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Tesla Files for IPO

31st January 2010

As was expected, Tesla Motors, Inc. filed its registration statement of its intent to sell stock to the public. It intends to raise as much as $100 million in the offering. No expected date was given for the offering. Stay tuned. If you’ve never read a Form S-1, try it sometime. Because it constitutes a legal document which could form the basis of a shareholder lawsuit someday, companies are brutally honest in the document. This is so they can say in court, “We told you so” if needed to fend off a fraud or other claim down the road. So it can indeed be an interesting read.

Here’s a tidbit from Tesla’s S-1 that anybody who follows the auto industry would find interesting. It is in the “Risk Factors” section of the S-1:

We anticipate that we will experience a decrease in revenues and increase in losses prior to the launch of the Model S.

Prior to the launch of our Model S, we anticipate our automotive sales may decline, potentially significantly as we do not plan to sell our current generation Tesla Roadster after 2011 due to planned tooling changes at a supplier for the Tesla Roadster, and we do not currently plan to begin selling our next generation Tesla Roadster until at least one year after the launch of the Model S, which is not expected to be in production until 2012…As a result, we anticipate that we will generate limited, if any, revenue from selling electric vehicles after 2011 until the launch of our Model S. The launch of our Model S could be delayed for a number of reasons and any such delays may be significant and would extend the period in which we would generate limited, if any, revenues from sales of our electric vehicles. The expected decrease in revenues for the periods prior to the launch of the Model S may be significant and could materially and adversely affect our business, prospects, operating results and financial condition and our ability to fund operating losses could seriously constrain our growth.

So Tesla will be essentially out of business for some period beginning sometime next year for at least a few months, and that assumes the Model S arrives on time. Because the Model S is Tesla’s first vehicle that they are designing from the ground up, it is reasonable to assume that they will have some delays and/or other problems. In fact, it is unreasonable to assume that they will NOT have any delays. The major auto companies, with decades of experience, regularly encounter problems or delays that they can not foresee. In fact, given the nature of the S-1, Tesla has enumerated the potential risks of successfully launching the Model S:

Our production model for the non-powertrain portion of the Model S is unproven, still evolving and is very different from the non-powertrain portion of the production model for the Tesla Roadster.

Our future business depends in large part on our ability to execute on our plans to develop, manufacture, market and sell our planned Model S electric vehicle. To date our revenues have been principally derived from the sales of our Tesla Roadster. The Tesla Roadster has only been produced in low volume quantities and the body is assembled by Lotus Cars Limited in the United Kingdom, with the final assembly by us at our facility in Menlo Park, California for sales destined in the United States. We plan to manufacture the Model S in higher volumes than our present production capabilities in our planned manufacturing facility. As a result, the non-powertrain portion of the production model for the Model S will be substantially different and significantly more complex than the non-powertrain portion of the production model for the Tesla Roadster. In addition, we plan to introduce a number of new manufacturing technologies and techniques, such as a new painting process and aluminum spot welding systems, which have not been widely adopted in the automotive industry. Our Model S production model will require significant investments of cash and management resources and we may experience unexpected delays or difficulties that could postpone our ability to launch or achieve full manufacturing capacity for the Model S, which could have a material adverse effect on our business, prospects, operating results and financial condition.

Our production model for the Model S is based on many key assumptions, which may turn out to be incorrect, including:
• that we will be able to identify and secure an appropriate facility for the manufacturing of our Model S;
• that we will be able to secure the funding necessary to build out and equip the manufacturing facilities in a timely manner, including meeting milestones and other conditions necessary to draw down funds under our loan facility with the DOE;
• that we will able to develop and equip the manufacturing facilities for the Model S without exceeding our projected costs and on our projected timeline;
• that the equipment we select will be able to accurately manufacture the vehicle within specified design tolerances;
• that our computer aided design process can reduce the product development time by accurately predicting the performance of our vehicle for passing relevant safety standards, including standards that can only be met through expensive crash testing;
• that we will be able to obtain the necessary permits and approvals, including those under the California Environmental Quality Act and the National Environmental Policy Act, as well as building and air quality permits, to comply with local zoning, environmental and similar regulations to operate our manufacturing facilities and our business on our projected timeline;
• that we will be able to engage suppliers for the necessary components on terms and conditions acceptable to us and that we will be able to obtain components on a timely basis and in the necessary quantities;
• that we will be able to deliver final component designs to our suppliers in a timely manner;
• that we will be able to attract, recruit, hire and train skilled employees, including employees on the production line, to operate our Model S manufacturing facility;
• that we will be able to maintain high quality controls as we transition to an in-house manufacturing process; and
• that we will not experience any significant delays or disruptions in our supply chain.

If one or more of the foregoing assumptions turns out to be incorrect, our ability to successfully launch the Model S on time and on budget if at all, and our business prospects, operating results and financial condition may be materially and adversely impacted.

We have no experience to date in high volume manufacturing of our electric vehicles. We do not know whether we will be able to develop efficient, automated, low-cost manufacturing capability and processes, and reliable sources of component supply, that will enable us to meet the quality, price, engineering, design and production standards, as well as the production volumes required to successfully mass market the Model S. Even if we are successful in developing our high volume manufacturing capability and processes and reliable sources of component supply, we do not know whether we will be able to do so in a manner that avoids significant delays and cost overruns, including as a result of factors beyond our control such as problems with suppliers and vendors, or in time to meet our vehicle commercialization schedules or to satisfy the requirements of customers. Any failure to develop such manufacturing processes and capabilities within our projected costs and timelines could have a material adverse effect on our business, prospects, operating results and financial condition.

Given this, and because Tesla has not made any money yet, could a significant delay in the launch of the Model S spell the end of Tesla? Will Elon Musk be willing to continue to fund the operations from his petty cash account? Of course, Tesla was awarded a $465 million loan to develop the Model S by the US government. If they go out of business, will Musk be asked for the taxpayers’ money back? If so, will he use PayPal?

That’s what I think – how about you? Please leave your comments below.

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  1. […] here to see the original: The Slandy Report » Tesla Files for IPO Posted in tesla ipo | Tags: 100-million, files, ipo, its-intent, motors, public, raise-as-much, […]

    Pingback by The Slandy Report » Tesla Files for IPO | Daily Hot Topic — 1 February 2010 @ 1:05 am

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