Updated: 2010 has been called the year of the greentech IPO — at one point this year there were 19 of them on deck — and this week has been a particularly busy one in terms of indicators for how such IPOs will play out. But like two mismatched bookends, Tesla and Solyndra mark this week with one positive and one negative impression of how well these early-stage, unprofitable, risky greentech firms will fare in the public markets.
Tesla Looks to Raise More in IPO
Update: On Monday Tesla priced the range for its IPO, between $14 and $16, and is now expecting to raise (in conjunction with a private placement) $185 million, with its IPO planned for June 29. That estimated raise is significantly more than the $100 million it had planned to raise at the beginning of the year.
There’s a couple reasons why Tesla’s IPO is looking up despite the fact that the company admittedly won’t make any kind of profit until at least 2012. First, last month Tesla scored the much-touted deal with Toyota, which includes a $50 million investment for a 2.5 percent equity stake, and some kind of (at this point limited) development deal with the large auto maker. At the same time Tesla also acquired the NUMMI plant in Fremont, Calif., which was previously the home of Toyota’s joint venture with General Motors, and Tesla plans to build its electric sedan the Model S at the factory.
As Tesla CEO Elon Musk commented in a statement at the time of the Toyota announcement, Tesla could benefit from “Toyota’s legendary engineering, manufacturing, and production expertise.” With Toyota around to guide Tesla, perhaps potential investors might feel that the risk of putting money in a startup with no track record of producing vehicles at a large scale is mitigated somewhat.
Tesla’s road to profitability — which investors that buy Tesla stock are ultimately banking on — runs directly through mass production of the Model S, and acquiring the NUMMI plant was a critical first step toward that goal. A condition for receiving the $465 million in DOE funds that Tesla was awarded was that it choose a location for its factory to build the Model S and to get it approved under environmental regulations.
But beyond the recent Toyota and NUMMI news, Tesla is also, quite simply, a hot brand, which investors could be reacting to. Tesla’s vision — to use an EV sports car to create mass appeal — is such an utterly cool concept that despite a lot of ups and downs at the company (from the founders feud, to months and months of delays of the Roadster, to layoffs, to slapping Roadster customers with charges for previously standard features, to recalls) investors might just want a piece of its hip factor. The company is “the first, and currently only, company to commercially produce a federally-compliant highway-capable electric vehicle,” according to its S-1.
Now Solyndra, which makes tube-shaped solar panels for rooftops, did the opposite of Tesla late Thursday night and withdrew its IPO. Last December, Solyndra filed to go public on the Nasdaq and was aiming to raise as much as $300 million, but this week cited “going uncertainties in the public capital markets” pulled the IPO and said it chose to raise $175 million by selling convertible promissory notes from existing investors. Solyndra has now raised more than $1 billion, a shockingly large amount of money for a venture-backed startup.
Solyndra, like Tesla, won’t be churning out profits anytime soon. Back in April, the company’s own auditor warned that the panel maker’s operating losses and $532.3 million in deficit raised questions as to its ability to continue operating.
Solyndra’s S-1 has shown that its manufacturing costs, at $4 per watt, are much higher than many of its competitors, many of whose are closer to $1. Solyndra’s business model is based around the fact that its own mounting system designs are supposed to lead to lower installation costs than others, thereby making up that manufacturing cost difference.
Tesla is similar to Solyndra in that they’re both in the early stages of production, need capital to move into commercial-scale production and will be spending a lot of money to scale up. They’ve both raised a bunch of funding from venture capitalists and investors and also scored funds from the Department of Energy. They also are both facing major public competitors on the market, First Solar and SunPower for Solyndra, and the car companies, such as GM and Nissan, for Tesla.
But Solyndra is clearly different from Tesla, in numerous ways, some of which may have affected investors’ reactions. First off, Solyndra doesn’t have that hot consumer brand factor. The solar maker might have gotten attention during Obama’s recent visit, but its CEO isn’t doing cameos on blockbuster movies (see Tesla CEO, Elon Musk, in “Iron Man II”).
Tesla also has had its Roadster (although just 1,000 or so) on the roads for awhile now, far ahead of the car companies’ attempts to get their electric vehicles to market — GM’s Volt and Nissan’s LEAF are expected to be on sale soon. Solyndra’s customers, on the other hand, can already buy solar panels from First Solar, Sun Power and many other solar players. Solyndra is selling what it says is a better solar product (though it has little proof of that over the entire life of the panels, given it’s a startup). There really aren’t any other electric 4-wheel, fast sports cars on the market.
Future Cloudy for Greentech IPOs
However, Solyndra seems like it’s in the majority when it comes to the sentiment of the greentech IPOs on deck this year. Nobao Renewable Energy, a Shanghai company that builds geothermal energy systems to heat and cool buildings, gutted its march to the New York Stock Exchange earlier this month. Trony Solar, a maker of amorphous-silicon solar panels in Shenzhen, postponed its IPO dream last December. And Jinko Solar, a crystalline silicon solar panel maker in Shanghai, went public on the New York Stock Exchange last month but got a lukewarm reception. Those shares stared at $11 and closed at $11.01 on the first day.
Smart grid company Silver Spring Networks is also supposed to IPO this summer, but we haven’t heard much from them lately. According to one report, the IPO has been delayed, but I haven’t been able to confirm that.
The outlook for greentech IPOs was so rosy (hyped?) earlier this year that it wouldn’t be hard to fall short of expectations. I wouldn’t be surprised if more of the expected greentech IPOs on deck didn’t fall off or delay, too. The question is, as Vinod Khosla put it earlier this year, whether weak greentech IPOs will sour the market for the rest of them. Mark your calendars, there’s only a week and half left to see how well Tesla does and if it’ll help boost or weaken the chances that 2010 will truly be the year of successful greentech IPOs.
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