Tesla Investors Hope IPO Heralds a New Era in Electric Automobiles

6/28/10

San Francisco angel investor Bill Lee says he knew what he was getting himself into four years ago when he decided to invest in Tesla, the Palo Alto, CA electric car company that is expected to go public Tuesday. Much of the media coverage today has focused on the fact that Tesla has not turned a profit since its founding in 2003. So, those who choose to invest are doing so on a high-stakes promise that they are getting in on the ground floor of something that is much more than the sum of its auto parts.

“I hope that the IPO is a turning point where people view Tesla as much more than a car company, but rather as the next great Silicon Valley technology company,” says Lee. Remember the Netscape IPO in 1995? It was the shot across the bow for the Internet age. That’s how Lee sees this moment in green technology history.

“I’m not so concerned with short-term profitability as Tesla is a company going through extremely high growth right now, and that’s the main reason it is unprofitable,” Lee says. “Tesla would be profitable if it were only focused on the Roadster and power-train supply business, but the goal is to increase production by a factor of 30 or more as the company progresses to the Model S. In my opinion, no business can remain profitable when going through that level of growth.”

Indeed, focusing only on the luxury Roadster, with its $100,000 price tag, would place Tesla in the category of niche novelty-car producer, at best. It’s the planned $49,000 Model S, which Tesla plans to release in 2012, that has some investors convinced that there’s a viable car company here.

Tesla made a last-minute decision today to raise the number of available shares to the public from 11.1 million to 13.3 million. Tesla is aiming to price the shares at between $14 and $16 apiece. The extra shares come from existing investors who are cashing in some of their chips at the IPO, including CEO Elon Musk, who likely needs a little liquidity these days in light of reports that, according to Musk himself, he is broke.

The company has raised more than $220 million in VC funding from heavy-hitting firms such as Draper Fisher Jurvetson and Daimler AG.

But, despite the VC investment, Tesla is still very much a company that has survived due to government push rather than consumer pull. There is very little actual demand for electric cars despite the media’s focus these days on the fashionably green technology, not to mention a certain high-profile oil spill. The U.S. Department of Energy has funded Tesla to the tune of $465 million.

Tesla had opened a technical center in the Detroit suburb of Rochester Hills in 2007, but closed it down last year.

I checked in with the folks at General Motors today to see if they view the Tesla as a novelty or as offering any kind of real competition to their soon-to-be-released electric-gas hybrid Chevy Volt. I received a very short reply to that: “GM won’t be commenting on Tesla.”

I also asked GM for an update on its own post-bankruptcy IPO. “GM will launch an IPO when the conditions are right and the company is ready,” the company replied in a statement.

Still, back to angel investor Lee’s Netscape comparison. I cannot help but notice that while that ’95 Netscape IPO really did signify the opening of a new frontier, you know what they say about pioneers being the ones with arrows in their backs. Where’s Netscape now? Exactly.

Stay with Xconomy today and tomorrow for more on this story.

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