TESLA TOMORROW THE FUTURE OF TESLA MOTORS December 14, 2010 University of Wisconsin - Madison Wisconsin School of Business - MBA Team A6 Danielle Boyke Jia Cheng Jared Clevers Michael Schroeder Karen Strupp “On my honor, I have neither given nor received unauthorized aid in completing this academic work.” TABLE OF CONTENTS EXECUTIVE SUMMARY COMPANY OVERVIEW History Strategic Partnerships Management Manufacturing Infrastructure INDUSTRY ANALYSIS Plug-in EV Market ACCOUNTING AND FINANCE Accounting Practices and Reporting Capital Structure Financial Performance Financial Disclosures Financial Health MARKETING 8 Competitive Analysis and Positions Target Market Product Promotion Price Distribution Channels Service and Repair RECOMMENDATIONS FINAL COMMENTS APPENDICES Appendix A: SWOT Analysis Appendix B: Tesla Company History Appendix C: Strategic Partnerships Appendix D: Tesla Executive Team Appendix E: Manufacturing Infrastructure Appendix F: SWOT Analysis of Model S Manufacturing Model Appendix G: Industry analysis Appendix H: Market Penetration Forecasts Appendix I: The EV and PHEV Market Appendix J: Historic Income Statement Information Appendix K: Historic Balance Sheet Information Appendix L: Historic Cash Flow Information Appendix M: Comparable Companies Used in Financial Analysis Appendix N: Ratio Analysis Appendix O: Department of Energy (DOE) Loan Facility Appendix P: ZEV Credits Appendix Q: Future Contractual Obligations Appendix R: Historical Stock Performance and Wall Street Analysis Appendix S: Capital Structure Summary Appendix T: Wall Street Consensus (Implied Cost of Equity) Appendix U: Cost of Capital Calculations Appendix V: Stock Price Sensitivity Analysis for Bullish and Bearish Outlooks Appendix W: Financial Statement Forecasts TESLA MOTORS 3 3 4 4 4 5 6 6 6 7 8 8 9 9 10 10 11 11 12 13 15 17 18 21 22 23 24 25 26 27 29 31 32 33 34 35 36 37 37 39 41 43 1 TABLE OF CONTENTS (CONTINUED) Appendix X: Capital Expenditure Summary Appendix Y: Model S Sales Forecasts Appendix Z: Competitor Analysis Appendix AA: Tesla Roadster and Model S Images Appendix AB: The Tesla Brand Community Appendix AC: Model S Battery Technology Appendix AD: Fuel/ Energy Costs/Mile of Luxury Sedans vs. Roadster and Model S Appendix AE: Range, Battery Pack Costs, and Price/ Mile for EVs Appendix AF: Luxury Models $50-70,000 and Tesla Luxury Model Sales Projections Appendix AG: Pricing Model Appendix AH: Tesla Store Locations Appendix AI: Recommended Model S Marketing Strategy Appendix AJ: Citations for Written Report TESLA MOTORS 49 51 52 55 58 64 65 66 67 68 69 70 72 2 EXECUTIVE SUMMARY Tesla Motors (Tesla) develops, manufactures, and sells fully electric high-performance vehicles (EVs) as well as electric powertrains. The company‘s primary sources of revenue have been sales of the Telsa Roadster and the electric powertrain development services it provides to other automobile manufacturers. Tesla had its initial public offering (IPO) on July 2, 2010 and is now traded on the NASDAQ Exchange as TSLA. The company is developing a new vehicle, the Model S, which will go into production in mid-2012. After a thorough analysis of the company, we have determined that the future of Tesla Motors depends primarily on the success of the Model S. Based on this conclusion, we recommend: Tesla must implement a marketing campaign around the Model S launch. If battery pack prices fall, eliminate the Model S 160-mile option and reduce the prices of the 230and 300-mile options to increase Tesla‘s competitive advantage. Expand service and repair infrastructure by negotiating a service agreement with Toyota. Tesla should develop additional models on the Model S powertrain and secure the EV niche in the luxury vehicle market before committing resources to develop and manufacture economy EVs. COMPANY OVERVIEW History. Tesla was founded in 20031 with the idea that the same lithium-ion technology used in laptops could be used to create a fully electric vehicle that is not only eco-friendly but also attractive and fun to drive. The company began raising venture capital in the spring of 2004 and by the end of that year had designed its first vehicle.2 Tesla produced the first Roadster in 2008 and has sold approximately 1,350 of these vehicles as of September 30, 2010.3 In January 2010, Tesla secured a long-term Department of Energy (DOE) Loan Facility to finance development of EVs, powertrains, and manufacturing facilities. The DOE loan facility, along with cash generated from the IPO has allowed for the continuing development of the Model S, the purchase and retooling of a manufacturing facility in Fremont, CA, and the expansion of the powertrain facility in Palo Alto, CA.4 (Appendix B) Strategic Partnerships. In March 2008 Tesla entered into a relationship with Daimler AG to develop battery packs and chargers for Daimler‘s Smart Fortwo EV program. Subsequently, Tesla entered into an additional TESLA MOTORS 3 development agreement with Daimler for the Class-A EVs, as well as agreements with Toyota to develop a powertrain system for an electric RAV4 prototype. Tesla also maintains a relationship with Panasonic for joint development of battery packs. Panasonic, Toyota, and Blackstar Investco (an affiliate of Daimler) all have stock ownership in Tesla.5 (Appendix C) Management. Tesla‘s management team is led by Chairman, Product Architect, and CEO Elon Musk and an upper management team selected from top automotive and technology firms. Musk is a visible champion for the company and is almost a symbol of the brand, as well as being a primary shareholder. Tesla‘s strategic partnerships and their DOE Loan Facility are dependent on Musk remaining in his role at Tesla and retaining a percentage of ownership in the company until at least a year after the conclusion of the Model S Facility Project.6 (Appendix D). Manufacturing Infrastructure. Tesla has more than 150 suppliers around the world, many of which are single source suppliers. Those suppliers, 30% located in North America, 40% percent in Europe and 30% in Asia, provide over 2000 parts to Tesla. For the production of the Roadster, the company uses a multi-site manufacturing process. 7 In mid-2010, Tesla purchased a factory in Fremont, CA from New United Motor Manufacturing, Inc. (NUMMI), which was a joint venture between Toyota and General Motors. Tesla is retrofitting the new facility to initially manufacture approximately 20,000 Model S vehicles each year, which would be approximately 5% of the plant‘s manufacturing capacity. With production of the Model S and future Roadster models scheduled for mid-2012, Tesla will use a highly integrated manufacturing approach, even negotiating with suppliers to manufacture products on site to use the excess capacity. The integrated approach may alleviate Tesla‘s dependence on supplier performance. 8 (Appendices E-F) INDUSTRY ANALYSIS Plug-in EV Market. Global automobile sales forecasts project divergent market penetration rates of approximately 0.6 – 0.9% for PHEVs, by 20159 10, 9% by 202011, and 22% by 203012 for EVs and plug-in hybrid electric vehicles (PHEV). (Appendix I) Market penetration will depend on battery pack costs, charging infrastructure, competing technologies, oil prices, manufacturer investments in EV and PHEVs, and consumer skepticism of EVs and PHEVs. To facilitate growth, the U.S. government has invested $5 billion TESLA MOTORS 4 through the American Recovery and Reinvestment Act and the DOE‘s Advanced Technology Vehicle Manufacturing (ATVM) Loan Program. 13 The DOE aims to increase the public accelerated charging stations from 500 to 20,500 in 2012 and reduce battery pack costs by 70% by December 2015. Two predominant inhibitors of EV/PHEV market penetration are battery pack costs and range anxiety. 