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What are Tesla Fans and Investors Thinking?

Tesla
Tesla

Tesla is going public today under the symbol TSLA.

To say this IPO has gone better than expected would be an understatement.

It's pricing at $17 a share, above the range originally set out,and with the number of shares being offered expanding to 13.3 million, this IPO will raise more than $225 million dollars for Tesla.

For the last two weeks I've received a steady stream of comments from Tesla fans essentially touting the company as a great automaker, and by extension a smart investment. They all talk about how great the Roadster is and how Tesla has figured out how to make appealing electric cars that people will want. And there are more than a few who have said CEO Elon Musk is a testament to American ingenuity.

I've brought this up to many veterans in the auto industry and everyone says the same thing, "What are these people thinking?"

The skeptics of Tesla point out the following:

  • Tesla has lost $290 million since it started business in 2003. It has never made a profit.
  • Tesla must ramp up and behind mass manufacturing of its S model by the end of 2011. To quote one auto industry veteran, "Going from building Roadsters to mass production of the S is a huge leap and one filled with dozens of potential problems."
  • Tesla will need A LOT more capital to get the S to market. Yes, Tesla will raise more than $225 million in the IPO, get $50 million from Toyota, and another $495 from the Department of Energy to put towards the "S" ramp up. In the auto business, three quarters of a billion dollars is not a huge sum of money if you're going to become a full line automaker.
  • Tesla's line-up is limited. The Roadster and the S model are a nice start, but just that: a start. Industry vets point out it will cost Tesla billions more to develop a line-up of electric vehicles.

All of these explain why people like Jim Cramer think Tesla is not a smart investment. Sure, it may have a cult-like following from those who love the promise of electric cars, but the reality of the auto business is that it's brutally competitive and Tesla has yet to make a dime.

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