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Tesla Motors (s TSLA), the electric car startup scheduled to debut in public trading on Tuesday, could deliver the biggest IPO for a U.S. car company since Ford Motor’s (s f) initial public offering more than half a century ago. But while the day of the IPO itself will be a fleeting event, Tesla’s performance on the stock market will deliver something more lasting: a signal about the degree of public confidence in electric vehicles at this early stage of the market, and the role that IPOs will play in financing next-gen cars.
Green Car Bellwether
Lux Research analyst Jacob Grose anticipates that the Tesla IPO “will certainly be looked at as a bellwether,” given the company’s status as “by far the highest-profile electric vehicle startup.” As a result, said Grose, an IPO flop for Tesla could mean competitors such as Fisker Automotive and Smith Electric Vehicles “have a very hard time” gaining confidence in their own IPO prospects.
When Solyndra pulled its IPO last week, some saw it as an indicator that solar startups might have to wait quite awhile before the market conditions for solar IPOs would get better. Next Up! Research found that a possible hot solar IPO from eSolar would be at least 2-3 years away because of the indicator of the ditched Solyndra IPO.
Public offerings are not just about financing — they’re also branding events. So a successful IPO for Tesla and sustained strong performance on Wall Street could potentially serve to boost the credibility of its brand and of green car startups in general. But if the stock sputters, it could detract from Tesla and other electric car makers’ efforts to establish themselves with mainstream consumers.
“There are several startup EV companies right now and some of them are bound to fail,” Mike Omotoso, senior manager for J.D. Power and Associates’ Global Powertrain division cautioned. “If the demand for EVs is a lot smaller than some of these companies are hoping, we’ll see more failures than successes.”
Tesla’s reach extends beyond the auto industry and private investors to the public sector, where federal and state governments have thrown significant weight behind it as a beacon of green jobs and a new energy economy. The Obama administration made a $465 million bet on the startup (subject to certain benchmarks) through the ATVM program, while California has approved an approximately $28.8 million tax break for the company through the state’s Alternative Energy and Advanced Transportation Financing Authority.
Those programs, as well as larger efforts to promote clean cars and green jobs, could see their reputations burnished or tarnished — depending on the outcome of Tesla’s IPO and whether the startup is able to deliver on its promise of using the capital to crank out electric cars for the masses.
Green Car Startups to Prove Their Own Worth
That said, the electric vehicle industry — small and young as it is — boasts a wide array of business models and financial situations at this point. Such variation could mean that Tesla’s IPO doesn’t affect its competitors all that much. Pike Research Senior Analyst Dave Hurst expressed skepticism that Tesla’s IPO “will have much impact” on any IPO plans from Fisker Automotive or General Motors (s GM). “Those companies’ own product plans and competitiveness, I expect, will be a bigger determinant of their success in raising funds,” said Hurst.
Smith Electric Vehicles, an electric truck startup that aims to go public “sooner rather than later”, likely hopes that’s true. Smith CEO Bryan Hansel told us earlier this year he’s not watching other greentech IPOs or IPO hopefuls particularly closely in order to gauge the timing of Smith’s own plans to move into public trading because “there’s not a lot of relevance between ourselves and a lot of others.” It’s more a matter of waiting for demand to take off, he said. “If we see a number of markets opening up,” then the company may seek an IPO to fund a rapid expansion.
Omotoso thinks that major automakers with plug-in vehicles in the works, such as Toyota (s TM) and General Motors, won’t be affected from a Tesla IPO because they’re already so large and well-established. In addition, Omotoso noted that Fisker and Coda Automotive, a Santa Monica, Calif.-based startup planning to launch a largely China-built electric sedan later this year, “are in a better financial situation than Tesla,” and so will be relatively immune to the potential fallout of investors put off by Tesla’s red ink.
Test for the Classic VC Model
As much as we might like to see green car makers thrive or falter based entirely on their own work and worth, however, Tesla’s public markets debut this week will offer some of the first data points to help answer a critical question for the industry: Is the classic venture capital model (invest early and find a big exit in the form of an acquisition or an IPO) viable for this sector? As a result, Tesla’s IPO is poised to shape many investors’ thinking about possible exits in the automotive market.
If Tesla’s backers — which include CEO Elon Musk as well as The Westly Group, Draper Fisher Jurvetson, Google (s GOOG) founders Larry Page and Sergey Brin, German automaker Daimler (s DAI), Abu Dhabi’s Aabar Investments and others — see strong returns following this week’s IPO and the 180-day lock-up period, it could help early-stage auto startups garner interest among venture investors, while car startups in later stages may see their investors dial up pressure to pursue a public offering.
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