Strong trading debut for Tesla Motors sparks hopes for electric-car market

Chief executive Elon Musk with a Tesla Roadster -- going price $100,000 -- in New York on Tuesday.
Chief executive Elon Musk with a Tesla Roadster -- going price $100,000 -- in New York on Tuesday. (Daniel Acker/bloomberg News)
By Peter Whoriskey
Washington Post Staff Writer
Wednesday, June 30, 2010

Since its founding in 2003, luxury automaker Tesla Motors has never turned a profit. Its charismatic founder recently ran out of cash. It has sold fewer than 1,500 vehicles.

Yet in a burst of enthusiasm for electric cars, investors are saluting the company's prospects, raising more than $200 million at its initial public offering Monday and, on its first day of trading Tuesday, sending share prices up again from $17 to $23.89.

Co-founder and chief executive Elon Musk said the enthusiasts were making a smart bet.

"We had an incredibly positive outcome from the smartest investors in the world," he told CNBC on Tuesday. "When people look at the list of the investors . . . they will be amazed at the quality and strength of the investor group in Tesla."

The outcome, indirectly, amounts to a small measure of private-sector validation for Congress and the Obama administration, which has invested billions of government dollars in electric-car technology, including a $465 million loan commitment to Tesla.

But as lawmakers weigh bills that would bolster the electric-car industry with $10 billion more in consumer incentives and other support, industry observers remain divided over whether the technology will be commercially viable soon, and whether this is the right time for the government to get involved. Chevrolet and Nissan are expected to roll out electric cars for sale this year.

The Tesla stock offering "is a good sign that people believe electric vehicles have potential," said Robbie Diamond, president of the Electrification Coalition.

The group is lobbying for more than $100 billion in long-term government support that would give consumers thousands of dollars in incentives to purchase an electric vehicle. Without subsidies, electric cars are unlikely to attract many buyers because they are more expensive than their conventional counterparts. The coalition's plan also calls for the government to subsidize the development of charging stations, where travelers would plug in.

"The government really does have to be involved," Diamond said. "The government needs to get serious about working in this industry or electric cars will be relegated to a niche market and not solve our oil dependence problem."

He notes that despite some government support, hybrid vehicles make up only about 1.6 million of the roughly 250 millions cars on the nation's roads.

Others said past government efforts to subsidize alternative energies have yielded little.

"The attempt to subsidize our way out of this problem has a 35-year track record of failure," said John DeCicco, senior lecturer at the University of Michigan and a former senior fellow for automotive strategies at the Environmental Defense Fund.

He said that synthetic fuels were hyped during the Carter administration, that the Clinton administration pushed the "Supercar," which was supposed to triple mileage, and that the Bush administration promoted a hydrogen-fueled vehicle dubbed the "Freedom Car."

DeCicco backs government subsidies for research and development in alternative fuels, but he said subsidizing production and sales of vehicles is a "dubious proposition."

Bills with bipartisan support now in Congress would, among other things, offer incentives of as much as $10,000 to consumers who buy electric cars, as well as provide support for building charging stations and other infrastructure. Existing law gives consumers a $7,500 tax credit for their purchase.

Such credits would only make a small dent in the price of Tesla's Roadster, which sells for more than $100,000 and has attracted buyers such as George Clooney and Brad Pitt. The Chevrolet Volt and the Nissan Leaf are expected to be far less expensive -- the Leaf price tag is $32,780. Tesla's next car is supposed to be less costly, projected to run about $50,000.

Regardless, the boost from investors led Musk on Tuesday to take a jab at skeptics of the company into which he has poured millions of dollars made from his previous company, PayPal.

"People at this point ought to be a little bit more optimistic about the future of Tesla because we've confounded the critics at every turn," Musk said. "At a certain point, people have to get tired of being wrong."

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