Greenberg: Tesla IPO a 'High-Speed Crash'?

What’s to love about Tesla Motors? It’s a good story, but…how many times have we heard good stories from Wall Street on IPOs of companies that have ended up in the junkyard?


Answer: Way too many to count.

I have no idea if Tesla will join the rusting hulks, but this much we know:

- The story is a good one — a battery-operated sports cars.

- It’s so good the number of shares being offered have been increased.


- Since it was formed in 2003 Tesla hasn’t made a dime. In the first quarter it lost $29.5 million and had an overall deficit of $290.2 million.

- Costs are expected to rise sharply.

- Tesla isn’t the only company working on high-end electric cars. In two years plenty of alternatives to Tesla, now on the drawing boards, will be hitting the market. (Second opinion from Phil LeBeau: IPO Shows 'People Think Tesla Will Grow')

- The company has only sold 1,063 cars at an average price of around $100,000 apiece.* And that’s with the help from tax credits. If the tax credits are withdrawn, “what happens to the business model?” asks Maryann Keller, an independent auto analyst. “Is this company capable of producing a product that would be profitable without tax credits?”
*A previous version of this story said the cars were sold at $50,000 apiece.

- If it weren’t for a $465 million loan from the Department of Energy, Tesla might not have made it this far. And it’s a restrictive loan that can only be drawn down in increments over three years. One of my favorite lines from the prospectus: “We are unaccustomed to managing our business with such restrictions and others that are associated with a significant credit agreement.” Too bad. Another way of looking at it: This wasn’t a bankable deal. “Credit wasn’t available from any other source,” Keller says. “It tells you how high risk this is.”

- Despite the hoopla, as of March 31, the company had unfilled reservations for 110 of its Roadsters and 2,200 of its still-to-be-built sedans. And all of these reservations can be cancelled “up until the delivery of the vehicle” with a full refund of the deposit.

- Toyota has invested $50 million into the company. A sign of confidence or is Toyota simply hedging its bets with a mere cal on Tesla’s future? Or is it nothing more than a gesture of goodwill by Toyota, which has wound down its involvement in the same California NUMMI plant that will be used to build Teslas.

And if I had to choose the ultimate reason to be leery, I’d point to Andrew Ross Sorkin’s recent interview with Tesla CEO Elon Musk. Bottom line: Musk is involved in what appears to be classically nasty divorce. And he claims to be broke.

If he’s broke, and his wife is about to take him to the cleaners, it would appear that the real winner in this deal will be Musk, who it plans to sell around $20 million in Tesla stock on the deal. It’s rarely a good sign when founders and/or top execs sell on the deal.

“I don’t understand Tesla,” Keller told me this morning. “And I’ve been doing this for 40 years. The car business is a tough business to make money in during the best of circumstances. I struggle with what will make this stock go up.”

If this becomes a high-speed crash don’t say you weren’t warned.

Editor's Note - For a different take, check out CNBC's Phil LeBeau who writes, "Tesla IPO Showing Investors Willing to Bet on Electric Car Growth"

"Traditional" Auto Makers' Shares Now:

Ford Motor

Toyota Motor


General Motors (IPO registration pending)

Honda Motors

CNBC Data Pages:

CNBC Slideshows:


*A previous version of this story said the cars were sold at $50,000 apiece.