14 15 16 Recent reported battery pack costs are as much as 30% lower than 2009/early-2010 17projections, potentially reducing the costs of EV/PHEVs.18 Reduced battery pack costs may enable EV/PHEV manufacturers to produce vehicles with increased all-electric range, increasing EV/PHEV market penetration by making EV/PHEV all-electric ranges more competitive with ranges for internal combustion engine (ICE) vehicles. (Appendix G) The increased capital invested in EV/PHEV technology and infrastructure has made electricity a more viable alternative fuel for vehicles in the near-term.19 However, even with the projection that battery pack costs will decrease rapidly and thereby enable manufacturers to develop EV/PHEVs with greater all-electric ranges, reports suggest EV/PHEVs will likely be a ―second‖ car until 2015.20 21(Appendices G-I) ACCOUNTING AND FINANCE Accounting Practices and Reporting. Tesla follows Generally Accepted Accounting Principles for financial reporting and has received unqualified opinions on its annual reports from Pricewaterhouse Coopers LLC. We have analyzed audited financial information from 2007-2009, as well as non-audited information from the nine months ending September 30, 2010 as reported in Tesla‘s 10-Q. We think that the quality of the financial reporting is adequate and transparent and that, due to the extensive changes in the company during 2010, it is important to include the non-audited data for comparison.22 (Appendices J-L) Tesla uses the straight-line method for calculating depreciation, revenues on lease vehicles, stock based compensation, and development compensation and costs. The company uses the first-in, first-out (FIFO) method to account for inventories, which are valued at lower of cost or market. Audi 23, BMW24 and Quantum25 also use the FIFO method, whereas Toyota26 uses the LIFO method for valuing inventories. Tesla offers leasing options on its vehicles, but does not offer credit sales, thus all accounts receivables are trade receivables from their development services. Tesla maintains warranty reserves to fund potential manufacturer covered warranty repairs on its vehicles, which is consistent with the other automotive companies.27 (Appendix M) TESLA MOTORS 5 Capital Structure. Tesla‘s capital structure has changed over the past three years. At the end of 2007 and 2008, the company had a negative stockholders‘ equity balance; but by paying off notes payable and issuing preferred stock in 2009, the company posted a positive total stockholders‘ equity in that year. Its current capital structure is 29.14% debt to total equity and 22.57% debt to total capital. This structure most closely mirrors battery manufacturing company Ener1 (28.62%), but falls far below BMW (308.13%), Toyota (120.79%), and Quantum (93.71%). (Appendix N) Tesla‘s primary source of debt is the $465M DOE Loan Facility, of which is $56.6M has been drawn out by Tesla. Interest payments on the DOE loans will begin in 2012. Clauses within the DOE Loan facility require Tesla to maintain certain levels of restricted cash.28 (Appendix O) Financial Performance. Tesla began earning revenue in 2007, posting $73,000 of powertrain sales. It began selling vehicles in 2008, increasing sales revenue to $14.74M in that year. Tesla also earns revenues by selling their Zero Emission Vehicle (ZEV) Credits to other companies. (Appendix P) In 2009 Tesla earned a gross margin on its sales of 9.7%, and this has increased to 24.12% in the first nine months of 2010. On the other hand, their operating margin has been volatile over the past three years, at -427.64% in 2008, -46.36% in 2009, and -118.31% in the first three months of 2010. The 2009 high margin was due to recognizing revenues of Roadster sales that were reserved in 2008. The company posted a net loss in each of these years. Negative operating margins are consistent with the battery companies we analyzed, but not with the automotive companies. Negative operating margins are not sustainable over time and Tesla will need to increase future sales revenues to cover operating costs without additional financing.29 Financial Disclosures. In March 2010, Tesla changed how it recognizes the development services it provides to other companies and now shows this income as sales revenues, instead of as an offset to R&D. This shows an increased focus on accounting for development services as a separate source of revenue for the company. Tesla also has future contractual liabilities which are not noted on the financial statements, including the purchase of the NUMMI facility and a purchase agreement with Lotus (Appendix Q). Tesla does not pay dividends and has disclosed in the financial statements that it has no intention to do so in the near future30. TESLA MOTORS 6 Financial Health We have a reserved but positive outlook pertaining to the solvency and future financial performance of Tesla that should translate into positive earnings and stock prices. As Tesla is a start-up with a significant cash burn rate, the $188.8M it raised in its IPO, the $50M raised from the private stock placement with Toyota, conversion of preferred equity to common equity, and the $30M recent investment from Panasonic31 were vital for the company‘s continued operations. In addition, the $465M DOE loan facility is essential to Tesla‘s capital structure as it allows access to a large amount of inexpensive funds until the company starts generating positive cash flow from operations in 2012. Although Tesla will have a comfortable debt to equity ratio of 32.0% at the end of 2010, it will burn through $67.2M of cash in 2011 and increase its outstanding debt from $91.5M to a projected peak of $392.5M in 2013. The years 2011 and 2012 are critical for the company financially, but we expect Tesla will likely avoid needing to raise additional equity because cash and restricted cash ($116M at year end 2011) and working capital are all adequate, even if the company has a short delay in Model S sales. If the company cannot begin to manufacture and sell the Model S until 2013, the $129M in gross profit projected in 2012 will need to be covered by a combination of the $116M in cash and raising additional equity. We calculated the weighted average cost of capital by first backing into the cost of equity (Ke) based on Wall Street consensus expected free cash flows to equity, as well as the current stock price, to get an implied cost of equity of 10.87% and resulting beta of 0.98. This beta makes sense as the stock should co-vary with the market, but the cost of equity is too low in our opinion because of the execution and technology risks going forward. We believe that current investors are more bullish than the Wall Street consensus, which we based on only two firms, so we increased the expected cash flows and again backed into the Ke and arrived at 12.22%. This gave us a WACC of 9.00% based on our target capital structure in 2015. Revenues and capital expenditures were derived using Wall Street estimates and our expectations. We computed bullish and bearish cases on the company and arrived at a ten year target stock price of $78 and $46, respectively, both of which are above the current $32 price. Overall, the company is well capitalized with large institutional equity holders and with the safety net of the DOE Loan Facility. If the company needs to raise more capital in 2011 we find it highly probable that the common stock equity TESLA MOTORS 7 proceeds will be at or higher than the current share price given the companies expected future cash flows. (Appendices R-Y). MARKETING Competitive Analysis and Position. Tesla is currently positioned as a high-tech automaker that sells luxury EVs and electric powertrains. The company‘s competitive differentiation is that it delivers the most environmentally responsible vehicles on the market with all of the benefits of a premium car: speed, handling, comfort, and fun. Furthermore, Tesla‘s Silicon Valley culture and Apple retail approach have helped position the company as innovative, independent, and hip.32 Tesla competes within the overall automobile market and within the ―green‖ car market, which includes EVs, PHEVs, and hybrid vehicles. Our marketing analysis and recommendations focus on the launch of the Model S, and we have identified Audi and BMW as Tesla‘s primary competitors in the luxury category. We have also included the Toyota Prius in our analysis because it is the most popular vehicle in the hybrid market and has set the standard for green vehicles. Finally, it is important to note that almost all major automakers are launching or preparing to launch electric and/or hybrid vehicles in a wide-range of price categories, and we expect the EV market to become very competitive in the next five years. (Appendices A and Z) Target Market. Because of the high cost of the Roadster, Tesla‘s target market has been rather small. Owners are often referred to as ―eco-hipsters,‖33 ―affluent environmentalists‖34 or ―rich early adopters.‖35 With the goal of selling 20,000 Model S vehicles per year initially, Tesla must target a larger segment of consumers who are both interested in functionality and performance and are also environmentally and politically conscious.36 According to the IPO, Tesla believes that the ―combination of functionality, performance, style, energy efficiency and overall cost of ownership of the planned Model S will draw buyers from several market segments, including the lower, medium and upper premium sedan classes.