Tesla Final - Sink or Float
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Transcript of Tesla Final - Sink or Float
Survivability Report
8 May 2013
Table of Content
• Executive Summary
• Background
• Rounds of Financing
• Issues
• Forecast/Product Development
Cycle
• Recommendations
Executive Summary
• —Tesla is a fast growing Electric Vehicle
Company
• —Current financial risks:
• —Over-leverage, high R&D costs,
insufficient sales and other
operational cost burdens
• —Three Options for Sustainability:
• —Stabilize in the growth product life
cycle and control costs
• Raise more equity
• —Merge with another company
0 5 10 15 20
Daimler
Ford Motor
Toyota
GM
p/e ratios for selected motor companies
-200%
-100%
0%
100%
200%
300%
400%
500%
600%
700%
2009 2010 2011 2012
Net Loss as % of Sales
R&D as % of Sales
Sales Growth
Background • —Founded 2003
• —Business model
• —Selling Electric Vehicles and
• —Electric power train components
• —Vision: Intends to mass produce
electric vehicles
• —Strategy: Sell high range models in
order to finance development of
mass produced models
—
• ——Tactic: Sell only through Tesla’s
showrooms
• —3,000 Employees
• —Market Capitalization of $6.3billion
(6 May 2013)
• —Headquartered in California, USA
Background (cont'd)
• —Two car models – Roadster, Model-S
• —Roadster is a high range sports car model with
price tag of >US$100,000
• —Model-S is a sedan with price tag of
~US$60,000
• —Currently planning a Model-X (SUV) in
cooperation with Toyota
• —Also planning a Bluestar version (2016-17)
which will sell for US$30,000
Rounds of Financing
First Round
• Elon Musk
• Compact Tech
• SDL Ventures
• Private Investors
US$7.5mln
Second Round
• Elon Musk
• Valor Equity
• Others
US$13mln
Third Round
• Elon Musk
• Google co-founders
• Ebay president
• VC firms
US$40mln
Fourth Round
• Elon Musk
• Others
US$45mln
Fifth Round
• Elon Musk
• Others
US$40mln
Equity Sale to
• Daimler
• Other
US$50mln
DOE debt
US$465mln
Sixth Round
• Elon Musk
• Daimler
• Others
US$82.5mln
IPO
US$226mln
Jun 2010
Sept 2009 May 2009
Jun 2009 Feb 2008 May 2006
May 2007
Total equity raised before IPO = US$285mln
pre-May 2006
pre-May 2006
Issues: Financial Position
• —Over-leverage
o —LT Debt-Equity ratio of 374.2%
• —Strained liquidity - low current ratio of 1
• —Negative cashflow from
operations/investing activities @ -86% of
sales
o —Insufficient sales volume
o —Rising R&D costs 3 year average of 179%
o —Growing inventory
o —Cost inefficiencies – third party
plants/showroom investment
• —In general, Tesla faces the risk of
bankruptcy
Yet, Stocks trade around US$57
Toyota
Ford
GM
Tesla – 80% appreciation since IPO
Paccar
Forecast (current trend – worst case)
Tesla cannot sustain the current trend, which will require funds for over $6 Billion in 4 years.
Operating Ratios: 3 yr Av
Sales growth rate 60.62%
Op costs / Sales 206.60%
Cash / Sales 117.00%
Inventory / Sales 42.70%
Net plant / Sales 130.10%
Million US$ Actual Forecast Forecast Forecast Forecast
Income Statement 2012 2013 2014 2015 2016
Sales $413.3 $663.8 $1,066.2 $1,712.5 $2,750.5
Costs (excl. depr.) 780.3 1,371.4 2,202.7 3,537.9 5,682.6
Depreciation 28.8 55.3 88.8 142.6 229.0
Total op. costs $809.1 $1,426.6 $2,291.4 $3,680.5 $5,911.6
EBIT -$395.8 -$762.8 -$1,225.3 -$1,968.1 -$3,161.1
Net operating profit after taxes -$257 -$496 -$796 -$1,279 -$2,055
Net operating working capital $213 $785 $1,261 $2,026 $3,254
Total operating capital $775 $1,649 $2,648 $4,254 $6,832
FCF = NOPAT – Δ op capital N/A -$1,369 -$1,796 -$2,885 -$4,633
YEAR 2013 2014 2015 2016
Required Increase in Assets $881.77 $1,209.95 $1,943.42 $3,121.53
Less Spontaneous Increase in Payables and
Accruals $ 8.59 $ 189.12 $ 303.76 $ 487.90
Less Addition to Retained Earnings $0.0 $0.0 $0.0 $0.0
Additional Funds Needed to Support Growth $873.18 $1,020.83 $1,639.66 $2,633.63
Product Development Cycle
http://www.thestreet.com/story/11759628/1/tesla-
motors-pollutes-today-for-a-greener-tomorrow.html September 2010: "Its working capital was about $90 million in the red, and its stockholders were under water to the tune of $28 million. The only thing that saved Tesla from pre-election disaster was a last-minute offering that scored $222 million in new investor cash in early October."
