

Tesla stock is now back below its IPO price. - phreeza
http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1278446400000&chddm=1954&chls=IntervalBasedLine&q=NASDAQ:TSLA&ntsp=0

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hugh3
Pretty much exactly what that guy from Mad Money predicted would happen.

I wouldn't invest in Tesla. Either electric cars take off or they don't, but
if they do then the _big_ car companies can easily muscle in and eat Tesla's
lunch. Nissan and Chevy both have electric cars coming out soon which will
present a much better value proposition than the Tesla Model S.

~~~
huhtenberg
> muscle in and eat Tesla's lunch

This would largely depend on whether Tesla would strive to become a mainstream
car maker or would choose to retain its focus on building luxury/exotic cars.
Think Aston Martin kind of company.

Though they have already announced an average-priced sedan version that was
scheduled for mass production in 2012, so I guess they are going after the
behemoths.

~~~
hugh3
Luxury and exotic cars is a terrible business to be in. Small-volume supercar
manufacturers pop in and out of existence every few years, leaving behind tiny
production runs of awesome-looking machines and no spare parts.

The only luxury/exotic car manufacturers which have survived are the ones
which managed to pick up enough of a history to be bought out by a much larger
mass-market brand as a halo. afaik they mostly operate at a loss. Bentley,
Lamborghini and Bugatti belong to VW. Ferrari is Fiat. Lotus is Proton, and
Rolls-Royce gets passed around like a cheap hooker. Only Aston Martin is
currently owned by someone other than another car company, but that may not
last.

~~~
shin_lao
What about Porsche, BMW and Mercedes?

Any business is good to be in - provided you're good enough. There's no such
thing as easy money.

~~~
hugh3
Low-end luxury seems to be very profitable, as those three companies
demonstrate. They're comfortably away from the cost-cutting at the bottom of
the market, but still accessible to a large number of customers.

It was the _really_ high-end cars ($100K+) I was talking about as apparently
being unprofitable.

~~~
shin_lao
Mercedes and BMW manufacture and sell cars in the price range you are talking
about.

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jeb
The speculators done gone made a lot of money off the geeks. Tesla was a
typical speculator IPO, now the reality of the risk facing the company will
set in and the price will go to its standard level till they start to show
real potential.

~~~
cynicalkane
Are you talking about the geeks at Tesla or the geeks who bought stock after
the price jumped?

If the former, companies often IPO at prices below what they're worth--if the
IPO is issued at a fair price, then it's Tesla that benefits, not the
speculators. If the latter, buying stock because it's going up is an act of
speculation, not necessarily geekishness.

~~~
eru
Yes, I don't really get why any company would IPO below their fair price.
Every time I see a company's stock go up massively on the first day, I ask me
"Why did they not charge a higher price for their stock in the first place?".

~~~
lkrubner
Leaving money on the table during an IPO is often attacked as a form of fraud.
I recall it was a big issue during the peak of the Internet boom, 1997-2000.
There you had a lot of startups desperate for money to fund their growth, and
yet they gave away substantial amounts of money to speculators. There were
clear abuses of "Friends and Family" blocks of stock -- these started getting
handed out to anyone who could move the deal forward, with the understanding
that the stock could be dumped on the opening day of trading. This amounted to
a kind of bribe, an additional payment made in excess of all the normal IPO
fees.

Wikipedia offers this:

<http://en.wikipedia.org/wiki/Initial_public_offering>

"The underpricing of initial public offerings (IPO) has been well documented
in different markets (Ibbotson, 1975; Ritter 1984; Levis, 1990; McGuinness,
1992). While Issuers always try to maximize their issue proceeds, the
underpricing of IPOs has constituted a serious anomaly in the literature of
financial economics. Many financial economists have developed different models
to explain the underpricing of IPOs. Some of the models explained it as a
consequences of deliberate underpricing by issuers or their agents. In
general, smaller issues are observed to be underpriced more than large issues
(Ritter, 1984, Ritter, 1991, Levis, 1990) Historically, IPOs both globally and
in the United States have been underpriced. The effect of "initial
underpricing" an IPO is to generate additional interest in the stock when it
first becomes publicly traded. Through flipping, this can lead to significant
gains for investors who have been allocated shares of the IPO at the offering
price. However, underpricing an IPO results in "money left on the table"—lost
capital that could have been raised for the company had the stock been offered
at a higher price. One great example of all these factors at play was seen
with theglobe.com IPO which helped fuel the IPO mania of the late 90's
internet era. Underwritten by Bear Stearns on November 13, 1998 the stock had
been priced at $9 per share, and famously jumped 1000% at the opening of
trading all the way up to $97, before deflating and closing at $63 after large
sell offs from institutions flipping the stock . Although the company did
raise about $30 million from the offering it is estimated that with the level
of demand for the offering and the volume of trading that took place the
company might have left upwards of $200 million on the table."