‖ 37 According to a GE consumer survey,38 the EV market can be divided into three segments: 1) drivers who see EVs as symbolizing their commitment to the environment, 2) drivers who ―see the technology as simply ‗cool‘‖ — representing cutting edge innovation that puts them ahead of the pack,‖39 and 3) frugal drivers who see EVs as a way to reduce travel costs. The ideal target market for the Model S will include consumers from segment TESLA MOTORS 8 one and/or two who can afford luxury vehicles. Furthermore, the Model S will also appeal to consumers who use brands for self-enhancement, self-verification, and/or self-construal purposes,40 presenting an environmental but also hip, trendy, and independent image to themselves and others. Finally, the ideal Model S consumer is someone who will embrace the role as a member of a brand community41 and will become a Tesla Enthusiast. (Appendix AB) Product. Tesla‘s battery pack technology is critical to the company‘s positioning and competitive differentiation. The low cost of the battery pack allows Tesla to not only design cars with battery ranges greater than the competition but also place equal emphasis on design, performance, and energy efficiency. (Appendix AC) The Model S is a premium electric sedan offering more cargo space than typical sedans with seating for five adults and two children and a second cargo area under the hood. (Appendix AA) Consumers can choose a battery pack that provides 160, 230, or 300 miles per charge, and the Model S can be plugged into nearly any outlet for recharging. The car takes less than 6 hours to recharge from empty or 45 minutes with a QuickCharge.42 While this sedan offers comfort, safety, utility, and zero emissions, its performance (0-60 in 5.6 seconds), delivers on Tesla‘s promise that EVs are fun to drive. Compared to the competition, the Model S is the only luxury EV that can be classified as a full-sized sedan. The Model S fills a void in the luxury EV market, appealing to consumers who want a stylish, efficient, fun-to-drive sedan. Promotion. To date, Tesla has relied primarily on the internet, word of mouth, and trade shows to promote the Roadster.43 Tesla acknowledges that, ―To further promote our brand, we may be required to change our marketing practices, which could result in substantially increased advertising expenses, including the need to use traditional media such as television, radio and print.‖44 Product Endorsements: While Tesla does not have any formal endorsement contracts with celebrities, Jay Leno, Matt Damon, and Leonardo DiCaprio are just a few who have purchased a Roadster. Roadster owners also include prominent, entrepreneurial businesspeople including Sergey Brin (Co-founder of Google, owns two Roadsters), Michael Dell (founder and CEO of Dell), Jay Adelson (Chairman of digg), and Dean Kamen (Segway investor).45 The Roadster was also featured in the movie Iron Man. TESLA MOTORS 9 The Tesla Brand Community: One of the greatest strengths of the Tesla brand is the community of enthusiasts who directly and indirectly promote the brand. Tesla brand enthusiasts include both Roadster owners in 30 countries and consumers who aspire to own a Tesla car. These enthusiasts connect with each other electronically and in person at Tesla events around the world. (See Appendix AB) Product Reviews and Publicity: Since launching the Roadster, Tesla has received over 650 significant press mentions,46 which have been overwhelmingly positive. Tesla has been featured in mainstream media such as Car and Driver and The Wall Street Journal, as well as in high-tech and design-focused publications such as Wired, Wallpaper*, and Fast Company, contributing to Tesla‘s hip, innovative, Silicon Valley image. Price. The Tesla Roadster currently sells for $109,000. Tesla has announced that the base Model S will sell for $49,500 (after a $7,500 federal government subsidy.) The two Model S vehicles with extended battery packs will likely cost $60,000 and $70,000 after federal subsidies. Thus, the Model S price range of $50,000 - $70,000 will be competitive with Audi and BMW EVs and non-EVs. Tesla‘s strategy to compete in the luxury market may buffer the Model S from the potentially slow EV/PHEV market penetration rate because these consumers can absorb the higher initial costs of an EV. If battery pack costs reduce to the estimated low range of $200/kWh, Tesla could use a pricing strategy for ―Model S 2.0‖ similar to Apple, either reducing sales prices of all models or eliminating base models and reducing each of the higher models to the price tier below. (Appendices AC- AG) Distribution Channels. Unlike other automobile manufacturers, Tesla sells vehicles over the internet and at Tesla-owned stores in 31 cities worldwide. Tesla plans to have a total of 50 stores, opening the additional stores to coincide with the Model S rollout. (Appendix AH) In 2010, Tesla hired George Blankenship, formerly of Apple, as its vice president of design and store development. "This is about technology, innovation, and a great pipeline of products that need to be explained to the customer" he told Fastcompany.com.47 Blankenship‘s strategy is to put Tesla showrooms in the middle of popular retail districts, mimicking the strategy of high-tech companies like Apple, and completely revolutionizing the typical dealership model. This retail model will allow Tesla to control the customer experience in each of its stores, providing the necessary customer service for a high involvement purchase such as an EV. TESLA MOTORS 10 Furthermore, the in-store experience can confirm the emotional appeal of a Tesla vehicle, making customers already feel part of a cool, hip, and exclusive brand community. However, this unproven model is not risk free. Tesla will not be able to utilize existing franchise sales systems from dealers, and this model will make it more costly and time-consuming for Tesla to expand distribution. Service and Repair. Tesla will also face difficulties with post-sale customer service as it increases sales volume. Currently Tesla sends mobile service technicians, known as Tesla Rangers, to individual customers to service vehicles if they are not located near one of Tesla‘s stores, which also serve as repair facilities. This model will become much more costly with the increase of Tesla vehicles in circulation and as vehicle ownership spreads away from their store locations. Even though EVs require much less maintenance than ICEs, customers may hesitate to buy a Model S if they are not confident in the pre-sales service provided at Tesla stores. The process for repair and service may be a deterrent for consumers when deciding if they would like to purchase a Tesla vehicle. RECOMMENDATIONS Tesla must implement a marketing campaign around the Model S launch. Until the Model S is available to test drive out of showrooms, we recommend that Tesla continue with the word-of-mouth strategy described in our marketing analysis. However, based on our evaluation of the Model S target market and competitive differentiators, we recommended that Tesla implement a full-scale marketing campaign to launch the Model S when it is in full production. Our four-step approach includes 1) Promotional Campaign (TV and print advertising), 2) Utilizing the Tesla Brand Community to Engage New Consumers, 3) In-Store Experience, and 4) Welcoming New Owners to the Tesla Community. (Appendix AI) If battery pack prices fall, eliminate the Model S 160-mile option and reduce the prices of the 230- and 300-mile options to increase Tesla’s competitive advantage. Tesla already has a competitive advantage in range and cost, which are ultimately related. Even if Tesla‘s Model S battery pack cost reduces to $200/kWh, Tesla should resist reducing the sales price of the base model. The Model S base model provides less competitive advantage in range over economy EVs and will still cost 72% more than the least expensive economy EVs. Employing a pricing strategy similar to Apple, eliminating the base model and reducing the TESLA MOTORS 11 230-mile model to $49,500 and the 300-mile model to $59,500 will 1) maintain the luxury positioning of the Model S and 2) provide a product with range superior to other EVs, equal to PHEV extended ranges, and competitive with non-EV and non-PHEV automobiles. (See appendix AG) Expand service and repair infrastructure by negotiating a service agreement with Toyota. We believe that consumers may view the ―Tesla Rangers‖ and the in-store service strategy as a reason not to purchase a Tesla car. We propose that Tesla negotiate an agreement with Toyota to allow customers to bring their Tesla vehicles to Toyota repair facilities that are set up to service the electric RAV4, which uses a Tesla powertrain. Tesla should develop additional models on the Model S powertrain and secure the EV niche in the luxury vehicle market before committing resources to develop and manufacture economy EVs. Tesla has announced it intends to expand top-hat manufacturing on the Model S powertrain to potentially 50,000 units each year instead of developing and manufacturing an economy or ―Gen-III‖ EV for