Tesla Motors’ stock on Tuesday sank for the first time below the company’s IPO price of $17, shedding more than 16 percent to close at $16.11. At one point this afternoon the stock changed hands for as little as $15.83, a significant drop from the peak above $30 per share that Tesla saw on its second day of trading last week.
The success of Tesla’s initial public offering showed that investor appetite exists for a greentech IPO with the right marketing. But the downward trend of Tesla’s stock on the heels of a hot IPO roughly mirrors the trajectory of battery maker A123 Systems stock following its September 2009 Nasdaq debut.
A123’s shares have been trading in recent months below $10 apiece, and on Tuesday the stock lost 2.53 percent to close at $8.46 per share. That’s well below the more than $20 per share it drew last fall, but within the company’s initially proposed price range of between $8 and $9.50 per share. Tesla’s stock price, meanwhile, has slid for four consecutive trading days, but remains within the company’s originally estimated range of $14-$16 per share.
The basic challenge for both companies (and part of the risk for their investors) is that they’re relatively young and are racing to catch what could be a massive wave if the electric vehicle market takes off. It seems only reasonable for their stocks to come down and hover well below their hot IPOs during the years while they’re trying to build a business and generate their first profits. Tesla has the additional challenge of an expected gap in revenue between the planned launch of its second-generation vehicle, the Model S, in 2012 and the end of sales of its current Roadster model in 2011.
The rate at which Tesla’s stock is sinking does not bode too well for the fortunes of selling stockholders, directors, officers and employees who are subject to lock-up agreements (which underwriters typically secure to prevent a company’s stock from gushing too quickly onto the market) for 180 days after the IPO. If Tesla can keep its stock from losing much more value over the next six months, the new crew of electric car millionaires born out of the company’s IPO will be able to exchange their paper wealth for a pile of cash.
CEO and Chairman Elon Musk, however (who invested some $70 million of his personal fortune in the company and reaped more than $15 million selling some 909,000 shares in the IPO), is in it for a longer haul. As Tesla has explained in a filing with the SEC, the company’s loan agreement with the federal government requires Musk “and certain of his affiliates” to own 65 percent of the capital stock that they owned at the time of the loan agreement until at least one year after the completion of the Model S electric sedan project.
Scheduled to launch in 2012, the Model S is the key to Tesla’s profitability. Aside from press releases and high-profile partners, progress on the vehicle is the company’s best bet for sending its stock on an upswing.
Image courtesy of Tesla Motors
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