Flush with IPO cash, can Tesla still survive as an independent?
Tesla roared out of the gates this week as a publicly traded company, raising some $226 million – of which probably somewhere around $150-160 million is going into the corporate coffers. Of the 13.3 million shares sold, 11.1 million were newly issued with the rest coming from the holdings of earlier private investors. The rest of the IPO funds go to those investors and the fees for the investment banks that conducted the sale.
The big question is what happens next? In its seven year history, Tesla has never had a profitable quarter – even during the peak sales period for the Roadster in the second half of 2009. Over at least the next two years until the current launch date for the Model S, revenue prospects for Tesla look pretty grim as Roadster sales have dipped to an estimated 20-30 a month from their peak of over 100 per month. None of the industry analysts that Green Car Reports spoke to – such as Oliver Hazimeh of PRTM and Aaron Bragman of IHS Global Insight – seemed to think that Tesla has much chance as a standalone company.
While it would seem the prospect of Tesla disappearing completely is now far smaller than it was in late 2008 when it faced a major funding crisis, its chances of survival as a standalone automaker seem unlikely. Based on our own informal chats with people more familiar with such financial matters than us, Tesla's initial stock price seems to be based far more on hype and interest from people hoping to latch onto the next big thing than it is on fundamentals.
When Tesla conducted its road-show for financial analysts prior to the IPO, the content was more about grand plans for the future and changing the world than it was about the numbers. Our sources tell us presentations are typically the exact opposite, dry presentations of the balance sheet and financial projections. The car business (any heavy industry actually) is extremely capital intensive and will never experience the sort of margins found from technology companies like Google, Apple or Microsoft, even if the company operates in Silicon Valley.
Now that Tesla is publicly traded, it will have to start being more transparent about its numbers and we'll be watching the earnings calls carefully. Our financially oriented contacts expect to see some wildly divergent target prices for TSLA in the coming months, depending on whether they were involved in the IPO or not (hint: Goldman Sachs was one of the underwriters). Purely on the fundamentals, TSLA could have a target price as low as $4-5 or as high as $40 or more if confidence is the driving force. Based on what we've seen so far, we'd bet that Tesla will be a division or subsidiary of a much bigger automaker long before it ever turns a full quarter profit. Tell us what you think in the poll and the comments.