Electric carmaker Tesla Motors Corp's initial public offering zoomed ahead on Tuesday with shares rallying more than 40 percent as investors bet that electric cars would define the future of transportation.

Tesla's shining debut came despite weakness in the broad market and as other auto stocks were hit by concerns of a global slowdown. Tesla was the top gainer on the Nasdaq on Tuesday, offering hope to other companies mulling initial public offerings but which may have shied away given recent volatility.

Tesla's closing share price of $23.89 boosted its market capitalization to $2.22 billion, compared with $1.6 billion on Monday night. It is the first initial public offering by an American automaker since Ford's debut in 1956. The debut 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.

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

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.


The IPO has yielded millions of dollars for some of the early investors in Tesla, which was founded in 2003. But major shareholders still have to wait until the 180-day lock-in period to expire to cash in.

Tesla is strongest first-day performance since Financial Engines Inc's March stock debut, when it saw a 44 percent jump.

Musk, Tesla's largest shareholder who has poured in more than $70 million of his own money, owns 28.4 percent of the company. His stake is now worth more than $650 million. He made $15.45 million by selling part of his shares during the IPO.

German giant Daimler has seen a nice return on its investment in the startup in 2009. The 8 percent stake of Blackstar Investco, a 60/40 partnership between Daimler and Abu Dhabi's Aabar Investments, is now worth $178 million.

The quickest return was on the investment made by Japanese automaker Toyota Motor Corp, which bought $50 million worth of shares in a private placement at the IPO price. That is now worth about $70 million.

The other big winners include Abu Dhabi's Al Wahada Capital Investment with a 7.8 percent stake that is now worth about $174 million, and Valor Equity Partners with a 5.25 percent stake now worth about $117 million.

Also, VantagePoint Venture Partners' 6.6 percent stake is now worth about $164 million.

Tesla's $2.22 billion market cap is higher than the valuation of Swedish brand Volvo, which former owner Ford Motor Co sold for $1.8 billion. General Motors' luxury Saab unit fetched only $400 million.

Despite the rousing day one, 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.

The company is also facing upcoming competition from the $32,500 Nissan Leaf that will hit the market this year. Other electric cars expected to launch this year include Chinese automaker BYD's E6 and GM's Chevy Volt.

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 cheaper car.

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. The IPO was priced at $17 a share.

Tesla's stock rise occurred on a day when the Dow Jones industrials average dropped 2.7 percent and Ford Motor Co shares fell 5.3 percent.

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