Monday, December 27, 2010

Private Investment vs. Government "Investment"

COMPARE: President Obama boasting in May 2010 about his administration's investment of 465 million taxpayer dollars in American electric car manufacturer Tesla Motors:
Thanks to loans through the Department of Energy, which helped provide Tesla Motors with the financial wherewithal to expand, that shuttered plant is soon going to reopen. And once again -- once again, it will be a symbol of promise, an example of what's possible here in America.
CONTRAST: The New York Times today on private investors' less optimistic feelings about investing their own money in Tesla Motors (despite all that government cheese):
Fresh from the holiday, shares of Tesla, the electric car maker, dropped 15 percent on Monday, after the lock-up period expired.

Tesla went public in June, at $17 a share. By late November, the stock had more than doubled to $35.47. Then shares in the company began to slide. With investors free to sell their I.P.O. stock on Monday, Tesla was trading at around $25.55.

Tesla has gotten a lot of buzz. The company’s first car, the Roadster, enticed the likes of the Google co-founder Larry Page and George Clooney to drop $100,000 in 2006 for the “wicked fast” vehicle. Three years later, the company unveiled the Model S, an all-electric car that the company is developing with Toyota. The hope is that the vehicle will be available in 2012 for less than $50,000.

But despite all the hype, Tesla has never been a financial hit. The Silicon Valley start-up, founded in 2003, has never turned a profit — and it is not expected to do so until 2012.

Concerns persist about the potential demand. Carter Driscoll, an analyst at Capstone Investments, recently wrote that he didn’t think the company would grow as quickly as the market anticipated, as consumers would be slow to adopt the new technology. He has a sell on the stock, with a price target of $22, roughly 14 percent below its current level.

“I just think that there were a lot more risks than there were positives at the price it was at,” he said.

But even Mr. Driscoll said he didn’t expect the price to drop so precipitously.
It's amazing that the President's politically-motivated feelings about investing my money in a super-neato future-car differ from those of professional investors risking their own money on an unproven product with flaccid demand.  But, hey, I'm sure a few dozen technocrats in Washington know better than the market and its vast number of participants and price signals.


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