Less than two weeks after thin-film solar panel maker Solyndra Inc. pulled its IPO, Tesla Motors Inc., the seller of electric vehicles, rocked the markets, closing its first day of trading up 41%.
- Reuters
- Will Solyndra executives ever have the chance to experience this joy?
There are many similarities between the two companies. Both are in the nascent clean technology sector, are losing money, have high capital needs, and received huge loans from the federal government. The two companies have yet to prove that their technology will work long term and that their markets can extend beyond a niche.
So what explains their divergent paths?
“For Tesla what played a big role was having the tangible product. People can get into the car,” said Brian Bolster, managing director at Goldman Sachs, one of the underwriters for both the Tesla offering and the failed Solyndra deal. It’s also the first IPO in the auto industry in more than half a century, adding to the buzz, he added.
“For Solyndra it was a question of value,” said Bolster, in an interview on the sidelines of the Renewable Energy Finance Forum Wall Street on Tuesday in New York. He said that the solar panel maker could have gone public, but not at a value attractive to its current shareholders. The solar market is very different from the auto space, he added.
Solar valuations have dropped precipitously from a high of about $122 billion at the end of 2007 in total to about $42 billion right now, even as the number of solar panel makers increased, according to data from Jefferies Inc. Solyndra had to compete in that market.
For investors in Tesla, there are very few other options to play the electric vehicle space.
Something else that helped Tesla was having major strategic investments from Daimler Chrysler and a commitment from Toyota, said Kevin Genieser, managing director at Morgan Stanley, which also was an underwriter for both Tesla and Solyndra deals.
“Is [Tesla] a one-off or the first in a new wave?” asked Genieser during a panel discussion at the conference, organized by American Council On Renewable Energy and Euromoney Energy Events. “I do think it says that higher quality companies that can capture the imagination of the public can go public,” he said. Genieser added that mergers may be the more viable option for some other companies and that Morgan Stanley is talking to some clients currently about that route.
In the case of Solyndra, which needs hundreds of millions more dollars to build out its manufacturing, its backers have large pockets, like the Walton family, via Madrone Capital Partners, which took care of First Solar Inc. for a number of years before this now high-flyer of the industry got to the public markets.
Despite all the excitement that Tesla investors exhibited today, it’s a highly risky play. For starters, the company needs to increase customer interest beyond those front-liners eager to get the first trendy thing at a high price. As of the end of March the company had sold just 1,063 Roadsters, the $109,000 sports car, along with unfilled reservations for 110 more.
Interest for its future, cheaper Model S sedan is higher - there were 2,200 reservations for the sedan. But that car is still in its prototype phase. Tesla still needs to build a manufacturing plant, broaden its retail stores, which number just 12, and prove that it can build and sell the car profitably.
Tesla has already promised to sell it for $57,000 before a tax credit, yet in its S-1 filing it says it doesn’t yet know how much it will cost the company to produce the car. “We have not completed the design, component sourcing or manufacturing process for the Model S, so it is difficult to forecast its eventual cost, manufacturability or quality,” the company said in its IPO filing.
Further, while there are no publicly traded pure electric vehicle purveyors, competition is fierce as companies try to bring their cars to the market. Besides privately held competitors like Coda Automotive Inc., two giant automakers, Nissan and General Motors, are working on their own electric vehicles due for release next year and at a cheaper selling price than the Model S. By the time Tesla wants to sell its sedan at high volumes in 2012, customers will have more choices than they do now.
COMMENTARY: When I logged on to the NASDAQ website to obtain a stock quote for Tesla Motors (NASDAQ: TSLA) yesterday, the quote page for Tesla displayed NO ACTIVITY, and I assumed, due to the big down day in the overall stock market (DOW down 268 points yesterday), that Tesla Motors had pulled their IPO. Boy, was I wrong.
Looks like everybody made money on the stock. From its opening day price of $17.54 per shore, Tesla stock's closed at $23.89, a 41% increase. Not bad for one day. I just check the chart this morning at 8:39 a.m. (PST), and the stock price now $29.80 per share, and increase of $6.27 per share or +26.25%.
Goldman Sachs the lead Tesla stock underwriter did a masterful job of hype and buzz and everybody is having a great payday. Perception is greater than reality. Tesla has lost over $100 million over two years, and sales of their EV's were only 126 in the first quarter 2010. I reported this on my blog yesterday, and also thought that their IPO would bomb. Man, was I wrong. Wish I had bought in.
Courtesy of an article dated June 29, 2010 appearing in The Wall Street Journal's Venture Capital Dispatch
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