By on February 5, 2010

I’ve been warned before by the B&B not to read too much into the forward-looking statements in SEC filings, especially the ones where companies ruminate over all the things that could still go wrong with their struggling firms. These legal disclosures of worst-case-scenarios often reflect unlikely scenarios and can be downright misleading, so we held off from diving too deep into Tesla’s IPO S-1 filing [complete document here]. Others around the web have jumped in without compunction, and this week has yielded a steady drip of troubling revelations. It’s a wild and woolly collection of issues, but given that people are going to be asked to invest in this nightmare of a company, it’s only fair that we give the grievances an airing.

One serious issue hidden in the forced doom-contemplation exercise is this one, uncovered by Wired Autopia: Tesla doesn’t own the name Tesla in Europe. It has two trademark filings pending, but these

are subject to outstanding opposition proceedings brought by two prior owners of trademarks consisting of the word Tesla

Egads! How did that one slip by Tesla’s leadership? Speaking of which, another worrying issue is the fact that Tesla can’t dump its chief egomaniac officer, Elon Musk, before the Model S goes into production. Wired Autopia teased this nugget out of the S-1 filing, and strangely, it seems that keeping Musk is a condition of Tesla’s DOE loan. Per the S-1:

Our DOE Loan Facility provides that we will be in default under the facility in the event Mr. Musk and certain of his affiliates fail to own, at any time prior to one year after we complete the project relating to the Model S, at least 65% of the capital stock held by Mr. Musk and such affiliates as of the date of the DOE Loan Facility.

This is mainly troubling in the sense that the S-1 reveals Musk “does not devote his full time and attention” to Tesla, a wholly unsurprising disclosure in light of Musk’s other ventures like private space firm start-up Space X. Musk’s history of Nixonian tendencies doesn’t make a strong case for lashing him to the wheel either.

Meanwhile, Wired dug up another interesting bit: Daimler, which invested $50m into Tesla requires Musk to stay in charge until the Model S rolls out, or the end of 2012, whichever comes first (bets, anyone?). Moreover, Daimler’s investment fund Blackstar enjoys

a right of notice on any acquisition proposal we receive for which we determine to engage in further discussions with a potential acquiror or otherwise pursue. Blackstar then has a right, within a specified time period, to submit a competing acquisition proposal.

And yet, Gawker’s Valleywag suggests that Google could be moving to rescue Tesla through some convoluted financial manouvering. This would be the final nail in Tesla’s coffin, proving once and for all that it’s a Silicon Valley toy company (the alleged Google front is also investing in a zeppelin company) rather than the world-changing automaker Musk has thus far touted it as.

A Google-backed buyer is possible in the sense that Daimler is developing its own battery thermal management system and has other, bigger irons in the battery-supplier fire. Besides, Tesla’s deal was only to supply drivetrain components for an EV version of the dead-in-the-water Smart. In short, the only OEM to touch Tesla with a 50-foot pole has largely moved on. Meanwhile, BMW is showing Daimler how the EV-development game is played, getting overenthusiastic early-adopters to shell out $850 per month for the right to be guinea pigs for its MINI E development. Not only is this a smarter model than investing in start-ups like Tesla, it also soaks up the rather limited EV-at-any-price demand that might otherwise spend their money at Tesla.

All in all, the signs don’t look good.

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9 Comments on “What’s Wrong With Tesla? How Much Time Do You Have?...”

  • avatar
    Telegraph Road

    It’s curious that a lot of the details of the DOE loan, e.g. the DOE warrants to buy preferred shares, are only coming to light with the S-1 filing. Aren’t the details of the DOE loan public information? Do we need FOI requests to get the remaining details?

  • avatar

    Diamler doesn’t appear to be wizards of the auto world and it’s association with Tesla isn’t a guarantee of success. (see:DiamlerChrysler). Diamler does okay if they can (over)charge for their merchandise. Sure, Mercedes may be a fine car (debatable). But it’s at “fine” prices. A Tesla isn’t cheap either.

  • avatar

    Just for kicks lets review a couple of other relevant facts, the Tesla Roadster which is currently their only revenue generating product is scheduled to go out of production soon due to Lotus’s discontinuation of the Elise chassis on which the Roadster is built.