What now? Second IPO?
Roadster
Model-S
Pre-2007 2012+
Model-X/
Bluestar?
Forecast (best case)
Million US$ Actual Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast ForecastOperating Ratios : 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Sales growth rate 102.34% 80% 60% 60% 50% 40% 30% 20% 15% 10% 5%
Op costs / Sales (85% Ind. Av.) 188.81% 120% 90% 80% 70% 60% 60% 60% 75% 75% 75%
Cash / Sales (25% Ind. Av.) 53.47% 39% 32% 28% 28% 28% 28% 28% 28% 28% 28%
Inventory / Sales (10% ind Av.) 64.97% 45% 30% 29% 25% 25% 25% 20% 15% 10% 10%
Net plant / Sales (20% Ind. Av.) 136.07% 84% 59% 40% 33% 30% 20% 20% 20% 20% 20%Acc. pay. / Sales (10% Ind. Av.) 73.41% 65% 55% 45% 35% 30% 20% 10% 10% 10% 10%
Actual Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast
Income Statement 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Sales $413.3 $743.9 $1,190.2 $1,904.3 $2,856.4 $3,999.0 $5,198.7 $6,238.4 $7,174.2 $7,891.6 $8,286.2
Costs (excl. depr.) 780.3 892.6 1,071.2 1,523.4 1,999.5 2,399.4 3,119.2 3,743.1 5,380.6 5,918.7 6,214.6
Depreciation 28.8 49.9 56.4 60.9 75.0 96.0 83.2 99.8 114.8 126.3 132.6
Total op. costs $809.1 $942.6 $1,127.5 $1,584.4 $2,074.5 $2,495.4 $3,202.4 $3,842.9 $5,495.4 $6,045.0 $6,347.2
EBIT -$395.8 -$198.7 $62.6 $319.9 $781.9 $1,503.6 $1,996.3 $2,395.6 $1,678.8 $1,846.6 $1,939.0
Net operating profit after taxes -$257 -$129 $41 $208 $508 $977 $1,298 $1,557 $1,091 $1,200 $1,260
Net operating working capital $213 $172 $122 $258 $571 $1,000 $1,820 $2,495 $2,511 $2,367 $2,486
Total operating capital $775 $796 $827 $1,020 $1,509 $2,199 $2,859 $3,743 $3,946 $3,946 $4,143
FCF = NOPAT – Δ op capital N/A -$150 $9 $15 $20 $287 $638 $673 $888 $1,200 $1,063
Weighted average cost of capital (WACC) 12.00% 12.00% 12.00% 12.00% 12.00% 12.00% 12.00% 12.00% 12.00% 12.00% 12.00%
Long-term constant growth in FCF 4.00%
Horizon value $13,819.53
FCF in Years 1-3 and FCF4 + horizon value in Year 4 $ (149.52) $ 9.36 $ 14.83 $ 19.69 $ 286.57 $ 637.76 $ 673.33 $ 888.45 $ 1,200.32 $14,882.57
Value of operations (PV of FCF + HV) $6,270.79 Plus Value of Mkt. Sec. $ -
Total Value of Company $6,270.79
Less Value of Debt $ 467.00 Less Value of Pref. $ -
Value of Common Equity $5,803.79
Divided by number of shares 115.32
Price per share $ 50.33
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Required Increase in Assets 217.32$ 245.78$ 471.92$ 717.48$ 994.05$ 608.35$ 561.89$ 380.94$ 136.61$ 272.43$
Less Spontaneous Increase in Payables and Accruals 217.32$ 205.31$ 264.22$ 209.47$ 279.93$ (75.98)$ (343.11)$ 159.08$ 121.96$ 67.08$
Less Addition to Retained Earnings $0.0 $40.5 $207.7 $508.0 $977.1 $1,297.3 $1,556.9 $1,090.9 $1,200.1 $1,260.1
Additional Funds Needed (AFN) to Support Growth -$ -$ -$ -$ (262.99)$ (613.01)$ (651.86)$ (869.09)$ (1,185.42)$ (1,054.73)$
Sustainability and current stock price can be met assuring stable product(s) life cycle growth and key operating ratios in conformance to industry average.
Our Recommendations
• —Raise more equity (US$6billion)
o —Current leverage level makes business too risky
o —Additional equity will optimize cost of capital
• —Merge with another company
o —Tesla will provide a natural hedge for
companies without an electric vehicle line
o —Will enhance portfolio of companies with electric
vehicle lines
• —Adapt Strategy
o —Reduce R & D expenditure
o —Change distribution strategy to include third party
dealerships