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Will Tesla Pave the Way for More Clean Tech IPOs?

Leon Kaye | Tuesday July 6th, 2010 | 0 Comments

Tesla’s initial public offering (IPO) was well-timed. Except for the World Cup, the past week was a relatively slow news week, unless you are a G8 or G20 news junkie.  The Gulf Oil spill will not end anytime soon, not that highways suffered from lack of traffic over the holiday weekend.  In a world where IPOs are so few and far between some of us have to refresh and look up what that acronym means.  Finally, for history junkies, Tesla was the first American car company go to public since Ford.  So this is a watershed moment for clean tech companies itching to go public, right?

Not so fast.  True, Tesla’s stock is holding steady for now.  Electric cars, which were left or dead just a couple years ago, are hot—go to any conference or trade show that has a “green” or “sustainability” moniker and chances are you will see an e-car manufacturer at its exhibit hall.  Then again, Tesla’s fundamentals are daunting:  only one model available for purchase, a history of only 1000 cars sold, and a history of losing money.  Or do the facts surrounding Tesla even matter?

At a higher level, the clean tech industry (a very broad term, I know), still has a long way to go until companies in this space are mentioned regularly in the business financial news.  Some of the issues are just from the realities in this current market:  investors are not investing, registering as a public company has become even more expensive since the Sarbanes-Oxley act, and some entrepreneurs figure it is better to cash out by having a larger company purchase their firm.

But the clean tech industry has other problems:  most are not making money.  Stimulus money or tax incentives are all right for the early research and development stage, but are not enough to build a solid business.  And not only are they not profitable now, but they will not be in the near future.  But even a larger problem looms:  the federal government does not have a clear energy policy, nor does it have a plan for the fledgling clean technology market.  With uncertainty over November’s elections, investors are not quite ready to dump their cash into unproven companies.  Hence, you have several companies that go through the tedious process of completing paperwork needed to go public—only to change their mind at the last minute.  Solar panel manufacturer Solyndra is one example.

Finally, clean technology is still expensive.  New energy technologies require much capital investment, are still expensive compared to fossil based fuels, and do not receive the tax breaks and other government incentives that benefit oil companies

But  do not count out Tesla yet:  wise management of the money it raises from the capital markets could help it launch its cars at an even greater scale.  Nevertheless, a massive consumer shift to electric cars will require changes that involve more than a tax rebate.

Or does any of this discussion over going IPO or not really matter?  Becoming a public company is not all that it’s cracked up to be:  companies seeking investment need a solid business plan, a proven management team, investors who will keep investing, investment from a prestigious firm—and that is what is required if selling stock is not an option—once a firm goes public, the bar is raised higher, and the amount of control the companies’ founders maintain diminishes.

In any event, Tesla is a company we should watch for the next few years—how it performs and how the markets respond will have an effect on the electric car market—and whether these vehicles go from a cult status to mainstream, taking other clean tech companies along for the ride with them.  Stay tuned and fasten your seat belts for the clean tech industry—the journey for the next year will be a bumpy one!


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