sale in 2015. Tophat manufacturing will expand Tesla‘s products in the luxury vehicle market, potentially securing the luxury EV niche. In addition, developing top-hat models for the Model S powertrain will likely 1) cost less in R&D expenses than developing an entirely new powertrain for an economy EV and 2) lower costs of future manufacturing expansions, since expanding the Model S manufacturing line will be less costly than retooling the line to produce an entirely new vehicle. Postponing R&D and capital expenditures for production of the ―Gen-III‖ economy EV model will ease the burden on cash flows Tesla is likely to incur in the next few years. FINAL COMMENTS Tesla is still a young emerging company, but it has created strategic partnerships that have ensured its survival thus far, brought in top leaders from the automotive and technology industries to run its operations, and given itself a competitive advantage through its superior battery technology and product design. If it can see its way through a successful Model S launch, meet projected sales, and increase its operating margin, Tesla will be well on its way to its mission of increasing the number and variety of electric cars available to mainstream consumers by creating cars that are fun to drive and environmentally responsible.48 TESLA MOTORS 12 Appendix A: SWOT Analysis The company’s IPO and recent 10-Q discuss many of Tesla’s strengths, weaknesses, opportunities, and threats to the company. Our SWOT analysis includes those that we have deemed most critical to the company’s success and particularly the success of the Model S. Strengths First-to-market: Tesla’s Roadster was the first federally-compliant highway-capable electric vehicle launched in both the U.S. and Europe, setting Tesla up to be known as the electric vehicle company. Partnerships: Tesla’s partnerships with Toyota, Daimler AG, and Panasonic have allowed the company the opportunity to support their battery technology research and development. Additionally, Tesla believes that cooperation with other car manufacturers advances the electric vehicle cause. Focus on design, performance, and efficiency: Tesla is the only automaker that places equal emphasis on zero emissions and the performance and aesthetics of the car. This allows Tesla’s cars to appeal to a large segment of consumers. Battery Technology: Tesla has superior battery technology to other manufacturers in the industry. Weaknesses Model S will not launch until 2012: There is currently a lot of hype surrounding EVs, and other than Roadster sales and the Model S waiting list, Tesla is unable to turn this hype into sales. Additionally, the delay of the Model S allows competitors to launch more affordable EVs before Tesla. Lack of Brand Name Recognition: Compared to most of its competitors, Tesla is a not a well-known brand in the auto industry. As Tesla attempts to sell EVs to a more mainstream target market, name recognition will become more important. Consumer behavior changes required for EV purchase: EVs require greater consumer behavior changes than hybrid or plug-in hybrid vehicles. For instance, it can take several hours to recharge an EV battery, whereas it only takes a few minutes to fill a car with gas. Opportunities Sales outside of the U.S., particularly Europe, Asia, and Canada: Tesla has been very successful in European markets, particularly Germany, and the company sees great potential in Asian and Canadian markets. Government regulations and economic incentives: Since 2008, the DOE has invested $5B in EV/PHEV technologies. The DOE objectives include reducing battery pack costs 70% by 2015 (this estimate assumes average battery pack cost of $600 - $700/kWh around 2008/2009), improving the public charging infrastructure from 550 level 2 or level 3 charging stations (of which 426 are in California) to 20,550 nationwide by December 2011, and reducing the retail price to consumers by offering a $7,500 subsidy to consumers purchasing EV/PHEV s. The government intends to accelerate consumer adoption of EVs/PHEVs by reducing prices and making owning EVs/PHEVs more convenient to consumers. Source: United States Department of Energy. The Recovery Act: Transforming America’s Transportation Sector Batteries and Electric Vehicles. July 14, 2010 TESLA MOTORS 13 The Tesla Brand Community: Tesla has a strong and established brand community of owners and hopeful owners who are very enthusiastic about the brand. Tesla should manage and leverage this community to drive sales of the Model S. Innovative Sales Channel Model: If implemented properly Tesla’s “Apple store model” will provide a unique and differentiating customer experience. Tesla has the opportunity to reframe the car buying experience. Threats Continued economic downturn: If the economy does not improve, Tesla will have difficulty selling the Model S which could severely impact the success of the entire company. Delays in the launch of the Model S: Any further delay of the Model S could erode consumer confidence and allow more competitors to enter the market before Tesla. Consumer preference for hybrids and plug-in hybrids: Tesla only sells electric vehicles. If consumers prefer hybrid technology rather than EV technology, Tesla is likely to fail. Termination of strategic partnerships or inability to establish new partnerships: Tesla’s R&D has depended on revenue provided by strategic partnerships. Without this revenue, Tesla may not be able to fund future R&D. TESLA MOTORS 14 Appendix B: Tesla Company History Financing Milestones Company Milestones 2003 2003 July 2003: Tesla Motors incorporated; Martin Eberhard CEO 2004 Spring 2004: Receives venture capital funding, including $6.3M from Elon Musk 2005 2004 Spring 2004: Elon Musk becomes Chairman of the Board December 2004: Design for “Dark Star” (ie Roadster) is chosen; Designed by Barney Hatt of Lotus 2005 July 2005: Supply agreement with Lotus: Lotus will assist with design and manufacture of Roadster through end of 2011 2006 2006 2006: Had raised $60 M in venture capital 2007 Summer 2007: Had raised 100M in Venture Capital 2007: Elon Musk invests another $20M 2008 October 2008: $40M in emergency funds is raised from investors, including Elon Musk, to continue operations 2009 May 2009: Sale of preferred stock to Blackstar Investoco (an affiliate of Daimler) for $50M December 2009: Agreement with California Alternative Energy and Advanced Transportation Financing Authority: Allows exemption from CA state sales and use taxes for up to $320M in purchases of manufacturing equipment (an expected value of $31M over a three year period) TESLA MOTORS 2007 August 2007: Martin Eberhard leaves company; Michael Marks becomes Interm CEO December 2007: Ze’er Drori becomes CEO 2008 February 2008: Roadster production begins March 2008: Begins relationship with Daimler: Tesla will develop battery packs and chargers for Daimler’s Smart Fortwo electric drive May 2008: Opens first store, in LA, California October 2008: Economic climate and cash shortfalls cause layoffs; planned Model S release is pushed back October 2008: Musk becomes CEO 2009 January 2009: Daimler agrees to purchase battery packs from Tesla March 2009: Model S Prototype revealed May 2009: Recalls Roadsters for service to fix rear inner hub flange bolt (346 cars serviced) May 2009: Formal Agreement with Daimler: Tesla will continue to develop Smart Fortwo Electric Drive June 2009: Agreement with Toyota: Telsa will develop electric powertrain for Toyota’s RAV4 prototype July 2009: Introduces Roadster 2.0 and Roadster Sport November 2009: Recognized as one of “America’s hottest brands” by Advertising Age November 2009: Begins shipment of battery packs to Daimler 15 Financing Milestones (continued) 2010 January 2010: Long-term DOE Loan Facility agreement for $465M: includes $101.2M Powertrain Facility (for build out of Palo Alto facility for the manufacturing of battery packs, electric motors, and components) and a $363.9M Model S Facility (to finance the development of the Model S and the integrated Fremont manufacturing facility for the Model S) March 2010: Accounting change: Begins recording powertrain component development contract revenue as Development Services Revenue (previously recorded as an offset to R&D) May 2010: 1 for 3 reverse stock split for outstanding common stock July 2, 2010: Closes IPO and receives $188.8M, net of underwriting discounts and commissions July 2, 2010: Closes private placement transaction for sale of common stock, at IPO price, to Toyota for $50M July 2, 2010: All convertible preferred stock is converted into common stock November 2, 2010: Closes private placement transaction for sale of common stock to Panasonic for $30M FUTURE Dec 15, 2012 DOE loan payments begin (loan to be paid off by September 15, 2022) Company