Will Smith Electric Help or Hurt Tesla Motors?

An IPO this week will draw attention to electric vehicles.

Rick Munarriz
Rick Munarriz
Sep 19, 2012 at 12:00AM

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
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