Tesla Motors, Inc. was formed in 2003 to design and produce affordable EV’s (electric vehicle) and sell into the mainstream market place. The company is in the auto manufacturing industry and the consumer goods sector. To sustain its significant cash flow needs to support its heavy research and development spending and growing infrastructure needs (dealerships), the company completed a public offering in June of 2010 where it sold 13.3 M shares at a price of $17.00 in a successful IPO that raised $226.1 M and listed Tesla on the Nasdaq (TSLA).
Combine the $226.1 M raised with its IPO, with its four private offerings, various investments from other partners, $465 M in term debt from the DOE and its $170 M raised from its secondary offering of 5.3 M shares of stock, the company has raised staggering amount of roughly $1242.7M ($1,054M if you exclude the $188.7M balance yet to be drawn of the DOE loan) since it began in 2003. There is still the question, is it enough?
The IPO was originally slated to offer 11.3 M shares at a range of $14-$16 each, but due to the demand, Tesla, along with its investment bankers of Goldman Sachs, Morgan Stanley, JP Morgan and Deutche Bank increased the available shares by 20% and the offering price to $17. By the closing bell on opening day, the stock had risen to $23.89 and traded 18 M shares. Since then the stock has appreciated to $30.79 at the time of this report representing an 81% and 30% return to its shareholders from its opening day price $17 and closing price of $23.89 respectively.
Trading on average 1.2 M shares daily, its 52 week range is $21.50 - $39.95. In the short term, it would appear that both the IPO and the company have been a success. With the IPO generating in excess of $226 M, and the company, while not paying dividends, returning 30-81% to its shareholders (based upon first day opening and closing values) – a healthy 2 year return.
The real test for the long term investor will be in 2012/13 with the launch of its S sedan. Will Tesla be able to launch and sell enough vehicles and control its spending to generate enough operational cash flow to support its debt service while still providing a return to its shareholders?
1. Identify the company and its industry. The company chosen was Tesla Motors http://www.teslamotors.com and is traded on the NASDAQ under the symbol of TSLA. Tesla Motors, Inc. designs, develops, manufactures, and sells electric vehicles and electric vehicle powertrain components. The vehicles the company produces is the Roadster, which is currently in production, and the Model S sedan and Model X utility which are planned for production in 2012 and 2013 respectively.
It markets its vehicles through three channels 1) corporate events; 2) directly to consumers through the phone and Internet, and 3) through its network of Tesla stores. The company, founded in 2003, and is headquartered in Palo Alto, California. 2. Discuss important financial and other facts about the company from its SEC filings. From the 2011 annual report, a couple of numbers jumped out at me from the financial statements the R&D and SG&A spend, clearly these numbers represent your typical start up high growth company. | 2011| | 2010| | 2009| |
Revenue| $ 204.20 | | $ 116.00 | | $ 112.00 | | | | | | | | | R&D| $ 209.00 | 102%| $ 93.00 | 80%| $ 19.00 | 17%| | | | | | | | SG&A| $ 104.00 | 51%| $ 84.50 | 73%| $ 42.00 | 38%| R&D in 2011 was 102% of revenue and SG&A was 51% of revenue! Consistent with several of the articles I read, Tesla was burning through cash and while the timing might not have been the best, it had to go public or go broke. These 2 numbers represent the 2 greatest challenges I think are facing Tesla in the near term 1) completing the development of its products S sedan and the model X utility vehicle and 2) establishing the channel to sell them to drive revenues.
You need a product that the consumers want and without dealerships, cars will be difficult to sell and even harder to get serviced. The other facts that the SEC filings yielded, is that in addition to the IPO and the proceeds that generated, Tesla has also had investments from: * Four rounds of funding yielded a total of $105 M in private funding through 2007 * Mercedes Benz invested $50 M in 2009 for approximately 10% of the company and a seat on the board.
* Toyota invested $50 M in 2011 for validated electric vehicle powertrain systems * Panasonic invested $30M in 2011 and signed a Supply agreement with to provide lithium Ion batteries. Additionally, in 2009 the Department of Energy’s Advanced Technology Vehicles Manufacturing program loaned Tesla $465 M to set up a production facility for the new S sedan, and per the 2011 annual report balance sheet, still had to do a secondary offering of 5,300,000 shares in 2011 for an additional $172.4 M in capital. 3. What was the Price of the IPO? What was the P/E Multiple? a. What was the Price of the IPO? The date of the IPO was June 29, 2010 and while it was initially priced to be in the $14 - $16 range, it actually opened up at $17.
In addition, they increased the amount of shares by 20% to 13.3 M because of the demand. Closing share price for the day was $23.89. With 13.3 million shares offered at the price of $17, Tesla raised $226.1 M to help fund the development of its Model S sedan. b. What was the P/E Multiple? Unfortunately the ttm (trailing twelve month) P/E is N/A. At the time of the IPO, Tesla had reported a loss of $25.5 M in the first three months of the year and a loss of $55.7 for 2009. Since the IPO, Tesla has continued to record losses with a loss of $154.4 M and $254.4 M in 2010 and 2011 respectively. Per data provided on Yahoo finance, as prepared by Thompson Reuters, the forward looking P/E for the fiscal year ending 2013 is 48.75.