Milestones (continued) 2010 January 2010: Introduces Right-Hand Model Roadster February 2010: Begins offering a leasing option for the Roadster March 2010: Named one of the top 50 most innovative companies in the world by Technology Review May 2010: Formal Agreement with Daimler: Tesla will Develop and Produce Battery Pack and Charger for A-Class EV May 2010: Announces intent to build a third generation EV at the NUMMI Facility, to be released a few years after the Model S May 2010: Announces intent to work with Toyota on development of EVs. May 2010: Toyota announces it will support Tesla with sourcing of parts, production and engineering expertise for Model S May 2010: Purchase Agreement for NUMMI: Tesla will purchase manufacturing facility for $42M July 1, 2010: Introduces Roadster 2.5 July 2010: Formal Phase 0 Agreement with Toyota: Tesla will Develop Electric Powertrain for RAV4 Electric Prototype August, 2010: Amended purchase agreement for NUMMI: Tesla will purchase certain equipment and spare parts located at the facility for $17M Oct 1, 2010: Opens Fremont Plant (formally NUMMI) October, 2010: Amended purchase agreement for NUMMI: Tesla to purchase certain operating permits for $6.5M October 2010: Formal Phase 1 Agreement with Toyota: Tesla will develop full powertrain system for RAV4 electric prototype Finish in 2010: Transition of motor manufacturing, battery pack assembly, and gearbox manufacturing for Roadster (formally outsourced) to the Palo Alto facility FUTURE 2012: Model S expected launch Next Several Years: Goal to have 50 total stores Sources: Davis, Joshua. (2006, August). Batteries Included. Wired Magazine. Retrieved from http://www.wired.com/wired/archive/14.08/tesla.html Davis, Joshua. (2010, September 27). Supercharged. Wired Magazine. Retrieved from http://www.wired.com/magazine/2010/09/ff_tesla/Tesla Motors Inc. (2010, September 30). 10-Q. Retrieved from http://ir.teslamotors.com/sec.cfm TESLA MOTORS 16 Tesla Motors Inc. (2010, June 29). Form 424B4. Retrieved from http://ir.teslamotors.com/sec.cfm White, Joseph B. (2007, November 28). Tesla Taps Ze‘ev Drori as CEO. The Wall Street Journal. Retrieved from http://online.wsj.com/article/SB119628993620007072.html Welch, David. (2008, October 23). Electric Carmaker Tesla Downshifts. Bloomberg Businessweek. Retrieved from http://www.businessweek.com/magazine/content/08_44/b4106080144482.htm?chan=magazine+channel_what%27s+next Kane, Will. (2010, October 28). Tesla reopens Fremont‘s former NUMMI Plant. San Francisco Chronicle. Retrieved from http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/10/27/MN871G2V0F.DTL Appendix C: Strategic Partnerships Strategic Partnerships Partner Daimler AG Toyota Motor Corporation Panasonic Corporation Dates Agreements Estimated Worth $50M May 2009 Blackstar Investco (an affiliate of Daimler) purchases 19,901,290 shares of Series E convertible preferred stock for $50M March 2008 Tesla begins development of a battery pack and charger for Daimler's Smart fortwo electric drive May 2009-November 2009 Official Agreement for Smart fortwo development November 2009 Daimler agrees to purchase 1,500 battery packs and chargers to support European trial May 2010-Present Agreement for Tesla to develop and manufacture a battery pack and charger for Daimler’s A-Class electric vehicles $14.1M July 2, 2010 Toyota purchases 2,941,176 common shares (price/share = IPO price) in a private placement $50M July 2010-2010 Toyota RAV4 Program Phase 0 Agreement: Tesla to develop electric powertrain for RAV4 prototype $9M October 2010Through 2012 Toyota RAV4 Program Phase 1 Agreement: Tesla to develop validated powertrain system, including battery, power electronics module, motor, gearbox, and software for RAV4 prototype $60M 2008-Present Tesla uses Panasonic battery cells in its advanced battery packs and has collaborates with Panasonic on the development of next generation battery cells for electric vehicles N/A November 2, 2010 Panasonic purchases 1,418,573 common shares ($21.15/Share) in a private placement $30M $23.3M Sources: Tesla Motors Inc. (2010, September 30). 10-Q. Retrieved from http://ir.teslamotors.com/sec.cfm TESLA MOTORS 17 Tesla Motors Inc. (2010, November 3). Panasonic Invests $30 Million in Tesla, Companies Strengthen Collaborative Relationship [Press Release]. Retrieved from http://www.teslamotors.com/about/press/releases/panasonic-invests-30-million-tesla Appendix D: Tesla Executive Team Tesla's Executive Team Executive and Position Elon Musk; Chairman, Product Architect, and CEO Education Former Positions Bachelors in Economics and Physics; University of Pennsylvania Pinnacle Research; Started Zip2 and PayPal; Currently CEO and CTO of SpaceX and Chairman of SolarCity JB Straubel; Chief Technical Officer Bachelors in Energy Systems; Stanford University Masters in Energy Engineering; Stanford University Propulsion engineer at Rosen Motors; Team member at Pentadyne; CTO and Co-founder of Volacom Deepak Ahuja; Chief Financial Officer Bachelors in Materials Engineering; Banaras Hindu University Master's Materials Engineering; Northwestern University Masters in Business Administration; Carnegie Mellon University Bachelors in Transportation Design; Art Center College of Design Engineer for Kennametal, Inc.; CFO for Auto Alliance International; CFO for Ford of Southern Africa; Controller of Small Cars Product Development at Ford Unavailable Vice President, Retail Strategy for Gap Inc.; Vice President of Real Estate and a chief strategist for retail stores at Apple Degree in Engineering; Ecole Centrale de Paris High Profile Positions at Volvo, Mack and Renault; Vice President of Manufacturing at Toyota's plant in Cambridge, ON; General Manager of Production Engineering for Toyota in North America Franz von Holzhausen; Chief Designer George Blankenship; Vice President, Design and Store Development Gilbert Passin; Vice President, Manufacturing TESLA MOTORS Assistant Chief Designer at Volkswagen; Design Director at General Motors; Director of Design at Mazda North American Design Center Responsibilities at Tesla Co-founder; Oversees daily operations, product strategy and development; Secures strategic partnerships Co-founder; Oversees technical and engineering design of vehicles; Evaluates new technology; Manages vehicle systems testing; Handles technical interface with key vendors Spearheads financial initiatives Drives overall design direction of Tesla; Establishes design competency for future design concepts and production vehicles Designs and develops retail stores Leads vehicle manufacturing operations 18 Peter Rawlinson; Vice President & Chief Engineer for Vehicle Engineering Mechanical Engineering; Imperial College, London Jim Dunlay; Vice President, Powertrain Hardware Engineering Bachelors in Electrical Engineering and Computer Science; MIT Diarmuid O'Connell; Vice President of Business Development Bachelors; Dartmouth College Masters in Foreign Policy; University of Virginia; Masters in Business Administration; Kellogg Senior Executive with McCann Erickson Worldwide; Senior Executive at Young and Rubicam; Management Consultant for Accenture; Chief of Staff for Political Military Affairs at the US State Department John Walker; Vice President Sales North America Unavailable General Motors BMW in South Africa; General Manager of Sales for Audi Australia; Director of Sales for Audi Canada; General Manager of Sales Operations for Audi of America Is responsible for all sales in the US and Canada, as well as and coast-to-coast retail expansion and opening of new stores Christiano Carlutti; Vice President of European Sales and Operations Degree in Business Administration; University Luigi Bocconi, Milan Oversees European operations from the EU headquarters in Windsor, UK Ricardo Reyes; Vice President of Communications Bachelors; Rice University CEO of Autocontact Italia; Managing Director of Media Operations and Member of the Management Committee for the XX Winter Olympic Games; Vice President at Fiat Deputy Assistant US Trade Representative for Public and Media Affairs; Managing Editor of Regulation Magazine; Public Policy and Communications at Bracewell and Fiuliani LLC; Handled litigation, competition and policy communications for Google, Inc.; Head of Communications and Public Affairs at YouTube TESLA MOTORS Principal Engineer at Jaguar; Manager for Advanced Drivetrain and Suspension Systems at GKN Technology; Chief Engineer of Advanced Engineering at Lotus; Led vehicle engineering at Corus Automotive Manufactured test equipment at Tandem Computers; Worked on electronic instrumentation at HP; Developed computer systems for SunMicrosystems Is responsible for the technical execution and delivery of the Model S Leads power electronics team from prototype to production; Has design