Tesla's Elon Musk and Model S Charge Up the IPO Market

Tesla Model S
Tesla Model S

The IPO market has been mostly mundane this year, but investors are finally getting some excitement because luxury electric-car maker Tesla Motors plans to launch its offering on Tuesday, June 29. The company hopes to raise $200 million, giving it a hefty $1.5 billion valuation. The underwriters include Goldman Sachs (GS), Morgan Stanley (MS) and JPMorgan Chase (JPM).

And the buzz is revving up. After all, Tesla has supersexy cars as well as backing from Toyota (TM), Daimler (DDAIF), the co-founders of Google (GOOG), the government of Abu Dhabi and even the Obama Administration (via a $465 million loan from the U.S. Energy Department). Adding some spice is Tesla founder and CEO Elon Musk, who's embroiled in a divorce. According to a report in The New York Times, he's run out of cash and living off generous loans from his rich friends (to the tune of $200,000 a month).

Over the past couple weeks, Musk has been flying his private jet across the country to pitch his deal to institutional investors. The process is called a road show -- and it's usually boring. But not when Musk is giving the presentation. In fact, you can check it out on the Web from Retail Road Show (such presentations are usually taken down after the company goes public).

If you don't have time to watch the video, here are some key takeaways and additional observations:

"We're a friggin' technology Velociraptor": Yes, this is just one of the zingers from Musk's presentation. Of course, he's not someone prone to modesty.

Musk has invested over $70 million of his own funds to create Tesla and has gone on a hiring spree across Silicon Valley. He thinks investors should consider his company like Apple (AAPL) or Google rather than General Motors or Ford (F).

A game-changer? At the core of Tesla's strategy is the Model S (pictured above). Essentially, this is a next-generation auto platform that will be the chassis for sedans, vans and cabriolets. This approach should allow for quicker development and improved cost efficiencies.



Tesla's Hottest Rides

Click through the gallery for a look at some of the hottest Tesla vehicles.

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Some of the cool features include a 17-inch touch-screen computer in the dashboard (the equivalent of a MacBook Pro) and 4G wireless. The car will even read your email. Oh, and it will be possible for third-party developers to create apps for the car.

Disruptive distribution: Musk is convinced that the traditional auto dealer model is broken. Why? Well, auto dealers make most of their money from servicing, and that ultimately comes out of the auto manufacturers' pockes (from warranty work).

So, Tesla has its own distribution centers, which should mean more control over quality and higher margins.

The wait
Despite all the techno-wizardry, the fact remains that the auto industry is fiercely regulated, and it takes years for a car to be considered road-worthy. In the case of Tesla, the first Model S won't hit the market until 2012. The hope is that by then production will hit about 20,000 annually.

But in the meantime, rival auto companies will offer their own all-electric vehicles. For example, Nissan's (NSANY) Leaf and GM's Volt are expected to launch in the U.S. later this year.

Also, it takes huge marketing budgets and lots of time to create a car brand. Yet, it looks like Tesla will try to rely on nontraditional marketing approaches and its distribution model.

IPO prospects:
It looks like the Tesla IPO will give investors a nice pop. But will they be willing to hang on for a couple years to see how things turn out?

Perhaps not. Just look at another recent green deal, A123 Systems (AONE). The rechargeable battery maker had a strong IPO in September. But since then, its shares have gone from $28.20 to $9.67 because investors haven't been willing to wait for the company to scale to profitability.