Tesla shares surge in first day of trading

NEW YORK -- Shares of Tesla Motors Inc. gained more than 40 percent in their public trading debut on Tuesday after the electric car manufacturer raised more money than expected in its initial stock offering. Investors snapped up Tesla's shares even as the broader markets took a beating. The stock soared $6.89, or 40.5 percent from its offering price, to close at $23.89 -- marking the second-biggest first-day gain among initial public offerings this year. Tesla's performance was a feat in a sour market that has forced many companies looking to raise funds through IPOs to accept lower prices to get deals done. The IPO also came on a day when most U.S. stocks tumbled as signs of slowing economies from China to the U.S. spooked traders already uneasy about a global recovery. Broad indexes closed down about 3 percent with the Dow Jones industrial average dropping below 10,000 for the first time since June 10. The electric car maker, based in Palo Alto, Calif., is the first U.S. automaker to go public since Ford Motor Co. held its initial public offering in 1956. The offering raised $226.1 million after selling 13.3 million shares priced at $17 apiece. Tesla had earlier expected to price just 11.1 million shares at $14 to $16 per share. Tesla's first-day stock gain was outpaced only by Financial Engines Inc., a portfolio manager that saw shares gain nearly 44 percent in their first day of trading in March. Scott Sweet, owner of IPO research firm IPO Boutique, said Tesla was "brilliantly marketed" to investors as a next-generation automaker. Shares opened at $19, but drifted down, hitting a low of $17.55. As the day progressed, the shares regained some ground and took off once they hit $19 again, as investors lost reservations over how the stock would fare. "Once it penetrated the $19 opening, that was almost like a buy signal," Sweet said. But he cautioned that the company has risks, including the fact it has yet to show a profit. Tesla CEO Elon Musk appeared Tuesday morning at the Nasdaq stock exchange at Times Square to mark the start of trading. At least five Tesla vehicles, including the $109,000 Roadster, were lined up outside, where spectators and tourists gathered to gawk at the cars. "The response from investors has been tremendous," said Musk. "We increased the size of the offering and the demand was still enormous, so we increased the price to a dollar above the top of the range and we still had massive, overwhelming demand." Tesla is a bet on the future of the electric car industry, which isn't currently a big draw for U.S. consumers. The IPO also comes at a time when volatile broader markets have dampened investors' taste for risk, particularly for companies with a history of losses or high debt levels. The company hasn't had a profitable quarter since it was founded in 2003. It has sold only 1,000 of its high-end Roadster sports cars. Investors are hoping that a planned lower-priced car will have a broader appeal. Tesla expects that a $50,000 four-door electric sedan, the Model S, which isn't slated to go on sale until 2012, will attract more buyers. Its goal is to build 20,000 of them a year. The company has a prominent backer in Toyota Motor Corp., which last month agreed to sell Tesla a shuttered plant in Fremont, Calif., and invest $50 million in the company. Tesla plans to use the plant to build the Model S. Tesla expects annual net losses until mass production of the Model S. The company also has a high-profile CEO. Musk was a co-founder of Internet payment service PayPal and currently runs rocket manufacturer Space Exploration Technologies. But Tesla may face competition in the electric car market by the time the Model S is ready for consumers. Nissan Motor Co. is already taking orders on its electric car, the Leaf, which gets 100 miles per charge and is priced at about $25,000 after tax credits. The Chevrolet Volt, an electric car with a gasoline range-extender, goes on sale by the end of this year with a $35,000 price tag. While Tesla is the first automaker to go public in decades, it likely won't be the last. General Motors Co., which makes the Volt, is widely expected to sell stock to the public again, maybe as early as this year. Tesla shares are trading on the Nasdaq under the symbol "TSLA." ------ AP Business Writer Tali Arbel contributed to this report.