engineering and manufacturing duties for Daimler and Roadster battery packs; Has development responsibility for Tesla's motor and transmission Manages commercial relationships and government affairs Leads global communications and public relations; Oversees media relations, product, corporate, online, and internal communications 19 Eric Whitaker; General Counsel Bachelors in Politics; Princeton Juris Doctorate; Stanford Law School Handled intellectual property and antitrust litigation at Latham & Watkins; Executive Vice President of Corporate Strategy and General Counsel at Lexar Media; Executive Vice President and General Counsel at Avalanche Technology Acts as General Counsel Arnnon Geshuri; Vice President, Human Resources Bachelors in Psychology; University of California at Irvine Masters in Industrial/ Organizational Psychology; San Jose State University Responsible for driving HR operations and global recruitment efforts Mike Taylor; Vice President of Finance Bachelors Degree; University of California, Berkeley Juris Doctorate/ Masters in Business Administration; Stanford University Organizational effectiveness consultant for NUMMI; Managed corporate-wide staffing operations at Applied Materials; Vice President of Human Resources and Director of Global Staffing for E*Trade Financial; Director of Staffing Operations at Google, Inc. Goldman Sachs & Co.; McKinsey and Company; Wilson Sonsini Goodrich & Rosati; Managed IPO for Scopus Technology; Vice President of Finance for Micromuse; CFO for Benchmark Capital; Vice President and CFO at Tropos Networks Evelyn Chiang; Vice President of Supply Chain and IT Bachelors in Aeronautics and Astronautics; MIT Director of Professional Services at SAP AG; Senior Vice President of Operations of the Product and Technology Group at SAP AG Oversees supply chain and information technology Oversees Tesla’s finances Sources: About/Executive Bios. (n.d) Retrieved from http://www.teslamotors.com/about/executive-bios Tesla Motors Inc. (2010, February 3). Tesla Hires Toyota Manufacturing Expert. [Press Release]. Retrieved from http://www.teslamotors.com/about/press/releases/tesla-hires-toyota-manufacturing-expert Tesla Motors Inc. (2009, October 1). Tesla Motors Announces Senior Engineering and Manufacturing Executives. [Press Release]. Retrieved from http://www.teslamotors.com/about/press/releases/tesla-motors-announces-senior-engineering-and-manufacturingexecutives TESLA MOTORS 20 Appendix E: Manufacturing Infrastructure -Tesla has more than 150 suppliers around the world, many of whom are single source suppliers. -Suppliers provide over 2000 parts to Tesla -Suppliers are located in North America (30%), Europe (40%) and Asia (30%). Multi-site Manufacturing Process for Tesla Roadster European Suppliers North American Suppliers Asian Suppliers Lotus Facility Hethel ,UK Tesla Assembly Facility Menlo Park, California, US US & Asian Customers European Customers Integrated Site for Model S Other Suppliers Palo Alto Factory -Interior console -Powertrain Manufacturing -Seats NUMMI Facility -Body assembly -Paint operation -Battery pack mfctr. Customers -Final vehicle assembly -End of line testing Source: Tesla Motors Inc. (2010, November 3). Panasonic Invests $30 Million in Tesla, Companies Strengthen Collaborative Relationship [Press Release]. Retrieved from http://www.teslamotors.com/about/press/releases/panasonic-invests-30-million-tesla TESLA MOTORS 21 Appendix F: SWOT Analysis of Model S Manufacturing Model Model S Manufacturing Model Suppliers Strength -Less reliant on the performance of suppliers -Reduces the cost of managing supplier relationships Weakness -Lose relationships with suppliers who may be needed if NUMMI’s capacity can’t meet demand Opportunities -Being able to focus on building close relationship with most important suppliers -Harder to find capable suppliers when facing a shortage of internally manufactured components Threats TESLA MOTORS Production & Manufacturing -Easy to control quality and enhance product -Relatively easy to enlarge manufacturing capacity by further investments -Improve production efficiency by allowing engineers and the manufacturing team to work closely Information Management -Easy access to reliable inventory, demand, and other important information -The production of the Model S will be dramatically impacted by NUMMI’s manufacturing ability -May lose capable engineers who now are working in the Lotus facility located in England -Largely improve quality and manufacturing efficiency -Merger of two different ERP system will require tremendous investments of time, labor and money -The loss knowledge from talented employees who are working for suppliers Fail to complete necessary training for employees without delaying the launch of Model S -Largely improve inventory management to reduce cost -Failure to merge the two ERP systems successfully -Ability to complete the ERP merger without delaying the launch of the Model S Finance -Cuts the shipping cost of ordering most components from around the world -Reduce the risk of loss from foreign currency exchanges -Will be able to reduce the cost of Model S when reaching economies of scale -Have to hold more inventory and present it on the balance sheet -Have to bear more inevitable obsolescence of inventory -Reduce cost of Model S -Make Model S more price appealing -Possible tremendous future investments are needed to develop NUMMI facility 22 Appendix G: Industry Analysis Battery Pack Costs Projections. Electric battery manufacturers rarely release exact battery pack costs, but most estimates range from $500 - $1200/kWh ($33,000 for 100-mile range) depending on chemistry and cell-form factor.1 However battery pack costs have decreased faster than expected. In November 2009, Deutsche Bank analysts projected average battery pack costs reducing from $675/kWh to $500/kWh by 2015 and $325/kWh by 2020; but in March 2010 it cited industry reports of battery pack bids in the mid-$400/kWh for 2011/2012.2 Further evidence is Nissan reporting the battery pack in its economy EV Leaf costs only $375/kWh. In addition, Tesla CEO Elon Musk stated that the Model S battery pack will cost less than the Leaf’s pack 3, a statement corroborated by calculations of battery pack costs given information in Tesla’s IPO. (See Appendices AD-AE) In 2008, the United States Advanced Battery Consortium, an umbrella organization of Chrysler LLC, Ford Motor Company, and General Motors, projected a reduction in price to $500/kWh by 2012, $300/kWh by 2014, $250/kWh by 2020.4 and $100/kWh in an undefined “long-term”.5 The DOE projects industry-wide battery pack costs to reduce approximately 70% (likely from an average of $700/kWh or $33,000/pack) by December 2015.6 Charging Infrastructure. In addition, the DOE is funding the development of the infrastructure for charging stations or electric vehicle supply equipment (EVSEs), with the goal of increasing the number of level 2 (400V) or level 3 (500V) EVSEs, which reduce charge times from approximately from 8 – 16 hours to 30 minutes to 4 hours, from approximately 550 to 20,550 by 2012.7For example, Telsa’s Quick Charge system is a level 3 charging system that can be installed at home. It can fully charge a battery in less than 45 minutes. The federal government offers subsidies for charging stations, covering half the cost of the home charging system. Cost of Ownership. If battery pack costs reduce as the DOE projects, consumers will have further incentive to own EVs and PHEVs since costs are $0.02 - $0.04/mile to operate whereas a 25-MPH gasoline vehicle costs $0.12 - $0.15/mile to operate. In addition, maintenance costs will likely be lower for EVs and PHEVs. Consumer Skepticism. EV and PHEV manufacturers must still overcome consumer skepticism, especially regarding range (for EV) and infrastructure anxiety. The DOE’s significant investment in EVSE infrastructure should help ease infrastructure anxiety for consumers. Only Tesla’s most expensive Model S (300 mile range at a projected cost of $70,000) will compete with ICE vehicle range of 300 – 400 miles/tank. PHEVs, which use electricity only to run the powertrain for a limited range (i.e., 33 – 50 miles) and then a reserve gasoline tank to regenerate the electric powertrain beyond the all electric-only range, effectively provide ranges up to 300 miles per charge and gasoline tank. However, because of the greater percentage of electricity produced from coal, PHEVs emit nearly as many carbon emissions as ICE vehicles, including energy necessary to recharge battery packs and transmit energy. Thus, the PHEVs do not eliminate emissions and will continue reliance on gasoline, albeit reduced, and longer commutes increase the cost of PHEV ownership more than EV ownership. Sources: 1 Goldman Sachs Group, Inc. Americas: Clean Energy: Energy Storage. June 27, 2010. http://www.docin.com/p-61696011.html, p.25 2 Deutsche Bank. Vehicle Electrification: More Rapid Growth; Steeper Price Declines For Batteries. March 7 2010, p.3. 