The Tesla Motors IPO is the talk of the town today, but to me it is a bad flashback to the poor IPO practices of the 1990s. The electric car company priced 1 million shares yesterday at $17 per share and it is expected to start trading today.
Tesla doesn’t make a dime, and it’s still a cash-flow negative entity, bringing back fond memories of the late 1990s when hundreds of unprofitable venture-capital backed firms were floated on the public markets, making entrepreneurs and venture capitalists rich while draining the accounts of millions of unsuspecting investors. A very small percentage of these compeanies ended up doing well. It’s a high-risk prospect. This is not an IPO for my taste. When investing in public companies, I prefer companies that actually make money.
But set aside these fiscal details for a moment and consider this: Tesla sells expensive electric cars — each of which require complex battery packs made up of thousands of cells — for close to $100,000 each. They are trying to market this product in the teeth of the worst recession in 100 years.
Here are some more facts about Tesla you may want to consider before you buy any of the stock:
- The company’s loss in the first quarter rose to $29.5 million from $16 million a year ago
- Production of Tesla’s sedan, which is years behind schedule and is consider the key to making the company money, has slipped again. The big guys, such as GM and Nissan, are catching up in electric vehicle production.
- The company will have a market cap around $1.3 billion after it floats.
- Venture Beat did some fine work in uncovering that founder and CEO Elon Musk has been having cash-flow issues. Might that have rushed the IPO along?
Good luck, Tesla.