On 2nd day of trading, Tesla Motors shares soar then stall following blowout public offering

By Dan Strumpf, AP
Wednesday, June 30, 2010

Tesla Motors shares stall in 2nd day of trading

NEW YORK — Shares of Tesla Motors Inc. spiked Wednesday as investors continued bidding up the stock following the electric car maker’s blowout public offering. The excitement cooled late in the session, with shares paring their gains to end down slightly on the day.

In its second day of trading, Tesla shares soared 27 percent by midday to peak at $30.42 before investors took profits off the table. The stock finished 6 cents lower at $23.83 — still 40 percent above its $17 IPO price.

Tesla’s two-day run is impressive given the volatile stock market and the lackluster performance of some recent initial public offerings this year. But analysts said the gains are largely fueled by speculation about the company’s potential rather than its current performance. Tesla, based in Palo Alto, Calif., has not had a profitable quarter since it was founded in 2003 and has sold only about 1,000 of its high-end electric cars to date.

“It’s like back in the Internet age, when people didn’t really know how big these companies could become and there was rush to speculate,” said Darren Fabric, managing director of IPOX Capital Management.

Investors are banking on Tesla’s future as a player in the electric car market.

The company currently sells just one vehicle, the $109,000 Roadster, popular among celebrities and performance-car enthusiasts. But by 2012 it plans to start selling a four-door luxury sedan, the Model S. That car is expected to cost $50,000 and have an annual production run of 20,000 cars a year. From there, Tesla hopes to roll out even more electric cars aimed at economy buyers.

Tesla also enjoys some high-profile supporters. Underwriters behind its IPO included Goldman Sachs, JPMorgan, Deutsche Bank and Morgan Stanley. Its high-flying CEO, Elon Musk, has a history of successful startups, including PayPal and the rocket builder Space Exploration Technologies. Toyota Motor Corp. last month agreed to sell Tesla a shuttered plant in Fremont, Calif., and invest $50 million in the company. Tesla plans to use the plant to build the Model S.

But if recent blockbuster IPOs are any indicator, Tesla’s tear might not last. Shares of another green-technology company, lithium-ion battery maker A123 Systems Inc., gained 50 percent in their market debut on September 2009. The stock peaked seven days later and now is down one-third from its offering price and 55 percent from its first-day close.

A123’s batteries power hybrid and electric cars. Like Tesla, when it went public the company had never posted a net profit but had secured funding from the Department of Energy and had backing from big-name investors such as General Electric Co.

But even A123 isn’t a perfect comparison, said David Menlow, who tracks IPOs at IPOfinancial, because A123 sells a product for which there is concrete demand. Tesla’s future, on the other hand, is even more speculative.

“Having the battery production is not nearly as sexy as having a car company,” he said. “People bought into that idea … (Tesla) is a lifestyle change for people.”

Tesla’s initial offering raised $226.1 million after selling 13.3 million shares priced at $17 apiece. Tesla had earlier expected to price just 11.1 million shares at $14 to $16 per share.

AP Business Writer Tali Arbel contributed to this report.

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