Hype Trumps Reality as Tesla Coils its Way Higher in Debut Session

Yesterday, risk aversion was the name of the game yesterday with Treasuries and the dollar rallying and just about every other asset class taking a beating.  Meanwhile, electronic carmaker Tesla (TSLA) debuted to much fanfare in the green space and skepticism on Wall Street and closed the day with a market capitalization of $2.2 billion.

Despite Wall Street’s perceived concerns with the company’s lack of earnings to date, despite founder/CEO Elon Musk’s significant person offering (I mean was it all that significant anyway? A max of 1.5 million out his total 28 million shares), and despite the aggressive sell-off in the broader markets, Tesla’s stock popped a cool 40% from its $17 offering price, to close the day at $23.89.

A123 (AONE), a stock covered in this week’s Tech Cheat Sheet debuted to similar fanfare in September 2009, and quickly traded aggressively higher from its offering price of $13.50 to north of $20/share in just its first day.  The parallels between the two are many: both companies are in the “alternative energy” arena, both companies pursued an IPO in order to expand their manufacturing and production capacity, and neither company had recorded an operating profit by the time of its IPO.

In fact, with Tesla we know far more about the company’s spending than we do its future revenue streams at this point in time.  TechCrunch offered the following stats and analysis:

Even before the IPO proceeds, Tesla has already raised $783 million in venture capital and government loans. Tesla is expecting to raise about $210 million in the IPO, bringing the total raised to just over $1 billion.

And so far the company isn’t making any money. Last year, Tesla lost $56 million on revenues of $112 million. In the March quarter of 2010, it lost $29.5 million on revenues of $20.8 million. As of March 31, 2010, the company still had $188 million in cash. But it expects to spend up to $125 million this year, as it gears up to manufacture its Model S sedan (including $42 million to buy a factory in Fremont, California formerly operated by Toyota and GM).

It certainly is a capital intensive process to design and engineer an electrical car, that requires yet more money to prepare for a mass production launch.  Plenty of early investors cashed in nicely with yesterday’s IPO; however, it remains to be seen what will happen with the stock’s share price in the coming weeks.

After AONE’s impressive early rally, shares slowly started trickling lower, even dipping below the original offering price in the $8.50-$9 range.  Generally the enthusiasm and excitement generated by an early IPO subsides as it becomes clear that the company is still farther away from achieving the growth that many are hoping/projecting for.

As an investor, I would prefer to either wait for a more modest valuation on Tesla’s assets and growth, or to see tangible signs of a transition from a concept company to a money-making entity.  Although the company will use the proceeds of the IPO to develop the Model S sedan (it looks nice, that’s for sure!), it will take some time before we see how much broad-based interest there is in an electronic car.

Should the sales really take off, there will be plenty of time for the patient investor to establish a position and enjoy the much less risky portion of the stock’s gains.  There certainly should be no rush into the stock at these valuation levels, with the market in risk-averse mode, but I do look forward to revisiting the company’s stock and business performance in the coming months on the Tech Cheat Sheet.

Want to stay abreast of what the Tech Cheat Sheet has to offer? Subscribe in a reader