With IPO Dust Settled, Should You Buy Tesla Motors?

by: The Green Investor
It has now been slightly over two weeks since Tesla Motors, Inc. (NASDAQ:TSLA) became a publicly traded company in one of the most over-hyped IPOs in recent memory. For those of you not familiar with the company, they are the tiny California-based electric car maker that had sold a grand total of 937 cars as of 12/31/2009. They've never made a profit, but the company is now worth about $1.8 billion (based on 93.5 million total shares outstanding after the IPO.)

The stock was well oversubscribed and from an offer price of $17 the shares opened at $19 and soared to $30.42 one day after the IPO. The price has since fallen back some 40% to hover in the $19 range.

We will not waste your time with a long-winded analysis here; the answer to the question in the title is a resounding NO!

Don’t get us wrong, Tesla gets credit for creating the most exciting, fun to drive all-electric car around (the now four year old, $100,000+ Roadster sports car), and for pulling off this most successful IPO.

The two primary reasons for staying away from this green investment opportunity are:
  1. As a general rule, individual investors should stay away from hot IPOs, at least for the first year, or risk getting scalped alive by the pros. Just to illustrate the point, the chart below shows the share prices of two hot green IPOs of the last twelve months: A123 Systems, Inc. (AONE) a battery maker and Magma Energy Corp. (OTCPK:MGMXF) a geothermal energy company. Great stories, both down over 40%.
  2. Performance of Recent Over-Hyped IPOs

  3. While Tesla now has a much needed mountain of cash, which includes a $50 million post-IPO private placement from Toyota, without any real technology advantage or distinctive competencies, they face daunting challenges to become a viable and successful car maker. And buying the company in the hope of a quick buy-out, by Toyota or others, is just wishful thinking.

Established car companies such as General Motors (NYSE:GM) and Nissan (OTCPK:NSANY), to name just two of them, will be in mass production with their electric vehicles (EVs) long before Tesla’s next Model S launches in 2012, and at lower prices. And they are expected to be loss leaders for their brands.

Tesla also lacks most of the fundamentals we screen for when determining if a company is likely to be a good investment or not. As we recommend to our subscribers, when it comes to investing in plug-in hybrids or pure electric vehicles, the best way to make money is through the key suppliers of batteries and drive-trains (electric motors, electronics and software.), not car manufacturers.

No positions