Tesla stock surges into the fast lane

The nascent electric car industry received arguably its biggest vote of confidence to date yesterday as US-based manufacturer Tesla Motors pulled off one of the most successful Initial Public Offerings (IPO) of recent years, its share price soaring by more than 40 per cent during its first day of trading on the Nasdaq.

Tesla's shares closed at $23.89 (£15.88) after the company yesterday priced the 13.3 million shares sold through its IPO at $17 each. The soaring share price took the company's market capitalisation to $2.22bn, marking a huge increase on the $1.4bn valuation Tesla expected when it first announced plans for an IPO.

The performance is all the more remarkable given that stock markets around the world performed poorly yesterday amid growing concerns about the fragility of the global economic recovery.

The move represents a huge vote of confidence in Tesla and will spark speculation that investor appetite for clean tech IPOs is returning.

However, analysts counselled that Tesla's share price is likely to remain volatile in the short term as the company is still loss-making and is unlikely to turn a profit until it delivers on its plans to launch an affordable electric sedan called the Model S in 2012.

There are also concerns that sales of its current electric vehicle, the Roadster sports car, will stall next year when one of the company's key suppliers undertakes retooling work.

"A lot of people were puzzled about why we were going public without profits, " chief executive Elon Musk told reporters outside the Nasdaq building in New York. "The reason we are not profitable today is because we are in the midst of expanding with the Model S."

Despite the risks attached to the company, including the fact that established car firms such as Nissan and GE are poised to enter the electric vehicle market, investors are clearly convinced Musk can deliver on his long term plan to create a portfolio of affordable and popular electric vehicles capable of genuinely replacing conventional cars.

The confidence is shared by big name auto firms Daimler and Toyota both of which have invested in the company and yesterday found that they now boast a holding in a firm with a $2.22bn market cap.