3 Garthwaite J. Retrieved from http://gigaom.com/cleantech/tesla-ceo-nissans-leaf-battery-is-primitive/ 4 Goldman Sachs Group, Inc. Americas: Clean Energy: Energy Storage. June 27, 2010. http://www.docin.com/p-61696011.html, p. 26. 5 United States Advanced Battery Consortium. Design News: Plug-in Hybrids Are Still Today’s Best Bet. http://www.uscar.org/guest/article_view.php?articles_id=265 TESLA MOTORS 23 6 United States Department of Energy. The Recovery Act: Transforming America’s Transportation Sector Batteries and Electric Vehicles. July 14, 2010, p.1, 6. 7 Ibid, p. 5-6. Appendix H: Market Penetration Forecasts Forecasted Global Automobile Market Penetration (% of Global Market Penetration) (In Thousands) Vehicle 2010 2011 2012 2013 2014 2015 EV/PHEV 30 (0.0%) 103 (0.1%) 223 (0.3%) 375 (0.5%) 438 (0.5%) 482 (0.6%) HEV 4,891 (7.6%) 8,785 (12.7%) 11,667 (16.0%) 15,127 (18.9%) 17,440 (20.9%) 18,835 (22.1%) ICE 59,433 (92.4%) 60,334 (87.2%) 62,233 (83.7%) 64,472 (80.6%) 65,482 (78.6%) 65,859 (77.3%) Source: Data From CSM Auto (Global Insight), Sourced From JP Morgan Report Divergent Forecasts of 2015 Global EV/PHEV Market Penetration (In Thousands) Source Vehicles % Global Market MIT/Nissan Study (2009) 10,000 11.70% Battery Pack Manufacturers 500 – 800 0.6% - 0.9% CSM Auto (Global Insight) 482 0.60% J.D. Power & Associates 400 0.50% Sources: Anson M. Retrieved from http://www.examiner.com/auto-in-los-angeles/estimates-vary-on-electric-vehicle-sales Data From CSM Auto (Global Insight), Sourced From JP Morgan Report TESLA MOTORS 24 Appendix I: The EV and PHEV Market Luxury or High-End Electric Vehicles and Plug-in Hybrid Electric Vehicles OEM Audi E-Tron EV 42 All-Electric Range (miles/charge) 154 Fisker Karma PHEV 20 50 9/10 $88,000 Nissan GT-R EV N/A N/A N/A $70,000 Mercedes SLS AMG E-Cell EV 48 N/A N/A N/A Tesla Roadster EV 53 244 2008 $109,000 Model S EV 42 160 2012 $49,500 Model S EV 66 230 2012 Model S EV 90 300 2012 $60,000 (Projected) $70,000 (Projected) TESLA MOTORS Model Make Energy Density (kWh) Launch Date Price 2012 N/A 25 Appendix J: Historic Income Statement Information Tesla Motors Inc Annual Income Statement (Audited) [Standardized in USD Thousands] Report Date Period Length PricewaterhouseCoopers, LLP Revenues Automotive and Powertrain Sales Zero Emission Vehicle Sales Development Services Total Revenue Cost of Revenue Automotive Sales Development Services Total Cost of Revenue Gross Profit 30-Sep-10 9 Months (Unaudited) 31-Dec-2008 12 Months (Audited) 31-Dec-2007 12 Months (Audited) 103,791 8,152 11,284 3,458 73 111,943 14,742 73 56,581 4,467 61,048 19,410 101,008 15,283 9 101,008 10,935 15,283 -541 9 64 Operating Expenses Selling/General/Administrative Expense Research and Development Unusual Expense (Income) Total Operating Expense Loss From Operations 59,224 55,379 0 114,603 -95,193 42,150 19,282 1,400 163,840 -51,897 23,649 50,014 4,300 93,246 -78,504 17,244 61,953 800 80,006 -79,933 Interest Expense - Non-Operating Interest Income - Non-Operating Other Non-Operating Income (Expense) Loss Before Income Taxes -992 195 -6,770 -102,760 -2,531 159 -1,445 -55,714 -3,747 529 -963 -82,685 0 1,749 137 -78,047 Provision for (Benefit From) Income Taxes Net Loss After Tax 210 -102,970 26 -55,740 97 -82,782 110 -78,157 36 7 6.6 3.4 -2.86 -7.94 -12.46 -22.69 Basic/Primary Weighted Average Shares Net Loss Per Share of Common Stock, Basic and Diluted 67,906 31-Dec-2009 12 Months (Audited) 12,552 80,458 Sources: Tesla Motors Inc. (2010, September 30). 10-Q. Retrieved from http://ir.teslamotors.com/sec.cfm Tesla Motors Inc. (2010, June 29). Form 424B4. Retrieved from http://ir.teslamotors.com/sec.cfm TESLA MOTORS 26 Appendix K: Historic Balance Sheet Information Tesla Motors Inc Annual Balance Sheet [Standardized in USD Thousands] Report Date Period Length PricewaterhouseCoopers, LLP Assets Current Assets Cash and Equivalents Restricted Cash- Current Trade Accounts Receivable - Net Inventory Inventories - Finished Goods Inventories - Work In Progress Inventories - Raw Materials Inventories - Other Total Inventory Prepaid Expenses and other Current Assets Total Current Assets Long Term Assets Operating Lease Vehicles, Net Property/Plant/Equipment Buildings Machinery/Equipment Construction in Progress Property/Plant/Equipment - Gross Accumulated Depreciation Property/Plant/Equipment - Net Restricted Cash - Long Term Other Long Term Assets Total Long Term Assets Total Assets Liabilities Current Liabilities Accounts Payable Accrued Expenses Accrued Liabilitis Refundable Reservation Payments Total Accrued Expenses Current Portion - Long Term Debt/Capital Leases Notes Payable/Short Term Debt Deffered Revenue- Customer Advances, Current Other Current Liabilities Total Current Liabilities Long Term Debt TESLA MOTORS 30-Sep-10 9 Months (Unaudited) 31-Dec-2009 12 Months (Audited) 31-Dec-2008 12 Months (Audited) 31-Dec-2007 12 Months (Audited) 96,563 88,130 8,062 69,627 9,277 17,211 3,488 3,320 59 16,520 3,281 15,518 4,189 39,508 8,870 241,133 7,038 3,403 10,001 2,780 23,222 4,222 100,559 7,518 4,372 4,646 114 16,650 2,180 31,427 0 100 2,008 0 2,108 2,930 22,308 12,016 35,311 9,115 56,442 -19,289 37,153 57,492 20,100 120,388 361,621 5,325 28,321 2,619 36,265 -12,730 23,535 3,580 2,750 29,865 130,424 3,881 21,738 0 25,619 -6,826 18,793 1,220 259 20,272 51,699 1,793 13,403 0 15,196 -3,198 11,998 260 271 12,529 34,837 26,990 15,086 14,184 5,369 10,701 27,869 38,570 291 0 3,477 0 69,328 14,532 26,048 40,128 290 0 1,377 156 57,489 11,145 48,019 59,164 341 0 4,073 10,173 87,935 NA NA 45,694 80 0 0 0 51,296 5,743 27 Warrant Liabilities Convertible Notes Payable Long Term Debt Capital Lease Obligations Total Long Term Debt Deffered Revenue, Less Current Portion Other Long Term Liabilities Total Liabilities 6,675 0 56,557 566 63,798 2,514 6,058 141,698 1,734 0 0 800 2,534 1,240 3,459 64,722 2,074 54,528 0 888 57,490 0 4,810 150,235 0 0 191 18 209 0 0 51,505 Shareholders' Equity Preferred Stock - Non Redeemable, Net Common Stock Additional Paid-In Capital Retained Earnings (Accumulated Deficit) Total Shareholders' Equity 0 93 583,454 -363,624 219,923 319,225 7 7,124 -260,654 65,702 101,178 7 5,193 -204,914 -98,536 101,178 18 4,268 -122,132 -16,668 Total Liabilities and Shareholders' Equity 361,621 130,424 51,699 34,837 93.3 0 7.3 0 7 0 7 0 Total Common Shares Outstanding Treasury Shares - Common Stock Primary Issue Sources: Tesla Motors Inc. (2010, September 30). 10-Q. Retrieved from http://ir.teslamotors.com/sec.cfm Tesla Motors Inc. (2010, June 29). Form 424B4. Retrieved from http://ir.teslamotors.com/sec.cfm TESLA MOTORS 28 Appendix L: Historic Cash Flow Information Tesla Motors Inc Annual Cash Flows [Standardized in USD Thousands] Report Date Period Length PricewaterhouseCoopers, LLP Cash Flows From Operating Activities Net loss Adjustments to Reconcile Net Loss to Net Cash Used In Operating Activities Depreciation and Amortization Change in Fair Value of Convertible Preferred Stock Warrant Liability Gain on Extinguishment of Convertible Notes and Warrants Stock-based Compensation Loss on Abandonment of Fixed Assets Inventory Write-Downs Interest on Convertible Notes Changes in Operating Assets and Liabilities Accounts Receivable Inventory Prepaid Expenses and Other Current Assets Operating Lease Assets Other Assets Accounts Payable Accrued Liabilities Deferred Development Compensation Deferred Revenue Refundable Reservation Payments Other Long-term Liabilities Net Cash Used in Operating Activities 30-Sep-10 9 Months (Unaudited) 31-Dec-2009 12 Months (Audited) 31-Dec-2008 12 Months (Audited) 31-Dec-2007 12 Months (Audited) -102,970 -55,740 -82,782 -78,157 7,733 5,610 6,940 1,128 4,157 2,800 2,895 -36 0 13,313 -1,468 1,434 385 1,353 2,686 -1,245 437 0 4,297 3,692 0 198 2,421 0 0 -4,575 -16,937 -3,109 -5,932 -818 7,993 -168 -7,925 -2,042 -3,261 -18,839 750 -59 -2,108 -1,884 -445 902 12 8,815 -64 523 -2,131 -156 3,374 1,821 2,599 3,387 -10,017 -1,456 -21,971 2,192 2,633 10,173 4,073 10,684 1,192 7,572 0 0 15,230 0 -93,533 -80,825 -52,412 -53,469 -11,884 -2,360 -10,630 -960 -9,802 40 -14,244 -11,590 -9,762 652 0 Cash Flows From Investing Activities Payments Related to Acquisition of Fremont Manufacturing Facility and Related Assets -58,710 Purchases of Property and Equipment Excluding Capital Leases Decrease (Increase) In Restricted Cash in Dedicated DOE Account Increase In Other Restricted Cash -23,055 -88,130 Net Cash Used in Investing Activities -1,852 -171,747 Cash Flows From Financing Activities TESLA MOTORS 29 Proceeds fromIssuance of Common Stock in Initial Public Offering Proceeds fromIssuance