    Tesla is now developing the Model S, a completely new car based on an entirely new platform of Tesla’s own creation. The Model S won’t be ready until sometime after production of the Roadster is over. If the Model S is delayed due to snags in either design, engineering or production issues then the company could be stuck with nothing to sell for a long time. Let’s also not forget that Tesla has never even attempted to create an automotive platform before, let alone having an established track record of success in doing so. If the Toyota pedalgate episode has shown us anything, it’s shown us that cars are damned complicated things to design and build and even small components can cause nightmares even for successful, established carmakers. What’re the chances that Tesla won’t run into any snags?

    Oh, and one other thing, didn’t Tesla cut back on their research and development spending in the last year or so? (To dress up the books for the IPO, probably.) And, um, how exactly do you develop a mission-critical car platform from the ground up that is driven by an advanced state-of-the-art drivetrain while cutting back on R&D?

    I don’t have anything against Tesla but they’re trying to walk a tightrope and the probability of failure is very high. I’d bet that Daimler has already written off their $50m investment and done so for good reason. I’d advise potential Tesla investors to consider buying lottery tickets instead. The lotto may have extremely low chances of winning but at least you know there will be a payoff for somebody.

    • 0 avatar

      Good points all, but I would add that it is likely that Tesla is using an existing platform
      for the model s. Rumor has it that Mercedes is providing this platform.

      The other thing to consider is that investors are morons. Stock prices are
      based on nothing. I fully expect Teslas IPO to be huge. That will give them
      plenty more money to burn before they get bailed out by the taxpayers.

  • avatar

    Ok , the Elon Musk thing is actually nothing to be worried about. In credit markets these are called “change of control clauses”, which are a standard part of most credit contracts. They are designed to protect the creditor from fundamental changes in company structure and strategy that could possibly increase the default risk.
    With regards to the rest of the whole scam however, just remember that development costs for new platforms from established automakers are usually not counted in double-digit millions, but billions. There’s no chance in hell this will work…

  • avatar

    Developing a car takes hundreds of millions of dollars and that’s assuming you have the core company to complete all the legally required testing. Even the record retention can swamp a large company, imagine an unfocused startup attempting to avoid a Toyota like issue. Even with proper financing, which they aren’t even close to getting, and a distribution network to sell enough cars to make a profit, the slightest mis-step will bury this company in a heart beat. I wish them luck, but developing cars is not for the feint of heart, or in this case the seriously underfunded.

  • avatar

    I don’t buy this “the Roadster will be discontinued due to Lotus ending the platform” bogus. It’s complete and utter bullshit.

    First, the Elise is Lotus most prolific model. The generation 1 was out in 1996, generation two in 2000. It’s due for replacement, but considering that they happily part out platforms to any third party automaker that pays up the price, I’m sure they would’ve obliged to Teslas wishes and continued to make that particular generation of Elise just for Tesla. Second, if not, and the second gen Elise is due for discontinuation, wouldn’t the Tesla deal simply transfer to the up comming third gen Elise? Lotus would shoot themselves in both feet if they didn’t take the chance and continue the Tesla relationship, I guess they make quite a handful of money on selling that platform to a competitor that isn’t even competing on the same demographic. It’s a win-win for Lotus, as they say.

    The Tesla has been in production for two years, it took one and a half year to make the first 500 cars, they have just recently made their first thousand cars. It’s ludicrous to the point of criminal negligence to have a car with such prolonged development phase, just to have it ended because the platform it’s based on was supposed to be discontinued within the year. Surely, it can not be any news to Tesla that being the case? And equally logic, they would’ve taken that into account some way or another. Either plan for the Tesla to transfer to the third gen Elise, or persuade Lotus to continue with the production of the second generation.

    The point is, it’s complete und utter bullshit that this problem comes up now as some sort of news, it’s merely an excuse to junk the Roadster and play the blaming game. “It wasn’t me!”

  • avatar

    “…proving once and for all that [Tesla]’s a Silicon Valley toy company … rather than the world-changing automaker Musk has thus far touted it as.”

    I think it’s fair to say that Tesla has already had a major influence on the automotive world. Nearly every major automaker has an EV in the works now. I don’t think that would be the case if Tesla never existed.

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