Tesla: Great Speed, Limited Range

Jun.29.10 | About: Tesla Motors (TSLA)

By Kris Tuttle

Tesla (NASDAQ:TSLA) stock is off to the races Tuesday with a very successful IPO. An expanded number of 13 million shares were priced above the range at $17 Monday night.

Of course we have seen this race before, such as quite recently (pdf) with A123 Systems (AONE – $9.82) which traded into the low-$20s before eventually falling back to their Intrinsic Value of about $9/share. Going back a bit we had the same experience (pdf) with Netsuite (N – $13.44), which traded up to $40 immediately after their IPO (which enjoyed an increased size and filing range too) before trading down to Intrinsic Value a year later.

In terms of raising money, the Tesla team has to be pleased with the size and pricing of the deal. It’s a great achievement for the investment banking and management team to get this result for a company at such an inflection point and two years away from generating any fundamental investment value for equity holders.

So from here we turn to our Intrinsic Value estimates for Tesla. Not surprisingly there is no value there today if one looks out 5 years. However, on a longer-term view there is opportunity for appreciation, particularly in 2012 and 2013 when both production and IV can begin to ramp based on results the company can achieve in 2017 and beyond. We’ve included two IV scenarios for Tesla here (pdf).

Although a good deal of the articles and reports on Tesla and the EV industry are skeptical (to put it mildly), there is a major variable that is impossible to quantify at this stage, which is the consumer.

First of all, an EV is great fun to drive. Be it a Tesla or other brand, they can be fast and silent which is a real thrill. Electric technology is likely to result in superior vehicles because of the innovation and flexibility that will be possible now in auto drivetrains.

Second, the aspect of getting away from gasoline and oil may be a more powerful incentive than many investment professionals realize. Between the ongoing wars in the Middle East, potential global environmental threats, and the Gulf oil spill, people may feel an emotional pull towards EVs that may help make the market develop faster than many anticipate.

The point being, it’s simply too early to pretend that we can really pin down what the broad market will look like and how Tesla will be positioned in 2015. However, we do know that the IV for Tesla will be below the current price for at least the next year. Even using a very aggressive case for the market and the company development, the IV ramps only in 2012 and 2013.

Disclosure: No positions in the shares of the companies mentioned in this post.