June 29, 2010 - Tesla went public on Tuesday. It was priced Monday night (all IPO's are priced the night before, then open for trading the next day) at $17. It started trading at $19. As this is written, it's changing hands at $18.85. Did you buy any of it? Are you thinking about buying it? Consider this.

_comment_300x250The company is not profitable, hasn't made a profit since it was a spark in Elon Musk's brain. It has a super electric go cart, I mean sports car, that is very fun to drive and costs over $100,000. It's a halo car. But the company doesn't sell enough to make money. It only draws attention. And it's done that well.

Where the company expects to make bundles is on its sedan, a four door all electric vehicle that, if everything goes according to plan, will be built in 2012, then sold soon thereafter. It's a great looking car and will go for $57,400. But with a current rebate of $7500 (if it's still around when 2012 is here), you can buy it for less than $50,000. How far it will go on one charge up is not known yet.

So here's what we know already: no profits; a hope of profitability in 2013, if it's lucky, more likely 2014. That's 4 years from now. The only car it is making at the moment is a very expensive, politically correct toy for well heeled drivers. But wait, there's more.

There will be plenty of competition by the time the Tesla sedan rolls off the yet be announced assembly plant. The NUMMI plant in Fremont, Ca. is in the cross hairs but that's still a long way from being a done deal. Available now are plenty of hybrid cars from Ford, Chevy, BMW, and Mercedes. But for all electric, you'll need to go to Toyota for the Prius or Honda for the Insight. More are coming.

The most heavily promoted is the Chevy Volt, due out next year. But there's the Nissan Leaf that you can order now. Fisker (designed many of the cars for Aston Martin) is a new company that will have an electric car within 12 months, after missing a few deadlines. You can be sure BMW and Mercedes and Ford have the technology or are very close to having it to offer an electric car. Competition in this space will be brutal.

_pc_300x260There are several questions that still need to be answered. The first, and most important: does the customer really want it? If that were overwhelmingly true, then discounts on Prius wouldn't be available. The jury is still out on how much U.S. consumers want an electric car. The second question: is electricity the most efficient and green way to motivate an automobile? Studies suggest that a lot depends on how the electricity is generated that is used to charge the car. If it comes from a coal burning plant, then the numbers suggest it's about a push with a gas powered car. Of course, how much the gas costs is an important part of the equation, at least for the efficiency angle. (What happens if gas goes back to $2 a gallon or lower?) The third question: what if there's another, better way to power cars, say with hydrogen and that's developed in the next two years as an alternative? Then we've got a small portion of the market (the electricity buyers) who have a choice. They may decide that hydrogen is much better than electricity, diminishing the already small percentage of buyers for electric cars.

With all the rapid evolution in the car industry, literally, anything can happen, has, and will. The fact that there are great buyers of the IPO, large funds with deep pockets, suggests the stock should have support at these levels as they look to add to their positions when the stock weakens. You have to wonder, however, how long they'll be willing to buy stock if it continues to weaken. Or if the economics of the electric car change, which they will, in the next 2 to 3 years how that will affect their thinking.

As Shakespeare put it so elegantly: there's many a slip twixt cup and lip. Tesla just served up a cup of tea. We'll have to wait and see if it's swallowed or something untoward happens to the cup. As an investor, know that there will be plenty of opportunity to buy this stock at lower prices because there are no profits to support it for at least 3 years. Furthermore, when new ideas for propelling cars are presented, they'll be competition for a rather small universe of buyers who now are considering an electric car.

- Ted Allrich