Electrified Transportation: Market Embraces the Future
Posted June 29, 2010 at 12:59 pm 
Filed in: Nikola Tesla, who broke new ground in electricity generation, unveiled his pioneer electric car – in 1931. In keeping with the name’s tradition, Tesla Motors is the first and currently only company to produce a commercially available, federally-compliant highway-capable electric vehicle (EV), the Tesla Roadster.
The similarities don’t end there; both Nikola Tesla and Elon Musk – Tesla Motor’s CEO – staked their personal fortunes on their respective enterprises, both of which came to market amidst the two worst economic crises in recent history.
However, the economic environment forced Nikola Tesla’s EV production to stop a few months after the automobile’s test. Might history repeat itself?
The market does not seem to think so. Yesterday, Tesla Motors successfully launched the first initial public offering (IPO) of an American car company in over half a century, the Financial Times reported. The IPO raised $226 million, 27% more than originally sought, driven by a larger than planned number of shares sold (13.3 million vs. 11.1 million) at a higher than targeted price ($17 vs. $14 – $16). The money, together with a $465 million long-term loan from the Department of Energy, will finance the development of the Model S, a mass-market five-passenger premium sedan to be priced at $49,900 when launched in 2012.
Nonetheless, many investors and commentators have expressed caution and distrust for the California-based company. For example, Californian fund manager, Michael Ciggino, said “It’s potentially a new technology with a lot of questions. The questions are whether it’s going to be profitable and has staying power.”
Tesla is relying on its ability to successfully launch the Model S in 2012 as a key factor for its future viability as a profitable company. Some question this, like Angus MacKenzie, editor of Motor Trend magazine, noting that “Most experienced automakers race to put a car together in three years… I can’t see Tesla making more than a handful of these – if any – in 2012.”
Furthermore, the company’s history of losses has been rightly noted as a risk factor, even by Tesla Motors itself: “we have a history of losses and we expect significant increase in our costs and expenses to result in continuing losses for at least the foreseeable future”. The company experienced net losses of $222.5 million between 2006 and 2009 according to the documents filed to the United States Securities and Exchange Commission.
Who is right then? Judging by the success of the IPO, the market’s actions certainly speak louder than the skeptics’ words. Investors have revealed their confidence in the future prospects of electrified transportation in general and Tesla Motors in particular.
While some of the equity investors in Tesla’s shares may be thought of as optimists enthusiastic about new technologies in general – Larry Page and Sergey Brin, founders of Google – others are as experienced as any in the (electric) auto industry – Toyota and Daimler (formerly DaimlerChrysler, before the 2007 demerger). Moreover, having long-term investors like the government of Abu Dhabi buy Tesla’s stock reveals a confidence in the future sustainability of the automaker.
The market for electric-based vehicles – including EVs, HEV, PHEV – is expected to reach 10.6 million units worldwide by 2015, up from 1.75 million units in 2008. Developing business and government initiatives worldwide, including here in the United States with the ‘Promoting Electric Vehicles Act of 2010’ being debated in Congress, can help this growth proceed much quicker and allow for the mass deployment of EVs.
Consumer sensitivity to environmental, economic and national security consequences of using petrol-based vehicles has substantially increased over recent years. This is reflected by the sharp rise in hybrid car sales in the United States – from about 9,500 vehicles in 2000 to around 293,000 in 2009.
All of us concerned by the economic and energy security of the United States, as well as the global environment, hope that Tesla Motors continue the work they have done on battery and vehicle development. We believe that the future for electrified transportation now looks brighter than ever.
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