The Fine Print in Tesla's IPO: No Profit, No Product, No Problem


So what if Tesla Motors, the luxury electric-car maker, lost $31 million in the first nine months of last year and $236 million since its inception. So what if it's canceling its $100,000 Roadster -- its single current product -- in 2011 and a replacement won't be available until at least 2013. So what if Tesla won't even begin producing its $50,000 Model S "family" sedan until 2012, leaving an unknown period of time when this new company won't be selling any cars at all. And so what if Tesla admits that CEO Elon Musk (pictured, with Model S) "does not devote his full time and attention" to the company.

Tesla's IPO filing -- the company hopes to raise an additional $100 million -- sure contains some eyebrow-raising disclosures.

Tesla, of course, is the start-up that recently closed a controversial $465 million taxpayer loan through the U.S. Energy Department's Advanced Technology Vehicle Manufacturing Program. Many people questioned why a company based in the heart of Silicon Valley that raised over $300 million from private venture capitalists needed a half-billion-dollar loan from the government. But Tesla has insisted the money is necessary for its survival.

Of the many revelations in the Tesla IPO filing -- which all investors should read -- the parts about company Chairman, CEO and "Product Architect" Elon Musk are among the most telling. The document says while he "spends significant time with Tesla and is highly active in our management, he does not devote his full time and attention to Tesla." The company points out that Musk also serves as CEO and chief technology officer of Space Exploration Technologies, a developer and manufacturer of spacecraft. And he's chairman of SolarCity, a solar-equipment installation company.

"Continuing Losses for at Least the Foreseeable Future"

Forget about being chairman of the board or "product architect" -- quite a claim itself considering the body, or "glider," of every car Tesla has sold to date was built by high-end British luxury car company Lotus to its Elise model specs. Since when have you heard of the CEO of a potentially billion-dollar company on the verge of an IPO -- let alone one which has received a $465 million taxpayer loan -- say that because of other commitments, "he does not devote his full time and attention" to the company?

To be fair, Musk is known as a workaholic and by all accounts is deeply involved with Tesla. But at this crucial time, it would seem that the company should deserve his "full time and attention." Especially given that in its filing, Tesla says, "We have a history of losses and we expect significant increases in our costs and expenses to result in continuing losses for at least the foreseeable future." The company adds: "We expect the rate at which we will incur losses to increase significantly in future periods from current levels," as it rolls out the Model S.

Despite the federal loan infusion, for a good chunk of time after it goes public the company won't be selling any cars at all. "We do not plan to sell our current generation Tesla Roadster after 2011 due to planned tooling changes at a supplier for the Tesla Roadster, and we do not currently plan to begin selling our next generation Tesla Roadster until at least one year after the launch of the Model S, which is not expected to be in production until 2012."

Odd that a company fresh off an IPO will be in a position where it won't be selling any products -- or earning any revenue -- for some undetermined period of time. A Tesla spokesperson declined to comment on any aspect of this story, citing the Securities and Exchange Commission-mandated quiet period prior to its IPO.

Waning DemandFrom the Few Who Can Afford It

Equally alarming is that the initial burst of interest in the Roadster from wealthy Silicon Valley tech figures like Google co-founder Sergey Brin has faded. In its prospectus, Tesla warns: "We may not have a significant wait list of orders for our Tesla Roadster in the future."

"Many of our Tesla Roadster sales have been made to persons who had pre-existing relationships with our management team or who are affluent individuals with a strong interest in owning a novel product," the company says. "It may be difficult to attract high numbers of new Tesla Roadster customers who do not have pre-existing relationships with us or who are attracted to buy the Tesla Roadster after its initial novelty phase."

In another odd disclosure, Tesla says it intends to design the Model S "with an adaptable platform architecture and common electric powertrain so that we can use the platform of the Model S to create future electric vehicles." Yet the company warns, "We have no experience with using common platforms in the design and manufacture of our vehicles and the design of the Model S is not complete." That's good to know.

Pesky Loan Covenants

And then there's the $465 million Energy Department loan. Less than two weeks after closing that deal, Tesla warnsin the prospectusof the risks associated with the need to comply with the various "customary covenants" that come with a government loan -- including such onerous restrictions as following a business plan and meeting progress milestones.

"We are unaccustomed to managing our business with such restrictions and others that are associated with a significant credit agreement," the company says. "These restrictions may limit our ability to operate our business and may cause us to take actions or prevent us from taking actions we believe are necessary from a competitive standpoint or that we otherwise believe are necessary to grow our business."

In other words, now that Tesla has closed a massive government loan it says is crucial to its future, it's also saying that the terms of the loan may hamper its ability to operate. Some gratitude. Thanks for the money we begged for. It may hurt our business, but we'll take it anyway.

So, would you invest in this company? Guess what, you (as a taxpayer) already have. As part of the federal loan, the Energy Department received warrants to purchase more than 9 million shares of Tesla. Let's hope the company figures out how to make lots of money, despite all the warnings otherwise in the filing.