Tesla Gains 41% After 1st U.S. Automaker IPO in 54 Years

Tesla Motors Inc., the electric-car company that hasn’t posted a profit, rallied 41 percent after raising $226 million in the first initial public offering of a U.S. automaker in a half century.

The maker of the $109,000 electric Roadster bought by Brad Pitt and George Clooney climbed $6.89 to $23.89 in Nasdaq Stock Market trading, the biggest gain for a U.S. IPO since March. The Palo Alto, California-based company sold 13.3 million shares at $17 each after offering them for $14 to $16, according to a statement and a Securities and Exchange Commission filing. Tesla will use proceeds for factories and possible acquisitions.

The IPO was the first by an American car company since Ford Motor Co. in 1956. Chief Executive Officer Elon Musk, who has staked his personal fortune to Tesla after making almost $300 million selling PayPal Inc. and Zip2 Corp., is using the offering to fund a startup that expects to lose more money in the next two years as it tries to build a battery-powered sedan.

“Certainly in the short run, people like this story,” said Thiemo Lang, who helps oversee about $1.2 billion in energy and clean-energy investments at Sustainable Asset Management AG in Zurich and bought shares in the IPO. “You always have the short-term hype, but in the long term, the company has to show they’re able to execute.”

Photographer: Daniel Acker/Bloomberg

Elon Musk, chairman and chief executive officer of Tesla Motors, participates in the opening bell ceremony at the Nasdaq Marketsite in New York. Close

Elon Musk, chairman and chief executive officer of Tesla Motors, participates in the... Read More

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Photographer: Daniel Acker/Bloomberg

Elon Musk, chairman and chief executive officer of Tesla Motors, participates in the opening bell ceremony at the Nasdaq Marketsite in New York.

S&P 500’s Slump

Tesla rallied even as the Standard & Poor’s 500 Index tumbled 3.1 percent on concern over weakening growth in China and lower-than-estimated U.S. consumer confidence. The sale also came after at least 35 companies worldwide postponed or withdrew IPOs since the start of May as the European debt crisis sent the S&P 500 down as much as 14 percent from its 2010 high.

The first-day advance was the second-biggest for a U.S. IPO this year after Financial Engines Inc., according to data compiled by Bloomberg. The Palo Alto, California-based investment adviser co-founded by Nobel laureate William Sharpe increased 44 percent on March 16.

Tesla raised 27 percent more than it originally sought after boosting the number of shares it was offering yesterday to 13.3 million from 11.1 million. Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co. of New York, along with Frankfurt-based Deutsche Bank AG, led Tesla’s offering.

“Tesla has been the first good sign of an IPO in a long time,” said Darren Fabric, Chicago-based managing director of IPOX Capital Management LLC, which oversees the Direxion Long/Short Global IPO Fund. “There’s really no comparables to it. People may want to own it just for the reason that it’s the first U.S. car company that’s gone public in 54 years.”

Obama’s Support

Electric-car technology has been supported by U.S. policy makers including President Barack Obama as a way to reduce the nation’s oil use and dependence on foreign energy sources. Obama set a goal of getting 1 million plug-in hybrids and electric cars on U.S. roads by 2015 and subsidized Tesla with a $465 million loan from the Department of Energy to develop its cars.

Musk, Tesla’s biggest shareholder, co-founded PayPal, the online payment company now owned by San Jose, California-based EBay Inc., and is CEO of Space Exploration Technologies Inc., a Hawthorne, California-based company that builds spacecraft.

He has spent more than $70 million of his own money on Tesla while selling about 1,000 Roadsters to film stars, musicians and battery-car advocates.

‘Just Not Possible’

The company would already be profitable if it only made the Roadster and supplied powertrains, Musk said in an interview on Bloomberg Television’s “In the Loop With Betty Liu.” Tesla is expanding “3000 percent” over two to three years as it develops the Model S sedan and aims to remain independent.

“It’s just not possible for the company as a whole to be profitable with that rate of expansion,” Musk said.

While the automaker has burned through $230.5 million in cash and posted losses in every quarter since it was founded in July 2003, Tesla attracted Toyota City, Japan-based Toyota Motor Corp., the world’s largest automaker, which planned to buy $50 million of shares alongside the IPO.

Tesla and Toyota said they may cooperate on electric- vehicle development, though they haven’t signed agreements to do so, filings show. Mountain View, California-based Google Inc.’s founders Larry Page and Sergey Brin, the government of Abu Dhabi and Daimler AG of Stuttgart, Germany, are also investors.

Tesla’s net loss in the first quarter almost doubled to $29.5 million from a year earlier. The deficit is more than half the $55.7 million the carmaker lost in all of 2009.

Relative Value

At the original midpoint price of $15, Tesla was valued at 5.5 times its net tangible assets, a measure of shareholder equity that excludes assets that can’t be sold in liquidation. That’s triple the median 1.82 times for automotive companies globally, data compiled by Bloomberg show.

Tesla will use the IPO and the federal loan to develop its lithium-ion battery-powered Model S, a $57,400 electric sedan intended to travel 160 miles (257 kilometers) per charge, by 2012. The company plans to produce at least 20,000 units of the Model S each year.

Under terms of the federal loan, Musk and certain affiliates must retain 65 percent of their stock in Tesla for a year after completing the Model S project. Musk’s divorce proceedings won’t result in the combined stake falling below 65 percent or have a material impact on his ability to serve as CEO, according to filings.

Nissan, GM

As Tesla focuses on creating a niche for premium-priced electric vehicles, Yokohama, Japan-based Nissan Motor Co. and General Motors Co. are developing battery-powered vehicles to appeal to mainstream buyers.

Nissan’s electric Leaf hatchback, which has a range of 100 miles, goes on sale in the U.S. later this year with a base price of $32,780, or a third that of Tesla’s Roadster.

GM plans to introduce the Chevrolet Volt electric car in November. The Detroit-based automaker is preparing for an IPO that may sell 20 percent of the Treasury’s stake in the company and reduce the U.S. to a minority owner, two people familiar with the plan said last week.

Nissan Chief Executive Officer Carlos Ghosn said the automaker has received more than 20,000 orders for the Leaf globally, and is prepared to build as many as 500,000 electric cars annually by 2012. Japan’s third-largest automaker reported revenue of $81.1 billion in its fiscal year ended March 31.

Tesla had revenue of $112 million last year.

“It’s not unusual to see a good deal of exuberance when an IPO is first announced,” said Laura Marcero, a Southfield, Michigan-based partner at Grant Thornton LLP who works with partsmakers. “As time goes on and more of the company’s plans and finances are looked at, it may go down. The more Tesla can do to broaden out its business plans, the better.”

To contact the reporters on this story: Kristen Scholer in New York at kscholer@bloomberg.net; Lee Spears in New York at lspears3@bloomberg.net.

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