March 22, 2011 – Tesla: Sell the Sizzle, Then Buy the Steak

Featured Trades: (TESLA MOTORS), (TSLA)


2) Tesla: Sell the Sizzle, Then Buy the Steak. So far, the most successful thing Tesla Motors (TSLA) has done is sell stock. The IPO was an absolute blowout success, far and away the best this year, with book building at $14-$16, the size increased by 20%, pricing at $17, and then trading up to $32 on the third day, giving it an impressive market capitalization of $3.3 billion. It fell back to $16 the following week, but then mad a run to $26. Now, here we sit again at $23.

It pulled this off with virtually the entire auto industry and its pet analysts pissing all over the deal from the greatest height possible, as the entire concept of a Silicon Valley based car industry is the greatest affront possible to the Detroit establishment.

I love this company, and I think Elon Musk is incredibly brave. Hell, if I had a billion dollars to throw away, I would probably do the same thing. But much about the new issue reminds me of the Apple IPO some 30 years ago, when it ran up to $21 before its nosedive to $4 (click here for the story). The ill-fated DeLorean Motor Company also comes to mind. All the focus was on the products, which consumers loved, not the business model or the bottom line.

By its own admission, (TSLA) will not make any money for two years or longer, and won’t even commit to hard production dates for its crucial S-1 model. I think the way to play this stock is to skip all the hype associated with the stock floatation, as most of the buyers aren’t looking for a profitable investment, but bragging rights at the country club.

Just wait for the next meltdown in the stock market to call out the weak holders. The time to buy will be in the PR ramp up to S-1 mass production, which will be just as intensive as the IPO.

There is also a political risk associated with the stock. If the Republicans retake the presidency in 2012 they may trash all alternative energy subsidies as unaffordable luxuries, which Tesla is hugely dependent on for making its S-1’s $50,000 price competitive. Always be careful when making investments totally dependent on government subsidies for profitability. Here today, gone tomorrow. If that happens, the Tesla will be joining the Tucker, the DeLorean, and the Pontiac in the dustbin of history.

Oh, and Elon, a little fatherly advice. Don’t tell a divorce court that you’re broke a week before the market values your holdings in TSLA at $2 billion. You’re supposed to impress your new shareholders with the depth of your judgment. Not good, not good.