How much is a pure-play electric car maker worth? Some of the world’s largest automakers have invested significant sums into plug-in vehicle development efforts in recent years, but Tesla Motors’ (s TSLA) IPO this week gives us the first real glimpse of how the market values an electric vehicle business. Here’s how Tesla — an early mover in a growing field that includes Fisker Automotive, Coda Automotive, Think and others — compares to some of the heavyweights that are revving their engines for the electric vehicle market.
Tesla’s initial market capitalization (the total market value in dollars of a company’s outstanding shares) comes in at about $2.2 billion, based on the company’s close at $22.89 per share and the number of shares outstanding. Tesla, which aims to expand its business beyond high-end electric sports cars to supply powertrains and produce a higher-volume, lower-priced sedan, raised $202 million in the IPO, selling 11.88 million shares at $17 per share (stockholders sold an additional 1.2 million shares). Ultimately the IPO could be worth upwards of $260 million for the company, MarketWatch reports, with underwriters having an option to buy nearly 2 million additional common shares from selling stockholders during a 30-day window to cover any over-allotments.
At the $15-per-share midpoint of the company’s original price range estimate, according to Bloomberg, Tesla was valued at a whopping 5.5 times its net tangible assets (“a measure of shareholder equity that excludes assets that can’t be sold in liquidation”). For comparison, the median for auto companies globally is about a third of that, or 1.82 times their net tangible assets, Bloomberg reports.
Behind the Numbers
Tesla’s high valuation ratio relative to other auto companies reflects an expectation that electric vehicles are a growth industry, says Lux Research analyst Jacob Grose. “It is an indication that the investment community is betting that Tesla will grow much faster (and its electric vehicles will sell much faster) than the average auto company (standard gas-powered car) will over the next few years,” he told us in an email today.
Mike Omotoso, Senior Manager for J.D. Power and Associates’ Global Powertrain division, added that the 5.5 valuation ratio compared to 1.82 for global automakers reflects the perception of Tesla as a battery and technology company, rather than a traditional auto company. Whereas the auto industry’s largest players have to deal with legacy costs, unions, engine and transmission plants scattered worldwide, depreciation, tooling, extensive dealer networks, and “other factors that drive up the cost of doing business,” Omotoso explained, Tesla’s business is low on “bricks and mortar,” and high on potentially valuable intellectual property.
Tesla CEO and Chairman Elon Musk hammered home the idea of Tesla as a technology innovator with its roots in Silicon Valley during his “road show” pitch to prospective investors this month ahead of Tuesday’s IPO. Tesla’s “closer to an Apple or a Google,” than to a GM or a Ford, said Musk, in terms of how the company operates. “I don’t think that’s something GM or Ford will be able to replicate ever.”
Perhaps more importantly, Tesla has highway-capable electric cars on U.S. roads at a time when no other company does — helping it to boost “intangible assets,” such as public good will and a level of brand recognition that most startups can only dream of. Although Tesla has sold fewer than 1,100 vehicles in its seven years of existence, and Pike Research senior analyst Dave Hurst commented that he’s “not convinced that their specific battery technology is that much more advanced than Nissan’s, Toyota’s, GM’s, or other battery manufacturers,” Tesla has “real customer mileage to back up their claims” and demonstrated that its battery pack tech “is not just a concept or ‘coming soon.'”
Despite these strengths, Omotoso believes Tesla may be overvalued given the company’s “very small product portfolio, uncertainty regarding the size of the future EV market, and the strength of future competitors,” such as Nissan, GM, Volkswagen, Daimler (s DAI) (a Tesla investor), BMW and Ford (s F), entering the plug-in vehicle space. Tesla got in on the ground floor of the electric sports car market (few would have believed that market even existed before Tesla) with its Roadster, but by the time it rolls out the Model S — a mid-priced electric sedan scheduled to launch in 2012 that’s the key to Tesla’s profitability — electric car buyers will have more choices than ever before.
Hurst argued that Tesla at this point is being “overvalued, but not outrageously so,” explaining that while much of the company’s value “lies with the intangibles,” the company does boast “strong market potential.”
Omotoso commented that Tesla’s loan award from the Department of Energy and investment from Toyota (s TM) likely “made investors see Tesla as a safe play,” adding that, “The feeling may be that the federal and some state governments have so much invested in the EV market at this point that they’ll do whatever they can to help Tesla and other EV companies succeed.”
Big Auto Makers
Nissan Motor (s NSANY), Japan’s third-largest automaker, had a market cap of $28.08 billion at market close on Tuesday. The automaker, which a net profit of 42.4 billion yen (about $458.7 million) for the year ending March 31 and a quarterly loss of 11.6 billion yen ($125.5 million), aims to dominate the global electric vehicle market along with French ally Renault. First up is the Nissan LEAF, an all-electric sedan set to launch later this year with a sticker price of $32,780 (before incentives) that Nissan does not expect to be profitable until year three of the model.
Nissan said in May that it expects capital spending to reach 360 billion yen (about $4 billion) or 4.4 percent of sales in the fiscal year ending next March, up from 273.6 billion yen or 3.6 percent of sales in the 2009 fiscal year. Renault-Nissan chief Carlos Ghosn attributed the increase in that percentage to the automaker’s buildout of manufacturing capacity for electric cars and efforts to expand in emerging markets.
General Motors (s GM), plans to launch the Chevy Volt, its first plug-in vehicle since the EV-1 of the 1990s, later this year. The automaker, which reportedly plans to file with regulators as early as July for a return to public trading, has by some estimates invested more than $1 billion developing the Volt and does not expect to make money on the vehicle for at least the first generation or two. Back in February 2009, a few months before entering bankruptcy, GM’s market cap hit a 71-year low, plunging below $1 billion. Now that GM has restructured and lightened its debt load, Fortune cites analyst calculations that investors on the public markets “might support a GM market capitalization of somewhere between $70 billion and $90 billion.”
A123 Systems (s AONE), a lithium-ion battery maker hoping to supply a growing electric vehicle market, went public in September 2009 and as of Tuesday’s market close had a market cap of $958.9 million. A123, which like Tesla has yet to turn a profit, has seen its stock slide from a level above $20 last fall to below $9.20 on Tuesday (within the initially proposed price range of between $8 and $9.50 a share). “In batteries,” Oliver Hazimeh, director of PRTM Management Consultants explained recently, “investors quickly realized that profits and growth are tightly linked to ability to scale up and drive cost down.”
A string of other greentech ventures remain in the IPO pipeline. Smart grid networking darling Silver Spring Networks, rumored to be working toward an IPO this year, is reportedly aiming for a $3 billion market valuation, about double the $1.5 billion valuation figure that started floating around after Silver Spring bought home energy web display software developer Greenbox Technologies in September for a rumored $20 million.
Photo courtesy of Tesla Motors
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