Tesla Stock Comes Back to Earth; Sun Rises in East, Sets in West

· · 11 years ago

For a minute, it looked like Tesla Motors might double its stock price in just days, after its initial public offering climbed more than 75 percent from $17 to about $30 in about 48 hours. Analysts swooned, declaring "Tesla Mania!" and calling the company "tailor-made for (the) overcast environment on Wall Street."

But for those familiar with early IPO trading—which has tendency to make high-stakes craps tables look like a conservative investment—Tesla's fall to less than $16 today shouldn't come as a huge surprise. For technology startups offering the public its first chance to own a piece of their exciting new idea, what goes up usually comes down—at least in the short run.

In a January SEC filing, Tesla projected "the rate at which (it) will incur losses to increase significantly" leading up to the release of its Model S. For the foreseeable future, Tesla investors will essentially be wagering on future profitability. But it will be some time before anyone can say for sure when or whether such a milestone is in the cards for company.

Two weeks ago, investment giant Goldman Sachs (which underwrote the Tesla IPO,) likened the burgeoning electric vehicle and battery markets to the early days of e-commerce. Using that model, it's easy to see why Tesla's stock will continue to trade at prices that have little to nothing to do with the company's actual outlook. By the same token, using TSLA's day-to-day price to make pronouncements about the viability of electric cars is roughly equivalent to using Pets.com to gauge the future of the internet ten years ago.

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