Will Smith Electric Help or Hurt Tesla Motors?

It's been a volatile trading week so far for Tesla Motors (Nasdaq: TSLA  ) .

Shares of the American maker of electric cars soared 7% on Monday. Morgan Stanley upgraded the shares -- from "underweight" to "overweight" -- and CEO Elon Musk revealed that the company was producing 100 of its Model S sedans a week. That may not seem like much, but it's a tenfold improvement in production from where it was just a few weeks ago.

The good times didn't last. Tesla shares went on to give back a little more than half of Monday's gains on Tuesday.

Things should get interesting again on Friday when Smith Electric begins trading. The maker of electric trucks expects to sell 4.45 million shares that will be priced on Thursday night. The pricing range is currently expected to be between $16 and $18 a share.

Smith's business is on the commercial end of the electric vehicle spectrum, replacing diesel-powered engines for medium-duty-fleet operators that have predictable daily routes of no more than 120 miles before heading back to the depot.

It may seem like an easy sell, but let's not assume that electric is the only way to go for commercial fleet operators. Westport Innovations (Nasdaq: WPRT  ) is expected to grow its revenue by at least 50% this year as it replaces petroleum-slurping engines on trucks with fuel systems running on cheaper and cleaner liquefied natural gas.

Smith Electric's income statement is a mixed bag. Revenue climbed 40% to $49.9 million last year, but the company's top line is off sharply through the first half of this year. Profitability? Don't even think about it. Operating losses have actually been widening every year since 2009.

However, Smith Electric has a murderer's row of clients that include FedEx, Staples, and Coca-Cola. That's some serious validation right there.

Most of the news that investors receive from electric vehicles stems largely from passenger cars. Heads turn whenever General Motors (NYSE: GM  ) idles production of the Chevy Volt or when other major automakers introduce plug-in models.

However, clearly there's a meaty realm to exploit in the transport market. Smith will have at least 23.1 million shares after this week's offering. If it prices at the midpoint of its initial range we'll be looking at a roughly $400 million company.

Tesla is a $3.3 billion company, but the premium is well earned. Tesla is much larger. Analysts see Tesla generating nearly $1.7 billion in revenue next year. As a consumer-facing company, investors can also grasp the long waiting list of anxious drivers angling for a Model S or the upcoming Model X vehicles.

However, despite its fiscal shortcomings Smith Electric should generate plenty of buzz -- pun intended -- on Friday. That's the kind of attention that should benefit Tesla, especially if Smith Electric pops higher as an IPO.

Hit the road
Tesla is revving up to be another potential winner recommended in the Rule Breakers newsletter service, but there's a different multibagger that has the growth stock service's attention these days. Find out what that stock is with a free report.

The Motley Fool owns shares of Westport Innovations and Tesla Motors. Motley Fool newsletter services have recommended buying shares of FedEx, Westport Innovations, Coca-Cola, General Motors, Staples, and Tesla Motors. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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  • Report this Comment On September 19, 2012, at 2:55 PM, F2JP wrote:

    Smith and Tesla can only help each other. They both benefit by Growing the awareness of the benefits of ditching fossil fuel powered ICEs for better technology.

    The market has plenty of room for growth. Keeping the technology cutting edge and quality higher than ICE vehicles is essential. Tesla is excelling in these areas, if Smith follows suit, they will take advantage of their open shot at market share as well.

    Smith would be wise to consider using Tesla Drive Train Technology rather than trying to re-invent the wheel at a much greater expense for less of a return.

    Nissan (Leaf), Ford (Focus), Chevy (Volt) could have all saved considerable R&D dollars, and produced better, more marketable vehicles if they had not chosen to re-invent the wheel.

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