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Tesla shares slump below IPO price as investors bail

July 6, 2010 |  3:41 pm

Investors who bought Tesla Motors Inc.’s initial public stock offering last week thought they had a hot one.

They did -- for a day and a half. But it has been all downhill since.

Shares of the electric sports car maker plunged for a third straight session Tuesday as investors bailed out, pushing the stock below the IPO price of $17.

Palo Alto-based Tesla closed down $3.09, or 16.1%, to $16.11.

Despite the high hurdles facing the company’s bid to become commercially successful, the hype surrounding the IPO -- the first for an American carmaker since Ford Motor’s offering in 1956 -- fueled strong interest.

Teslamodels Facing a flood of orders for the stock, Tesla’s brokerage underwriting team (led by Goldman Sachs) on June 28 raised the size of the IPO to 13.3 million shares, up from a previously planned 11.1 million shares.

And when it came time to price the deal later that day, the underwriters decided to greenlight the offering at $17 a share, which was above the range of $14 to $16 they had initially estimated.

Even after the boosts in the deal size and the IPO price, demand for the shares once they began trading made it look like Tesla had left a lot of money on the table: The stock soared $6.89, or 40.5%, to $23.89 on June 29, then rocketed as high as $30.42 early on June 30.

But investors’ hunger for Tesla faded fast. The stock ended the June 30 session at $23.83, then plummeted 7.8% last Thursday and 12.6% on Friday, to finish the week at $19.20.

On Tuesday the stock opened lower and continued to slide all day.

It isn’t unusual for a hot IPO to fall back to earth eventually, but Tesla’s rapid reversal raises the question of whether the underwriting team placed the shares with a lot of “flippers” as opposed to long-term investors.

What’s more, it’s a black eye for any IPO to fall so quickly below its offering price.

Tesla, led by CEO and serial entrepreneur Elon Musk and bankrolled in part by Silicon Valley money, has pitched itself as a technology play as much as an auto play. The company “combines the innovation and speed-to-market characteristics of Silicon Valley firms with the experience of leading automotive companies,” the firm said in the prospectus for its IPO.

But unlike other young tech companies that have gone public with a hot product already in the marketplace, Tesla’s first commercial vehicle -- the Model S -- won't be mass-produced until 2012.

Between now and then, the only thing shareholders can count on is that Tesla will burn a lot more cash.

David Menlow, head of in Millburn, N.J., said he believed that Musk had the “right formula” for an electric-car company in the long run.

But he said the stock could lose a lot more altitude in the near term, now that it has broken through the IPO price.

Interested investors should be patient, Menlow advised: “Let the momentum play itself out.”

He noted that Goldman and the other brokerages backing the deal have to wait 40 days from the IPO date to issue their first research reports on the company -- at which point they’re likely to paint a glowing picture of Tesla’s future, hoping to drum up more interest in the stock.

-- Tom Petruno

Photo: The Tesla Model S. Credit: Tesla Motors