million. It has lost about $290 million in total, including some $70 million of founder Elon Musk's personal fortune.
Profitable quarters to date? Zero. They lost $29.5 million in the first quarter of 2010, up from $16 million in the same period last year, on revenues that were flat at around $21 million.
That's not a promising track record. And here's the thing: The road ahead for Tesla is about to get a lot rougher.
Going where others no longer fear to tread
Tesla's plan, in a nutshell, is to go from being a niche maker of expensive sports cars to a maker of mass-market cars. The company's hope is to use the proceeds from the IPO, plus a $50 million investment from Toyota (NYSE: TM ) and a $465 million long-term loan from the U.S. Department of Energy, to bring its next model -- and eventually, a range of models -- to market on a mass-produced scale.
Tesla's next model has already been announced: Called the Model S, it's a sleek-looking four-door sedan expected to sell for around $58,000. It'll be produced in the former NUMMI plant in northern California, which Tesla is acquiring (for most of that $50 million) from Toyota. Tesla expects to start delivering the Model S in 2012.
And that, right there, is the problem. (At least, the biggest problem.)
The Model S would be an intriguing proposition if it were the first really polished mass-market electric car to hit the U.S. market. But it won't be: The Nissan Leaf is due late in 2010, and Ford's (NYSE: F ) all-electric Focus is expected to follow shortly after. These cars are smaller than the Model S, but they'll also be cheaper -- under $35,000. They'll also be built by huge global companies that have enormous R&D budgets, extensive relationships with heavyweight suppliers like Johnson Controls (NYSE: JCI ) and Magna International (NYSE: MGA ) , vast dealer networks, and decades of experience in meeting customer expectations in the world's most demanding automotive markets -- something Tesla can't yet claim, and may never be able to claim.
I'm having a hard time buying this
Selling a thousand high-end sports cars to well-heeled Silicon Valley hipsters is a completely different proposition from selling tens of thousands of sedans to mainstream consumers. Without some sort of breakthrough technology -- and Tesla doesn't really have any -- it's difficult to imagine that they'll be able to sell the Model S in quantity, especially as other offerings -- from established players and well-heeled newcomers like China's BYD Auto -- continue to hit the market in coming years.
"But they're backed by Toyota," I hear you saying. I think Toyota's $50 million investment is best understood as a way to "sell" the idled NUMMI plant while keeping an option on it -- and to win some PR points in the process. I don't see it as any sort of magic bullet for Tesla.
So should you buy this?
Long story short, I think the chances that Tesla will become a successful, profitable mass-market automaker are somewhere between slim and, well, less than slim. Tesla has never made money, has a huge debt load, is about to drop its only model to focus on a completely new car in a very different market segment, and in doing so will be going head to head with global giants in a demanding, low-margin, high-investment business.
Sure, they make cool cars. But is this company really something you want in your portfolio?
More Foolish auto coverage: