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Auto Industry Buzz

|Includes: Telstra Corporation Ltd. ADR (TLSYY)
By: David Silver, Research Analyst
The buzz this morning in the auto industry has been about the Tesla (NASDAQ:TSLA) IPO, which was oversubscribed, and was trading above the final target range of $13-$15. Yesterday, the company increased the number of shares it was trying to sell by 25% and also the target range from between $11 and $14. All in all, Tesla, the maker of the only highway ready completely electric vehicle, the Roadster (pictured here), made out very well in the first IPO of a U.S. automaker since Ford (NYSE:F) did it back in 1956. But let’s strip away the sleek design of the Roadster, the 0-60 mpg in 3.9 seconds (for the base model, 3.7 seconds for the Sport), the 288 peak horsepower, the 245 miles range, the 3 and a half hour full charging time, and even the $110,000 price tag to take a look at what the future for the company looks like and where it compares to the other automakers out there. Tesla right now is about as niche as you can get with only one vehicle on the market, the Roadster. The Model-S, a sedan, is in the development stage, but by the time it reaches the market, 2012, there will be other 100% electric vehicles including Nissan’s Leaf and Chevrolet’s Volt. So the first-to-market advantage is out the window and the fact remains that the company hasn’t posted a profit. The money raised from the IPO will help fund the Model-S, but Tesla is still dependent on government aid to survive. The IPO alludes to a new era in the auto industry, but for the time being, the investment doesn’t hold the weight.

In other news in the auto industry, General Motors gave another update for analysts. By 2014, General Motors expects to release 70 models in international markets to help expand its market share. GM President of International Operations Tim Lee tells financial analysts the company is the industry leader in the combined markets of Brazil, Russia, India, and China. He says GM is on track to be the first global automaker to sell more than 2 million vehicles in China this year. GM says overall auto sales in China will rise 20% this year to 16.5 million (compared to the estimated 12 million in the United States).
The company continues to comment on the potential IPO for the new General Motors, however, the American taxpayer (and Canadian taxpayer) shouldn’t get all giddy that they will be repaid in full on the first round. The largest IPO ever was Visa Inc (NYSE:V), which raised $17.9 billion; the U.S. taxpayer is into GM for more than $50 billion. The forecast is that the U.S. government will liquidate its holdings in a piecemeal fashion, selling approximately 11% to retain a 49% stake following the IPO. The UAW is also rumored to be interested in liquidating a portion of the union’s holdings (in its VEBA account) to “diversify its holdings.” Eventually, General Motors will become a public company (probably by the end of 2010), but it will take a few more years before the U.S. taxpayer and Canadian taxpayers are made whole again. The GM IPO looks more attractive than the Tesla IPO as General Motors has a large market share and is growing overseas. European sales will be weak through the rest of the year, and I am expecting the auto industry to plateau over the next few months (especially cycling the cash for clunkers program from last summer), which will act as a drag on the IPO.

Disclosure: none