Tesla move puts takeover closer

Loan paid, but carmaker’s CEO says deal still distant

Tesla shareholders look at a Model S sedan after the Tesla Motors Inc. annual meeting in Mountain View, Calif., on June 4.

Tesla shareholders look at a Model S sedan after the Tesla Motors Inc. annual meeting in Mountain View, Calif., on June 4.

Tuesday, June 25, 2013

Tesla Motors Inc., a long speculated takeover target, just removed a barrier to a deal by paying off a U.S. government loan. The problem for would-be suitors is it has also become the world’s most expensive car maker.

The loan had contained language limiting Tesla’s ability to sell itself. A purchase probably still isn’t imminent because Chief Executive Officer Elon Musk might not be willing to part with Tesla and a buyer would have to pay top dollar for a 10-year-old company that just reported its first quarterly profit.

The Palo Alto, Calif.-based manufacturer trades for 816 times estimated 2013 earnings, the highest among automakers valued at more than $5 billion, according to data compiled by Bloomberg. Should Tesla scale up vehicle sales, it may attract a wide range of buyers such as Google Inc., which has $52 billion in cash and has invested in car technology, according to Robert W. Baird & Co. It also may lure conventional automakers, said Steve Westly, an early investor in the $12 billion company.

“Tesla has developed an appealing and credible product with game-changing technology,” said Jim Press, the former deputy chief executive of Chrysler Group LLC. “They need to prove their success is sustainable for the long term and that it is based on a solid financial foundation. If they do, they should be an appealing takeover target.”

Tesla’s 2010 initial public offering at $17 a share was the first IPO by an American car company since Ford Motor Co. in 1956. The stock surged 194 percent to $99.55 this year through last week, giving Tesla the third-biggest rally among U.S. stocks valued at more than $5 billion, data compiled by Bloomberg show. Tesla shares rose $1.94, or 2 percent, to close Monday at $101.49.

Musk, who is also Tesla’s chairman, owns a 24 percent stake. A sale of the company is “one of the possible outcomes, I suppose,” he said during an interview last month, while adding that a deal isn’t expected soon.

“I’ve said from the very beginning, from the creation of Tesla, that our goal is to create a compelling mass-market car,” Musk said. “I would not consider stepping away from Tesla until we’re there,” he added. “We’re several years away obviously.”

Shanna Hendriks, a Tesla spokesman, declined to give additional comment Friday, and Musk didn’t reply to an e- mail sent at the end of last week.

Through the end of 2012, Tesla delivered about 2,450 Roadsters, a $109,000 two seat electric sports car. It also began shipping its second vehicle last year, the Model S sedan that costs at least $69,900, with a target of about 21,000 deliveries in 2013.

Company revenue totaled $413 million last year, and analysts see that rising to $3.2 billion in 2015, according to the average estimate compiled by Bloomberg. Tesla earned about $11 million in January through March, its first profitable quarter.

To increase the appeal of its vehicles, Tesla is expanding its network of fast-charging stations, which will permit car owners to drive between the East and West Coasts of the U.S. Last week, Musk demonstrated a battery-swapping system for the Model S that’s faster than charging and ensures the car earns maximum zero-emission vehicle credits in California.

While most automakers larger than $5 billion trade at a discount to revenue, Tesla’s stock price is more than six times this year’s average sales estimate, data compiled by Bloomberg show.

“It’s not the easiest company to acquire, given the current valuation,” said Nancy Pfund, who helps oversee about $250 million as a San Francisco-based managing partner at DBL Investors. Her firm was an early investor in Tesla, and she drives a Model S.

An acquisition of Tesla “could be a possibility, but it’s also a strong possibility that they stay independent for the near future because they can,” Pfund said. Like Google and Apple Inc., “it is that kind of an iconic company and iconic stock in the making,” she said. “That makes the list of buyers a little more rarefied.”

For potential suitors, Tesla just removed one takeover obstacle by paying off the $452 million balance on a U.S. Energy Department loan granted in 2009.

Repayment “opens up more flexibility for the company,” said Ben Kallo, a San Francisco-based analyst at Baird. “There’s still a lot of value in the company to unlock before they get to the point of selling, but I don’t rule out an acquisition of Tesla down the road.”

Google is a possible suitor given its interest in vehicle technology, Kallo said. Self driving cars are among projects stemming from Google’s practice of letting employees develop ideas not tied to online search and digital advertising, its main businesses.

“Google seems outlandish at first glance,” he said. Nonetheless, Tesla would “fall into some of the initiatives Google has under way.”

Sameet Sinha, a San Francisco-based analyst at B. Riley & Co. who covers Google, said the company is probably more interested in partnering with Tesla and other car makers.

“To reach worldwide ubiquity, Google needs to license its technology to every manufacturer that is out there,” Sinha said. “I can’t see them purely tying up with Tesla.”

Leslie Miller, a spokesman for Mountain View, Calif.- based Google, declined to comment.

Information for this article was contributed by David Welch and Brian Womack of Bloomberg News.

Business, Pages 21 on 06/25/2013