Investors can be forgiven for getting a bit sea-sick watching the stock price of Tesla Motors Inc. in its first two weeks of trading.
After the June 29 initial public offering on Nasdaq, the electric car company's shares quickly soared from the $17 (U.S.) offering price to just over $30, plunged below $15 a week later, and by last Friday had clawed their way back to $17.40.
The company, which currently sells only one vehicle - an electric Roadster sports car that costs more than $100,000 - has plans for a more modest four-door sedan called the Model S, to be released in 2012. Priced around $50,000, it will be followed by cheaper "economy" models in the years ahead.
With a glittering product and a high-profile chief executive officer - PayPal Inc. founder Elon Musk - Tesla certainly doesn't lack curb appeal. And it has some big backers: The U.S. government has lent it $465-million and Toyota Motor Corp. has invested $50-million.
What Tesla doesn't have is financial numbers that give investors confidence it will eventually make money. Since its founding in 2003, it has burned through more than $290-million in losses and there's no sign of black ink in the near future. Tesla lost almost $30-million in the first quarter of this year.
Even those market watchers who like Tesla admit that it is very difficult to value it at this point.
"Obviously the market knows that it has weak fundamentals," said Josef Schuster, chief executive officer of IPOX Schuster, a Chicago company that follows IPO investments. He acknowledged that there is considerable skepticism about the stock. "A few people think it is going to be great [but]many people think its not going to be great."
That has contributed to the stock's whipsaw behaviour, and the volatile markets haven't helped either, Mr. Schuster said. Still, he has bought shares for the IPO portfolios he manages, and he feels new product rollouts in the coming years will help build confidence. "It's a company in a unique space with a unique product," he said.
Others are less willing to give the company a chance. "They are not going to make money for years to come" so the current stock price is not supportable, said Khurram Malik, an analyst who covers clean technology investments for Toronto investment bank Jacob Securities Inc.
Getting the Model S on the market in a couple of years is also a highly optimistic scenario, he said, and the car would likely have very thin margins at the $50,000 price point. By that time, there will be likely be several other cheaper electric car options for consumers to choose from, including the Chevy Volt and Nissan Leaf.
Electric cars will have an important role in the marketplace, Mr. Malik said, but the Lithium ion batteries being used by Tesla are not the long-term solution because they are too heavy, too expensive, and don't last long enough.
Tesla has done a great job building its brand and the fact that it has sold more than 1,000 Roadsters is a remarkable accomplishment, he acknowledged. But independent car companies that try to do their own development, manufacturing and distribution have almost always failed, he said, so Tesla has many hurdles to overcome.
Some investors are clearly hoping that Tesla could beat those hurdles and become the next Google Inc., a company that went public in the summer of 2004 at $85 a share and is now trading above $460.
But there are some substantial differences between Tesla and stock market successes such as Google or Microsoft Corp., said Deloitte Canada technology analyst Duncan Stewart. Google and Microsoft made use of "disruptive" technology that made certain activities and functions faster and much cheaper, he said. "The challenge with the Tesla, or any all-electric vehicle, is that at this time it is not cheaper, it is substantially more expensive."
Still, it is not entirely outrageous to hope that "an early stage company that doesn't yet have a lot of sales and isn't currently making money could turn out to be the next big thing," Mr. Stewart said. "It doesn't happen most of the time, but it does happen some of the time."
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