Tuesday is a big day in smart grid, and could well set the tone for the rest of 2010 in this space. Tesla Motors has their highly-anticipated IPO (TSLA on Nasdaq), and while I'm not a financial analyst, there's a lot at stake here.

Being practical and short-sighted, it would be easy to dismiss this move as folly, considering how the company has already gone through hundreds of millions of dollars, and has cumulative losses around $250 million. Not to mention they make one model of electric vehicle that sells for $105,000, have little in the way of a distribution network, and outside of California, the proven demand for electric vehicles is close to zero.

So, why is Wall Street so excited about this? Why has Toyota put $50 million into the company? Why do I think they will have a successful IPO?

Sure, we've been hearing about slowdowns in smart grid, but this is different. In the wake of BP's mess in the Gulf of Mexico, there are lots of questions being raised about our dependency on oil, and I would argue that the prospects for electric vehicles have never been brighter. As we've seen in telecom, some companies are too early to market and they simply run out of cash before they can get real customers. Others are too late, and struggle to keep pace with the established leaders. Finally, others get the timing just right. It's still pretty early for electric vehicles, but given how capital intensive this business is, and the long cycles for R&D and production, Tesla it probably a bit on the early side, but pretty close to timing this just right.

If Tesla was the only game in town, I'd be worried. They certainly represent the high end of the spectrum, and nobody is under any illusions their Model S will be for the masses. It's actually a pretty safe strategy since they don't have to make millions of vehicles and have thousands of dealers to be successful. The main thing is to establish a stable financial base upon which they can ramp up production, get their costs down, and build the distribution and support network they need to keep the first generation of customers happy. That's a three-to-five year plan, and given how quickly things are evolving, it's hard to see how anyone in the auto business can plan much further out with any certainty.

When you consider what the U.S. auto sector has just come through (despite Ford's successes), it's been over 50 years since American investors have had a ground floor opportunity to get in with an auto maker. Some people will take their chances on a resuscitated GM or Chrysler, but others will look at Tesla as a pure play model of what tomorrow's auto makers will look like. For the latter crowd, this could be like getting in on Vonage's IPO, or even Skype when they were acquired by eBay (News - Alert). Neither of these were big winners in the end, but because they were disruptive and at the leading edge of innovation (at the time), investors were drawn more to their potential than actual profitability and growth prospects (especially Vonage (News - Alert)!). That's not to say I think Tesla will meet the same fate. I do think the appetite for their IPO will be driven more by the emotion around their potential than their financial metrics, but I also think they have a genuine chance to stake their position in a market that has great prospects.

Unlike Vonage, they are not going it alone. In fact, Tesla will likely end up a minor player once the major auto makers fall into line. All of them have variations of hybrids and PHEVs, and everyone knows that the Chevy Volt and Nissan Leaf are coming. These, of course, will be mid-market entries, and will lead the charge towards broader consumer adoption of electric vehicles. So, rather than looking at these as competitors who will bury Tesla, you need to look at them as the evangelists who will create the foundation for EVs across all price points.

I'm also optimistic because I was fortunate enough to see a presentation by one of Tesla's co-founders last week at the Electric Vehicle Consumer Adoption summit. I'm referring to Marc Tarpenning, and his talk really framed the opportunity nicely for me. This was further reinforced by the variety of presentations during the entire event, which I chaired, and wrote about here and here on the portal. All things considered, I think Tesla's IPO will be well received, and I expect that will be good news for all the entries trying to get a foothold in this space and collectively move this market forward.