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With its impending IPO, the first for a domestic car company in 54 years, Tesla is feeling pretty bullish about its chances for success. The company just announced it plans on adding 2.2 million shares to its public offering later this week, increasing its size by 20% and generating roughly $30 million in additional capital for the company.
Despite the demand that is clearly driving this IPO expansion, I remain cautious on the company's prospects. I love the technology, I really love the Lotus-like Roadster, and I hope Tesla becomes the U.S.'s fourth viable automaker after Ford (NYSE: F ) , General Motors, and Chrysler.
However, I can't help but be reminded of the A123 Systems (Nasdaq: AONE ) IPO last fall. Shares popped for the cleantech company, as investors saw a future where the company's batteries dominated the auto market. Unfortunately, the reality is that a manufacturer creating new technology in a competitive market faces some really tough sledding. Share prices for A123 Systems have slid; the company didn't become the instant success many had predicted.
Tesla is in a similar position. It has struggled to make a profit, with losses widening to $29.5 million during the most recent quarter. The company has turned to non-core activities, like selling carbon credits to Honda (NYSE: HMC ) , to generate additional income. It sells a product for which there isn't widespread infrastructure support.
Tesla's success likely lays with its partnerships with industry giants Daimler and Toyota (NYSE: TM ) . Both have a stake in the company and may well integrate Tesla technology into their own offerings. It's worth noting, however, that Daimler has also teamed up with Berkshire Hathaway (NYSE: BRK-A ) (NYSE: BRK-B ) -supported BYD to jointly develop an electric vehicle. At some point, Tesla may become attractive, or its technology critical enough, to be gobbled up, but as a stand-alone enterprise I see a long struggle in front of Tesla to reach consistent profitability.
I think that rather than becoming purely a GM rival, Tesla will look more akin to Magna International (NYSE: MGA ) . The Canadian parts company has teamed up with Ford (among others) to build electric cars on Dearborn-provided frames; but it also has ambitions about putting out its own vehicle, as its (failed) bid for Opel shows.
If Tesla becomes primarily a technology supplier to larger companies and offers a handful of vehicles, is that much different from Magna's potential future? Is that worth all the hoopla surrounding the IPO? Is it worth paying a premium for once shares flood the market? I don't think so, but I would love to hear the Foolish community's take in the comments below.