June 29, 2010, 11:28 am

TSLA - Tesla Motors

TSLA - Tesla Motors plans on offering 12.8 million shares (assuming over-allotments) at a range of $14-$16. Insiders will be selling 2.2 million shares in the deal.

In addition, Tesla/Toyata will be conducting a private placement outside of the ipo offering. Toyota will be purchasing $50 million in TSLA stock at ipo price in a concurrent private placement. On a pricing of $15, Toyota will be purchasing 3.33 million shares. This is a big boost to this deal. TSLA is a first mover here with a workable/marketable electric car that can operate on highways and has a 236 mile range. The automakers are spending heavily to catch-up and the concern with this deal is that TSLA will eventually be passed by the major auto manufacturers and left behind. Toyota making a significant investment in TSLA leads to the possibility of a partnership down the line. Really, to me, this private placement with Toyota at ipo price is what allows this deal to work at least in the short run. In addition to the stock purchase, Tesla and Toyota have announced their intention to cooperate on the development of electric vehicles.

Goldman Sachs, Morgan Stanley, JP Morgan and Deutsche Bank are leading the deal.

Post-ipo TSLA will have 95.2 million shares outstanding for a market cap of $1.428 billion on a pricing of $15.

Ipo proceeds will be used to fund capital expenditures and working capital.

Of note, TSLA is setting aside shares in this ipo to be offered to those that have purchased a Tesla Roadster.

**Ceo Elon Musk will own 29% of TSLA post-ipo. Mr. Musk co-founded Paypal.

From the prospectus:

'We design, develop, manufacture and sell high-performance fully electric vehicles and advanced electric vehicle powertrain components.'

Two things of note:

TSLA focuses exclusively on electric automobiles and electric powertrains.

Second, TSLA owns their vehicles sales and services networks. No franchises. As of 6/14/10, TSLA operated 12 Tesla stores in North America and Europe.

This is a tech company from silicon valley, not a traditional car company. Keep that in mind.

**First mover is the key and selling point here. Fully functional electric cars have been on the drawing board for a number of years, TSLA is the first to succeed. From the S-1: 'We are the first and currently only company to commercially produce a federally-compliant highway-capable electric vehicle.'

TSLA currently has one vehicle model, the Tesla Roadster. The Roadster retails for approximately $100,000, can accelerate from zero to 60MPH in 3.9 seconds and has a range of 236 miles on a single charge.

As of 3/31/10, TSLA has sold 1,063 Roadsters. Looking at previous filings sales totaled just 9.7 cars per week in the first quarter of 2010. In contrast, TSLA sold 16-17 cars a week in 2009, their first full year of production.

TSLA has made a splash with a high end vehicle, shifting next into premium sedans with the Model S due in 2012. TSLA plans an annual production of the Model S of 20,000. Model S will be a four door, five passenger sedan and will retail for approximately $50,000. Future vehicles will work off the Model S platform.

Collaboration - In addition to the Toyota stock purchase on ipo, TSLA has an existing collaboration with Daimler AG. In 3/08 TSLA made a deal with Daimler to apply the TSLA battery pack and charger technology for Daimler's electric drive. An affiliate of Daimler owns TSLA stock as well. Daimler currently has a 1,500 battery pack purchase commitment which began shipping in 11/09.

**Going forward TSLA plans on developing and marketing electric powertrain components to both Daimler and Toyota.

In 1/10, TSLA entered into a $465 million long term low interest loan from the US Department of Energy. The loan will be used to finance the manufacturing facility for the S model. Through 6/14/10, TSLA had drawn down $45 million from this loan. In addition, TSLA has been granted $31 million in California tax incentives for the development of the Model S.

Sector - In 2008 electric vehicles and hybrid electric vehicles account for 3% of worldwide vehicle sales. Estimates put this number at 14% annually by 2015.


Approximately $2.25 in net cash post-ipo. Expect a lot of this cash, as well as the USDOE low interest loans to be utilized in the manufacturing and launch of the Model S.

TSLA has a very unimpressive first quarter compared to 2009. The 'newness' and hype factor of the Roadster launch has obviously worn off. This is a niche car aimed at a relatively small end market and the first movers got theirs soon after launch. Sustaining that early momentum has been difficult.

Losses will be steep over the next 2-3 years as TSLA spends heavily on the production of Model S.

2010 - Assuming the Roadster sales per month have permanently leveled off (and I believe they have), revenues for 2010 should be in the range of 2009 at $110 million. Gross margins of 15% or so. Operating expenses far exceed gross margins. Losses for 2010 should be in the $1 per share range.

Conclusion - Anyone telling you with certainty where TSLA's market cap will be 4-5 years from now is telling stories.

Ideal situation: Tesla is successful in profitably selling their own electric vehicles. They also develop their partnerships and their powertrain and battery technology, which is used in a number of other auto manufacturers electric vehicles. The electric vehicle market takes off and TSLA has a much higher market cap than current.

The risk: Tesla proves to be a fad and can never sell enough of their vehicles at price point to make a profit. The Model S is delayed by a year or more while other auto manufacturers bring fully electric cars to market at more attractive price points. Company bleeds money year after year, stock is near worthless and technology and remains are scooped up by Daimler or Toyota or another of the large auto makers.

Each scenario is in play down the line and I have no idea which will play out...or something in between. Really we will not have much of an idea until TSLA begins producing and selling their $50,000 luxury sedan in 2012. Currently their Roadster has a niche appeal at best. The S model will be going head to head with Mercedes, Lexus, Audi and BMW after a much broader target market. How that plays out, it will tell a lot about the future of Tesla.

This deal works short term though. Why? TSLA has built the first good looking all electric high performance sports car. They beat the worldwide auto manufacturers at their own game. That says a lot about the technology and the potential. One also needs to look at how a potential shift to electric cars over the next 10-20 years would greatly reduce pollution from vehicle emissions. This technology with be favored and promoted by governments worldwide and right now TSLA has the best (and first) mousetrap. Pre-TSLA, all electric vehicles were essentially low power 'around town' vehicles with limited miles per charge range and weak horsepower. Not anymore, and TSLA is the one that beat everyone else to market. That alone is very impressive and gives TSLA some long term hope.

Yes TSLA has been bleeding money since inception. The possibility that this fact never changes is what puts the long term viability of TSLA into question. As noted above, the longer term success/failure range here for TSLA is as wide as I've seen in an ipo. Even knowing that going in, this deal should absolutely work in range short term. Pretty exciting deal.