Tesla Motors: Can It Deliver?

Tesla Motors (TSLA) went public last June in one of the few IPOs of the year.

It had the support of high-profile underwriters Goldman Sachs (GS), Morgan Stanley (MS), JP Morgan (JPM), and Deutsche Bank (DB), as well as many well-known Silicon Valley venture capitalists.

It priced at $17, the top end of its range, and soared 41% on its first day of trading. It's still trading over 24% above its IPO price three months later.

The company has done a great job of funding themselves. Its IPO raised $250 million. It also received a $465 million loan from a Department of Energy (DOE). But they need it. Since inception, Tesla has lost $300 million.

There are generally two types of Tesla investors: ones of love the company and ones who hate it. Tesla bulls point to electric cars being the future and Tesla sporting the biggest brand within that space.

They are most excited about Tesla's planned second car -- the Model S sedan which is scheduled to ship in 2012. They argue that Tesla doesn't have to sell many units to make a lot of money. They also proudly point out that Tesla has struck important partnerships with Daimler (DDAIF) and Toyota (TM).

Tesla bears point to how Tesla keeps losing money, how further capital needs for the company are under-estimated, and the upcoming IPO lock-up expiration in December as a potential weight on the stock price. Flashy Tesla CEO Elon Musk has also a lightning rod for criticism.

I have a short position in Tesla owing to the reasons cited above and what I perceive of as poor corporate governance structures in place for a public company.

I spoke last month to Eric Noble and Mike Dovorany of The CarLab, an Orange, CA-based auto consultancy. They have recently expressed publicly critical comments about Tesla's currently planned Model S. Here's an excerpt from the interview:

Jackson: You've said publicly that it will take Tesla $1 billion to develop the Model S.

Noble: We believe that it would take an OEM (e.g., Toyota, GM) $500 million to $700 million to design a new car. That's conservative. For a new company like Tesla doing the Model S as it's been most recently shown, we think they will need $1 billion -- but that's before ER&D on the alternative power train (where the electric battery is).

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