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Tesla Motors Plans IPO
The IPO market has been in the doldrums since the financial crisis hit in late 2008. The crisis caused a steep stock market selloff that culminated in March of last year. As the market began to improve, privately owned companies looking to go public held out hopes that the IPO market would brighten by 2010. By the time January rolled around, however, concerns about high public- and private-sector debt levels and growing unemployment weighed on stocks, resulting in another, market swoon to start the new year. Since many companies go public in order to raise capital to fund the expansion of their businesses, plans can be put on hold if the economic picture clouds up. IPOs can be priced higher when there is greater investor enthusiasm for stocks, which raises more capital for the company and gives the underwriter(s) confidence that the offering will sell out without too much difficulty. Improvement on the jobs front might be needed to stimulate the market for IPOs this year.
Among notable recent filers, Tesla Motors announced plans to go public in late January. Tesla makes a plug-in electric vehicle, the Roadster, that runs completely on battery power, and, as noted, is priced at about $109,000, before Federal and state tax credits. The batteries are Lithium-ion based and weigh about 900 pounds. It also offers a Sport model of the Roadster, for nearly $130,000, which includes more features and slightly more power. The Roadster is a small, lightweight, two-seater that is based on a model built by British sports-car company Lotus, and features blindingly fast acceleration with zero tailpipe emissions. Lotus helped with the development of the car’s chassis. The platform was chosen since its light weight helps improve the driving range, and building a sports car helps highlight the kind of power an electric motor can deliver. Unlike an internal combustion engine that builds torque as engine speeds increase, 100% of the torque in an electric motor is available immediately. High torque helps a vehicle’s “off the line” performance.
Tesla is the only company that currently produces a federally compliant highway-capable electric vehicle. It can go about 235 miles on a single charge, according to EPA estimates. (The EPA is looking to revise its testing methods for electric vehicles, however, which will likely have a negative impact on estimated ranges for the Roadster and all other electric vehicles.) The Roadster has a proprietary electric powertrain that incorporates four key components–an advanced battery pack, a power electronics module, a high-efficiency motor, and extensive control software. The battery pack is capable of storing almost double the energy of any commercially available electric vehicle battery pack. The company has sold more than 900 Roadsters, and customers have driven them an estimated three million miles. It is slated to be replaced by a new model in 2013.
The company is also developing a battery-powered, five passenger premium sedan, the Model S. Tesla had received about 2,000 reservations through the end of 2009 for the Model S despite a limited marketing effort. These customers put up a non-refundable payment of $5,000. Production is planned to begin in 2012, with an annual production of 20,000 cars a year. The base price for the Model S is expected to be $49,900 in the United States, and it is a good-looking car. The company sells its cars through a franchise network that currently includes 10 dealerships in North America and Europe. It is not yet profitable.
Tesla has received a lot of free publicity over the past few years, but getting a car company up and running is an enormous challenge, and there are several drawbacks for electric vehicles, which the company has attempted to address. Electric vehicles can take 12 hours or more to charge on regular household current, so many buyers would probably want to install electrical upgrades at their house that will enable faster recharges. Tesla offers a home connector for $1,950 that will fully recharge the Roadster in about four hours. This runs on 240-volt current, similar to an electric clothes dryer. Tesla also offers a universal mobile connector for $1,500 that can hook up directly to the outlet for a dryer and fully recharge the batteries in about six hours. Tesla claims that it costs most owners roughly $5 to recharge the batteries, or about $0.02 a mile. Still, since the infrastructure does not exist to quickly recharge electric vehicles, they are impractical for longer trips, so for many buyers these vehicles would be relegated to “second-car” status. Plus, the number of miles per charge can be greatly affected by temperature and the use of accessories, such as the heater, air conditioning, and headlights. Competition in the segment is heating up as well, with Nissan getting set to introduce the Leaf later this year. In addition, Toyota is working on a plug-in version of its Prius, and Ford is developing an electric vehicle as well. General Motors’ Chevrolet division is readying the Volt, which also includes a small gasoline engine that starts to recharge the batteries after about 40 miles, giving it a total range of about 400 miles on a full tank of gas and averaging about 230 miles per gallon. And Volt drivers do not have to worry about getting stranded.
These vehicles, however, will not compete directly with Tesla, since they are lower priced. Tesla is really going after buyers of high-priced sports cars with the Roadster, but even here competition could get fierce quickly. Porsche recently took the wraps off a concept car called the 918 Spyder that has a 495 horsepower V-8 engine and three electric motors that are good for an additional combined 215 hp. Ferrari introduced a hybrid concept car at the Geneva auto show based on a current model that has a V-12 engine and a 107 hp electric motor. The technology found in these vehicles is very likely to find its way into production cars in the near future. Porsche and Ferrari must find ways to meet increasingly stringent corporate average fuel economy (CAFE) rules in the coming years, as they do not manufacture economy cars that can offset the lower fuel mileage of their performance vehicles. Lotus, which helped in the development of the Tesla, has also developed its own hybrid concept car that appears likely for production.
In the higher-priced luxury-vehicle segment, The Model S will face competition, too, as several manufacturers are now producing hybrid sedans that offer good performance and improved fuel economy. There is also the issue of the batteries, and how long they will last. It is not uncommon anymore for a gasoline-powered vehicle to rack up 200,000 miles or more, and the hybrid-powered Toyota Prius can go as long with no problems. (They have racked up as many miles as Taxi cabs.) However, the battery in the Prius can last a long time because its gasoline engine keeps it optimally charged. Tesla designs safeguards into its vehicles to prevent the batteries from becoming completely charged or completely discharged, which improves their lifespan. Tesla expects more than 100,000 miles and/or five years of useful life from its batteries, but Internet reports of the expected replacement cost for its battery pack are in the neighborhood of $30,000. In the end, there might not be enough of a market for buyers to take the leap of faith on an expensive, pure-electric vehicle. E.W.U.
File Date: January 29, 2010
Proposed Symbol: To Be Determined
Shares: To Be Determined
File Amount: $100 million
Proposed Share Price: To Be Determined
Expected IPO Date: To Be Determined
Lead Underwriters: Deutsche Bank; Goldman, Sachs; J.P. Morgan; and Morgan Stanley