When Tesla Motors Inc. went public in June 2010, the stock price fluctuated wildly in the first weeks of trading, underlying just how hard it was for investors to determine the true value of the electric vehicle maker run by the flamboyant and charismatic PayPal founder Elon Musk.
But in the years since then, despite some volatile shifts up and down, Tesla shares have generally trended upward. They are now around $39 (U.S.), near their all-time high and more than double the initial public offering price of $17. Since the IPO the company has begun production of its Model S sedan, and it says it will sell about 20,000 of them this year.
The key question is how long the shares can continue their upward trajectory, because it is clear that investors can still send the stock into free fall when they get nervous. The latest gyrations came after a February story in the New York Times raised questions about the range of the Model S in cold weather – an article that drew the wrath of Mr. Musk, who initially accused the paper of faking its road test story. Weak fourth-quarter earnings released a few days later – the company lost $90-million on sales of $306-million – didn't help the stock, which dipped to around $35 from close to $40 where it had stood a few weeks earlier.
Since then, however, the share price has recovered and investors are waiting to see if Mr. Musk can fulfill his promise to show a profit in the first quarter of 2013. That would mark the first black ink on the bottom line since the company went public.
The first quarter will be profitable, Mr. Musk insisted on the year-end conference call, "unless there is some force majeure event, like a giant earthquake or something, or a big flood or typhoon." As for the rest of the year, he was "cautiously optimistic."
The dilemma facing Tesla investors, said Khurram Malik, an analyst at Jacob Securities Inc. in Toronto, is whether the firm can go from "taking orders and being largely a marketing and product development company, into an actually operational company, which is a whole different skill set."
So far the stock price has been driven by marketing and announcements, he said, but over the long term the value depends on the company being able to manufacture efficiently and thus generate profits.
There is clearly more risk the higher the stock climbs. At the current price, it is trading at more than 30 times the estimated 2014 EBITDA (earnings before interest, taxes, depreciation and amortization), "which is pretty high," Mr. Malik said. "There are more things that can go wrong than right, unfortunately, and all lot of the things that can go right are already priced into it. The hype is already in there."
Mr. Malik said it doesn't help that Tesla has delayed the release of its next model, an SUV called the Model X, until late in 2014. It had planned to begin producing it early next year.
The entire electric car market has had problems taking hold, and issues surrounding the cars' range and recharging difficulties were in consumers' minds long before the New York Times article. Tesla is building a network of quick-recharge stations on some crucial travel corridors in the United States, but even Mr. Musk acknowledged on the recent conference call that "for a long-distance trip right now, depending upon where you are in the country, a little bit of extra planning is needed."
Still, compared to lower priced all-electric vehicles, such as the Nissan Leaf, the Tesla vehicle has the best technology on the market, and it appeals to early adopters, Mr. Malik said. "The guys with the deep pockets would rather go for this than the Leaf."
One of the factors that could drive Tesla's stock price higher is the prospect that the company will be bought, perhaps by a larger automotive firm looking to grab a significant portion of the high-end electric car market.
That scenario has prompted investor Josef Schuster to hang on to his Tesla shares. Mr. Schuster, chief executive officer of IPOX Schuster, a Chicago company that follows IPOs and manages investment portfolios that include such stocks, thinks Tesla could be an acquisition target. "It has kept on innovating, bringing out new models, and because [that is such] a niche market, they could be interesting for a Japanese acquirer such as Toyota," he said. Indeed, Tesla has already signed an agreement to share technology with Toyota Motor Corp.
Mr. Schuster plans to keep his position in Tesla for another year or two to see if this scenario plays out. In the meantime, he and other investors seem willing to accept the risks, as long as Tesla keeps selling its spiffy – if pricey – vehicles.
In Canada, $64,500 buys the base model; versions with bigger battery packs run about $75,000 and $86,000.
The most expensive model can travel about 425 kilometres.
Where to buy:
The only retail store in Canada is in Toronto's Yorkdale Shopping Centre. It opened in November.
The average wait for delivery is currently about five months, CEO Elon Musk said recently.