Shares of electric carmaker Tesla Motors Inc opened nearly 12 percent above their initial public offering price on Tuesday as investors bet that electric cars would define the future of transportation.

Tesla's shares were still up 10 percent in afternoon trading despite weakness in the broad market and as other auto stocks were hit by concerns of a global slowdown.

Tesla, which at the IPO price of $17 had a market capitalization of $1.6 billion, is the first initial public offering by an American automaker since Ford's debut in 1956. The IPO comes amid heightened interest in electric cars and as major automakers gear up to launch various types of battery-powered vehicles, including plug-in hybrids.

They're competing against both internal combustion engines and alternative fuels like fuel cells, compressed natural gas and things like that, said Matt Therian, an analyst with Connecticut-based IPO research house Renaissance Capital. It's probably too early to say that electric vehicles are definitely going to be the next thing in cars, but if they are I think the potential is huge.

Analysts say that the cars may be sleek, but the shares will be volatile in the near term. The Palo Alto, California-based company is losing money and does not expect to be profitable for at least two years.

A lot of people were puzzled about why we were going public without profits, CEO Elon Musk, dressed in jeans and wearing a plaid blazer and a shepherd's checked shirt, told reporters outside the Nasdaq building in Times Square, near several Tesla Roadsters.

The reason we are not profitable today is because we are in the midst of expanding with the Model S (sedan), Musk added.

The IPO is also the first for the eccentric and charismatic Musk, who is the inspiration for Robert Downey Jr's Tony Stark character in Iron Man and also has a cameo role in this summer's sequel.

The serial entrepreneur, who turned 39 on Monday, previously sold most of his bigger ventures, including online payment company PayPal to eBay for $1.5 billion in 2002.

The Tesla IPO also provided much-needed liquidity for Musk who had declared in February that he was broke. The sordid details of his financial status came to light in court papers of an ongoing bitter divorce dispute with his estranged wife Justine Musk, the author of supernatural fantasy novels.

Tesla shares opened at $19 on the Nasdaq on Tuesday, up 11.8 percent from the IPO price, then cooled off. In the afternoon they were trading at $18.75, up 10.3 percent. The Dow Jones industrials average, by comparison, was down 2.6 percent, and shares of Ford Motor Co were down 5.8 percent.


Tesla faces an uphill battle. The company has delivered slightly more than 1,000 of its Roadsters after early setbacks and a slower-than-expected start of production.

Since its start, the company has burned through $230 million of cash while recording revenue of just $148 million. It expects losses to deepen as it devotes the next year to preparing to manufacture Model S, a luxury electric sedan it plans to launch in 2012 and to sell starting from $57,400.

Musk, co-founder of the company, said his company could be profitable if it continued to make pricey sports cars, but is instead forgoing income to build a car aimed at mass-market commuters.

The company will go through a fair chunk of 2011 without any products for sale, thanks to tooling changes at a supplier. Production will resume only in 2012 when the mass-market Model S comes online.

But investors are focusing on the opportunity instead of the risks.

Musk told investors recently that his 7-year-old startup is closer to a technology company than a stodgy car maker. He called his car a freaking technology velociraptor, ready to revolutionize the way Americans buy and drive cars.

Underwriters on the IPO are led by Goldman Sachs & Co, Morgan Stanley, JPMorgan and Deutsche Bank Securities.

Tesla raised $226 million in the initial public offering Monday night, selling 3.3 million shares after it increased its IPO share by 20 percent.

(Reporting by Jonathan Spicer in New York, Poornima Gupta in San Francisco, additional reporting by New York newsroom, editing by Matthew Lewis)