4. How successful was the IPO in raising capital? This IPO was a success, not only did they exceed the high end of the offering price range by $1.00, even after that increase, they still had to increase the amount of stock available by 20% to 13.3M shares. The investment bankers who underwrote this IPO were Goldman Sachs, Morgan Stanley, JP Morgan and Deutche Bank. The 2 indicators that I previously mentioned a) stock opened up higher than projections, and b) had to increase the amount of shares offered, tell me that the company targeted the right audience - the tech/Silicon Valley investor crowd, vs the industrial investors. In addition, they had a compelling story to tell in the roadshow, and priced and positioned the company correctly for the offering.
Clearly Tesla, while a car company, is not a typical industrial stock, it’s a high growth potential, high tech company that in my mind will either win big, or go broke – there is no middle ground. I will say that although the IPO seems to be successful, unfortunately I believe that since it was executed as a matter of necessity vs timing it could have done better. From what I have been able to read, Tesla was in need of cash, without an additional infusion of capital it would have no chance of going to production on its S sedan and ultimately go bankrupt.
Why would you take a company public when it has not shown a profit since it was formed? In fact, July of 2009 was the only month where the company had shown a profit ($1M on $20 M in revenue) and since it’s founding in 2003 it had accumulated losses of almost $300 M at the time of the IPO. While I could not find any references to support this, I have to believe that CEO Elon Musk was unsuccessful at his attempts at further private investments and had enough debt with the DOE loan, which led to his decision to go public.
Fortunately, EV’s and the “green” movement are a hot commodity and with a solid road show the team demonstrated Tesla Motors was a investable company. 5. How much capital did the company raise with the IPO? As stated above, the stock was initially offered at $17.00 per share with 13.3 million shares offered. Based upon this, the company raised $226.1 M in capital. 6. What has happened to the company since the IPO? Since the company went public its losses have continued. Operational cash flows have been ($114.3M) and ($127.8M) in 2010 and 2011 respectively. Reports indicate that the S sedan will be available in late 2012 and its success will be key for the company.
With over $260M of long term debt, the company is continuing to make quarterly draws on its DOE loan and an additional stock offering, so production (and revenues) have to come soon. It was said that approximately 12,500 S sedan units is the breakeven point. Contrast this against the total unit sales of the Roadster of 2250 between 2008 and March 2012 – while not as much of a niche vehicle as the Roadster, 12,500 of the S sedan is still aggressive.
7. How is the trading volume? Opening day the stock traded 18.7 M shares and day 2 traded 17.2 M shares. This huge volume of trading makes perfect sense, there was allot of hype regarding this offering, so much so that they increased the offering by 16.5% or 2.2 M shares and increased the opening price from a range of $14-$16 to $17. In the next month (July 2010) it averaged 3M a day and then dropped off to 683 K for Aug and 853 K for Sept.
Trading volume on 5/29 was 1.65 M with a 3 month average of 1.225 M 8. What is the trend in the stock price of the company since the IPO? The stock price now is $30.79 as compared to the closing price on opening day of $23.89. From its initial offering of 17$ this represents an 81% growth and from its closing on opening day, a 30% growth.
9. Are they successful? I have 2 answers Yes and we’ll see. If you are an investor that got in at $17 and are selling today at $30.79 I would say that an 81% return is a success for the shareholders. However, to me the real risk lies ahead, Tesla is still burning through cash and needs revenue, so its success depends on its new S sedan due out this year….. So, for the long term investors, I believe 2012 and 2013 will be the deciding years and we will just have to wait and see.
History of Tesla and miscellaneous information - http://en.wikipedia.org/wiki/Tesla_Motors http://en.wikipedia.org/wiki/Tesla_Roadster http://lotusenthusiast.net/2010/01/lotus-to-end-production-of-tesla-roadster-in-2011.html
Various industry and financial information- http://finance.yahoo.com/q/ks?s=TSLA+Key+Statistics
Tesla 2011 annual report- http://files.shareholder.com/downloads/ABEA-4CW8X0/1898771746x0xS1193125-12-81990/1318605/filing.pdf
Tesla investment information - http://www.wired.com/autopia/2009/05/daimler_tesla/ http://www.revengeoftheelectriccar.com/_blog/The_Blog/post/Tesla,_Ford_and_Nissan_win_big_with_DOE_grants/ http://ir.teslamotors.com/releasedetail.cfm?ReleaseID=582635
IPO Information http://www.wired.com/autopia/2010/06/tesla-ipo-raises-226-1-million/ http://jalopnik.com/5569882/inside-the-secret-178-million-tesla-ipo-presentation