All the same, Wikipedia also offers a charitable explanation for the
phenomena:

"The danger of overpricing is also an important consideration. If a stock is
offered to the public at a higher price than the market will pay, the
underwriters may have trouble meeting their commitments to sell shares. Even
if they sell all of the issued shares, if the stock falls in value on the
first day of trading, it may lose its marketability and hence even more of its
value."

~~~
ct4ul4u
The term "pop" is sometimes used to describe the immediate post-IPO jump.

A small amount of "Pop" (no more than 10 percent) isn't a bad thing. It is a
result of oversubscription, which every underwriter needs in order to assure
they aren't left holding the bag. It also makes stabilization (the only legal
form of market manipulation) less expensive for the underwriter.

You're going to see more extreme cases of "pop" in a market with a lot of
uncertainty (like we have now). This is the underwriter being cautious. Their
worst case scenario doesn't appear and the IPO turns out to be underpriced.

What we saw in the late 1990's was heinous. I worked at a startup investment
bank (Epoch Partners) that was intended to take some of the pop out of IPOs
(and make allocation more available to genuine retail investors).

-r

~~~
eru
Yes, but why care about underpricing at all? Can't you just have a formal
auction, where everybody states (legally binding) how many stocks they want at
which price level (e.g. for 3$ I'd buy 10 stocks, for 5$ I'd buy only 8 stock,
and so on, basically giving your demand function) and then do a simple
optimization that finds the highest price at which all shares sell. (Or
alternatively, and perhaps better, the lowest price at which everybody who
wants to pay at least this price, can buy.)

Why rely on guess work?

Edit: I saw on the linked Wikipedia article that some people have tried
auctions. Google seemed a noteworthy example.

~~~
ct4ul4u
Epoch had an auction equivalent process (which we didn't get to implement
because we didn't get to the point of being lead underwriter).

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feverishaaron
The real smart geeks road the wave to 40% then shorted them on the way back
down.

~~~
bryanh
I'd be surprised if there was sufficient liquidity for shorts so soon after
the IPO.

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kno
I will argue that this is a good time to buy Tesla Stocks; this is a time for
real geeks to make money.

~~~
ars
No, not yet. A lot of people are going to panic sell. Then you will have those
who will hold on hoping it goes back up at least to what they paid for it. The
moment it does they too will sell.

Wait till it stops going down, goes up for a bit, then down again. Only then
think about buying.

And for those who are hoping it goes up to at least what you paid for it:
Please be aware you ALREADY lost your money. Waiting for it to go back up is
poor investment strategy. You don't loose your money when you sell - you loose
it instantly. Either you think it's a good buy right now (in which case buy
some more, or hold what you have), or you don't think it's a good buy
_right_now_, in which case sell and it makes no difference what you paid for
it.

Waiting for it to go back to what you paid for it will make you feel better,
but in the long run you will loose money that way. Only keep a stock if you
think it's a good buy at all times - pay absolutely no attention to what you
paid for it. The present, and future is all that matters, the past doesn't.

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joe-mccann
Actually, the reason for the insane run-up on it's inital day and second day
of trading had very little to do with speculation, but more to do with TSLA
being an "extremely hard to borrow" stock on those days. When a stock is hard
to borrow, it means it is nearly impossible to short sale the stock. Think AIG
when they were melting down. That was a stock that no one wanted loan out for
short sales because at the time, their demise was imminent. Not necessarily
the same thing with TSLA, but that's what hard to borrow equates to...

So all theories and ideas of why the run up and why the subsequent sell off
are essentially wrong. When a stock can only go in one direction, then it can
only go in that direction.

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arnorhs
Maybe a perfect time to buy?

Their brand is now recognized as _the_ electric car manufacturer. As long as
this trend continues, they will submerge as the winner.

I've also heard that their technology is somewhat unique and that they've
found solutions to many hard problems. Do they have any patents?

~~~
pchristensen
_...they will submerge..._

Freudian slip?

~~~
arnorhs
Sorry about that. You're right.
<http://www.google.is/search?q=define:submerge>

I'm not a native English speaker, so sometimes it's difficult to find the
right word and something pops up in my mind and I think it's correct.

~~~
ars
The word you were looking for was emerge.

~~~
arnorhs
Exactly ! Thanks :)

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mattmaroon
Not surprising. The market's collective thinking is normally pretty short-
term, and shares of a company that's forecast involves a best case scenario of
generating real revenues 2 years from now wouldn't be expected to be in-
demand.

~~~
nostrademons
It's interesting how this has changed since the dot-com boom, where shares of
AMZN in 1998 had the same price that they did in 2008, even though it wasn't
expected to turn a profit until 2002.

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tocomment
Why are there no stock options (calls/puts) offered for TSLA? Will that change
in the future?

~~~
joe-mccann
Yes. Not enough historical volatility currently to price options contracts
accurately.

~~~
tocomment
Thanks. I didn't think about that. How much history would they want?

