Reading Into Cautious Approach Investors Are Taking Toward Tesla

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 |  About: Tesla Motors (TSLA)
by: Greentech Media

by Michael Kanellos

Another day, another dollar.

Tesla Motors (NASDAQ:TSLA), which brought electric cars back from the endangered species list, raised $226 million in an initial public offering yesterday by selling 13.3 million shares to institutional investors at $17 a share.

Trading began today. So far, the reaction is positive, but muted. The stock is hovering around $18.20 a share. In other words, it isn't exactly exploding out of the gate. On the other hand, the entire market has been in a swoon because investors panicked about consumer buying and the economic outlook.

The cautious approach investors are taking toward Tesla likely also reflects the ambivalence the company inspires. On one hand, it has popularized electric cars and prompted mainstream auto makers like General Motors to move toward electric. Former GM bigwig Bob Lutz credits Tesla for pushing GM into the Volt. When the company appears at car shows, it gets swamped. The navel gazing among investors, analysts and pundits has gone through the roof.

On other hand, building a car company from scratch isn't easy. This is the first IPO by an American car firm since Ford went public in 1956. Tesla has raised over $200 million, but has consistently lost money since it was founded. To date, it has spent more than $250 million. (We reported on the Tesla IPO numbers here. Here's a link to the most recent S-1.) While Tesla has largely had the freeway-legal electric car market to itself for some time, it will soon face competition from Nissan (OTCPK:NSANY), Ford, Fisker Automotive, GM, Toyota (NYSE:TM) and others. Some of these companies will make plug-in hybrids and others will make all-electrics, but both types of cars will compete against what Tesla will make.

Sales of the Tesla Roadster have also slowed. Last year, Tesla talked about increasing production from 15 cars a week to 30 cars a week. However, Tesla sold a total of 126 cars in the most recent quarter. That comes to 9.7 cars a week. Tesla assembles cars on a build-to-order methodology so sales are equivalent to production. The Roadster costs $109,000. The more moderately priced Model S comes out in 2012.

Historical note: DeLorean shpped 6,000 cars in 1981, and 2,000 in 1982 and 1983. DeLorean Motor Company went out of business later that year. Rosen Motors, founded by the same investors who came up with Compaq, took a shot at the auto market too. You don't see a lot of Rosens on the road.

Disclosure: No positions