When it comes to raising lots of capital for game-changing companies, Elon Musk has few peers. His deals include PayPal, SpaceX, SolarCity and Tesla Motors. In fact, none of his fundings have involved down-rounds.
Of course, investors are now focused on Tesla, which will begin trading this morning. Over the past couple weeks, Musk has pitched his deal to investors and the results have been impressive in light of the continued losses. In the latest quarter, the company hemorrhaged $29.5 million and profitability will not come until at least 2012. It's certainly a big leap-of-faith for investors.
Yet, over the weekend, the demand for the Tesla offering got stronger and stronger. As a result, the company boosted the number of shares from 11.1 million to 13.3 million, with a proposed price range of $14-$16.
Then last night, Tesla priced the offering $17. Of the $226 million raised, about $202 million will go to the company and the remaining to existing shareholders, including Musk. As a follow-on, Toyota will invest $50 million in a private placement. Shares surged as much as 12% to $19 during the trading debut Tuesday before paring some gains.
Tesla's Hottest Rides
Click through the gallery for a look at some of the hottest Tesla vehicles.
Off to the Races
Back in 2008, Tesla launched its Roadster convertible, which came with a nose-bleed price tag of $109,000. But it was the first federally-approved electronic vehicle. Besides, it could go from 0-to-60 in less than 3.9 seconds and could travel 244 miles on a single charge.
The problem: it's a niche market. In all, Tesla has sold a mere 1,063 Roadsters. More ominously, there are only about ten sold per week.
So to make the company viable, there must be a more mainstream offering. And this the role for the Model S, which is essentially a standard platform and should mean a much lower price tag (below $50,000). Although, it will still have whiz-band technology like 4G wireless and a computer dashboard. A Model S will also go from 0-to-60 in less than 5.6 seconds and travel as much as 300 miles on one charge.
Sounds great, huh? Well, the Model S is still a work-in-progress and the development is likely to be far from easy. Keep in mind that the Roadster had several major delays.
With roughly 97 million shares outstanding, the valuation of Tesla is at $1.6 billion. In light of the slow global economy and risk aversion of investors, this does seem out-of-whack.
But of course, the valuation is based on the future potential. And if electric cars do get traction, the market will be enormous.
Consider a research report from NeXt Up! Research, which estimates the valuation of Tesla at $1.8 billion. This assumes that the company reaches revenues of $1.2 billion in 2016 and EBITDA margins of 25%.
And yes, this is reasonable so long as Tesla executes on its strategy. However, this will not only involve creating a next-generation car but also an extensive distribution system of stores and a state-of-the-art manufacturing plant. In the meantime, a variety of automakers -- like GM, Nissan, Fisker Automotive, BYD and so on -- will offer their own electric models.
All in all, Tesla has huge challenges. But hey, that's what Musk craves -- and so far, investors are willing to take the bet.