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Damien Hoffman

Damien Hoffman

Posted: June 16, 2010 02:24 PM

Under the Hood: Why I Wouldn't Buy the Tesla IPO with Your Money

What's Your Reaction:

Tesla was a genius. Buying shares of the new IPO for the car company named after the innovator ... not so genius.

Of course, owning shares of TSLA will be a status symbol in certain social circles. But if you are like me and invest to make money, the shares are about as high risk as Japan winning the World Cup: it can be done, but I wouldn't make that bet even if you let me use your money.

The Wall Street Journal reports Tesla "has never been profitable." Neither has my neighbor's 17-year old son. The difference is he didn't burn through $25.5 million in Q1.

In fact, despite all the hype from the Google (Nasdaq: GOOG) guys driving around in the sleek electric transport, "Tesla has sold only 1,063 of its Roadster models as of March 31." With tens of millions of rich people in the world, that's not exactly market penetration.

And the timing of the deal stinks: "Tesla, whose chairman and chief executive is Paypal founder Elon Musk, is going public just as it expects to sell fewer cars: It won't be selling its current Roadster model after 2011, leaving a gap before it rolls out the sedan, known as a Model S." A gap? That's Wall Street prospectus speak for a period of time during which your money will be set aflame.

If you are interested in Tesla, I recommend waiting to see how things develop with their new $50,000 Model S. The car business is a fairly crappy business, and there's lots of room for Tesla to run out of juice before getting plugged in.

 
 
 

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