of Common Stock in Private Placement Proceeds From Issuance of Series F Convertible Preferred Stock, Net of Issuance Costs of $122 188,842 50,000 82,378 0 0 Proceeds From Issuance of Series E Convertible Preferred Stock, Net of Issuance Costs of $556 49,444 0 0 Proceeds From Issuance of Series D Convertible Preferred Stock, Net of Issuance Costs of $59 0 0 44,941 -233 56,557 -322 0 -191 1,000 0 0 0 25,468 54,782 0 741 497 477 100 -3,691 -2,046 0 0 Principal Payments on Capital Leases and Other Debt Proceeds From Long-term Debt and Other Long-term Liabilities Proceeds From Issuance of Convertible Notes and Warrants Proceeds From Exercise of Stock Options Deferred Common Stock and Loan Facility Issuance Costs Net Cash Provided by Financing Activities 292,216 155,419 56,068 45,041 Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents at Beginning of Period 26,936 69,627 60,350 9,277 -7,934 17,211 -18,190 35,401 Cash and Cash Equivalents at End of Period 96,563 69,627 9,277 17,211 843 -19 70 171 41 0 9 0 0 0 0 86,225 0 0 0 0 3,936 19,073 1,791 183 16,751 1,328 322 0 0 0 Supplemental Disclosures Interest Paid Income Taxes Paid (Refunded) Supplemental Noncash Investing and Financing Activities Conversion of Preferred Stock to Common Stock Issuance of Common Stock Upon Net Exercise of Warrants Issuance of Convertible Preferred Stock Warrants Issuance of Common Stock Warrants Conversion of Notes Payble to Series E Convertible Preferred Stock Conversion of Series A Convertible Preferred Stock to Common Stock Exchange of Convertible Notes Payable Exchange of Accrued Interest for Convertible Notes Payable Property and Equipment Acquired Under Capital Lease 319,225 6,962 6,293 1,700 0 0 0 Sources: Tesla Motors Inc. (2010, September 30). 10-Q. Retrieved from http://ir.teslamotors.com/sec.cfm Tesla Motors Inc. (2010, June 29). Form 424B4. Retrieved from http://ir.teslamotors.com/sec.cfm TESLA MOTORS 30 Appendix M: Comparable Companies Used in Financial Analysis A123 Systems, Inc. designs, develops, manufactures and sells rechargeable lithium-ion batteries and battery systems, and provides research and development services to government agencies and commercial customers. The Company works with global automotive manufacturers and tier 1 suppliers to develop batteries and battery systems for hybrid electric vehicles (HEVs), plug-in hybrid electric vehicles (PHEVs) and electric vehicles, (EVs). The Company’s cylindrical batteries are available for use in automotive and heavy duty vehicles. Audi AG is a Germany-based inventor and producer of automobiles. The Company operates worldwide through its fully consolidated and non-consolidated subsidiaries. Bayerische Motoren Werke AG (BMW) is a German automobile manufacturer that focuses on the worldwide automobile and motorcycle markets. The Company divides its activities into the segment Automobiles, Motorcycles and Financial Services segments. It owns three brands: BMW, MINI and Rolls-Royce. Toyota Motor Corporation is a Japan-based company mainly engaged in the automobile business and financial business. The Company operates through three business segments: the Automobile segment, the Finance segment, and the Others segment. Quantum Fuel Systems Technologies Worldwide, Inc. (Quantum) is an integrated alternative energy company engaged in the development and production of advanced clean propulsion systems, and renewable energy generation systems and services. The Company’s products include hybrid electric and plug-in hybrid electric powertrain systems, advanced battery control systems, electronic vehicle control systems and software, fuel storage and fuel delivery products, and control systems for use in alternative fuel vehicles. The Company classifies its business operations into two segments: Fuel Systems, Renewable Energy, and Corporate. Fisker Automotive is a sports car company developing a range of environmentally friendly cars that make environmental sense without compromise. The company is a joint venture of Fisker Coachbuild, LLC and Quantum Technologies. Fisker Coachbuild will provide exclusive design services for Fisker Automotive while Quantum Technologies will provide technological advancements. Ener1, Inc. is engaged in the business of designing, developing and manufacturing rechargeable lithium-ion batteries and battery systems for energy storage. Its end markets include transportation, stationary power (for utilities and renewable energy), military applications and small cell markets. The company is developing systems to power the next generation of hybrid electric vehicles (HEVs), plug-in hybrid electric vehicles (PHEVs) and electric vehicles (EVs). This technology is also developed for other transportation markets, including buses and trucks, as well as alternative transportation vehicles. The Company has three operating segments: battery, fuel cell, and nanotechnology. Source: Data sourced from Onesource. Retrieved from www.onesource.com TESLA MOTORS 31 -41.85% -72.10% 24.12% -118.31% -127.72% -127.98% -117.12% -126.73% -217.88% -0.42x 1.95x 182.90x 0.47x 3.48 2.91 1.39 -1.48 -0.91 -127.93 29.14% 29.01% 22.57% 22.46% 39.18% Margin Analysis Gross Margin % Operating Margin % Pretax Margin % Net Profit Margin % EBITDA Margin % EBIT Margin % Free Cash Flow Margin % Efficiency Total Asset Turnover Inventory Turnover Days in Inventory Working Capital Turnover Liquidity and Solvency Current Ratio Quick Ratio Cash Ratio Cur. Cash Debt Coverage Ratio Cash Debt Coverage Ratio Times Interest Earned Ratio Capital Structure Debt to Total Equity LT Debt to Equity Debt to Total Capital LT Debt to Capital Debt to Total Assets 30-Sept-2010 9 Months (Unaudited) Report Date Period Length PricewaterhouseCoopers, LLP Profitabiliity Return on Assets % Return on Equity % TESLA MOTORS 4.30% 3.86% 4.12% 3.70% 49.62% 1.75 1.35 1.21 -1.11 -0.75 -22.49 -0.61x 5.07x 70.26x 2.60x 9.77% -46.36% -49.77% -49.79% -41.45% -47.65% -82.82% -61.21% 339.53% -58.69% -58.34% -142.07% -141.24% 290.60% 0.36 0.17 0.11 -0.75 -0.52 -24.69 -1.91x 1.63x 218.47x -0.26x -3.67% -532.52% -560.88% -561.54% -510.85% -539.05% -427.64% -191.32% 143.71% Tesla Motors Inc 31-Dec-2009 31-Dec-2008 12 Months 12 Months (Audited) (Audited) -1.73% -1.25% -1.76% -1.28% 147.85% 0.43 0.39 0.34 Unavailable Unavailable 45.62 Unavailable Unavailable Unavailable 0.00x 87.67% -109497.26% -106913.70% -107064.38% -105343.84% -109309.59% -86672.60% Unavailable Unavailable 31-Dec-2007 12 Months (Audited) 5.66% 0.02% 5.36% 0.02% 61.50% 1.78 1.51 0.68 0.42 0.25 11.78 0.05x 8.58x 41.50x 3.90x 14.04% 5.38% 6.46% 4.36% 11.99% 6.08% 7.79% 4.87% 12.68% Audi 31-Dec-2009 12 Months (Audited) 308.13% 172.80% 75.50% 42.34% 80.48% 1.08 0.90 0.21 0.26 0.12 0.62 120.79% 67.72% 54.71% 30.67% 65.87% 1.22 1.09 0.21 0.25 0.14 -2.24 0.01x 11.97x 29.75x 7.98x 8.41% 0.94% 5.91% 8.68% 1.57% 13.42% 0.00x 6.46x 55.14x 16.24x 11.96% 0.78% 1.54% 0.73% 2.12% Toyota 31-Mar-2010 12 Months (Audited) 10.51% 0.56% 0.81% 0.20% 1.00% BMW 31-Dec-2009 12 Months (Audited) Ratio Analysis (Data Standardized using Average Exchange Rate for Reporting Period) 93.71% 91.46% 48.38% 47.22% 68.35% 0.46 0.38 0.19 -0.52 -0.28 -0.42 -0.70x 0.65x 545.00x -0.86x -200.29% -213.67% -158.05% 83.62% -213.47% -481.91% -69.67% -327.87% Quantum 30-Apr-2010 12 Months (Audited) 4.26% 1.44% 4.09% 1.39% 14.54% 9.96 9.25 8.71 -1.30 -0.79 -41.08 -0.21x 2.56x 138.92x 0.19x -79.31% -93.84% -124.05% -2.96% -93.84% -94.80% -20.74% -26.74% A123 Systems 31-Dec-2009 12 Months (Audited) 28.62% 6.34% 22.25% 4.93% 33.38% 0.91 0.65 0.35 -1.19 -0.84 -6.03 -0.32x 2.98x 119.41x -9.36x -119.18% -141.21% -158.84% 11.69% -142.06% -147.95% -32.27% -46.56% Ener1 31-Dec-2009 12 Months (Audited) Appendix N: Ratio Analysis Sources: Tesla Motors Inc. (2010, September 30). 10-Q. Retrieved from http://ir.teslamotors.com/sec.cfm Tesla Motors Inc. (2010, June 29). Form 424B4. Retrieved from http://ir.teslamotors.com/sec.cfm Non-Tesla Data Sourced from: OneSource. Retrieved from www.onesource.com 32 Appendix O: Department of Energy (DOE) Loan Facility The DOE Loan Facility is comprised of two multi-draw term loan facilities in an aggregate principal amount of up to $465 million. A first term loan facility up to $101.2 million to finance up to 80% of the costs eligible for funding for the power train engineering and build out of the facility to design and manufacture lithium-ion battery packs, electric motors, and electric components. A second term loan facility up to $363.9 million to finance up to 91.5% of the costs eligible for funding for the development of and build out of the facility for the Model S sedan Advances accrue interest at a per annum rate based on the treasury yield curve. Advances on the first facility are repayable in 28 equal quarterly installments commencing on December 15, 2012, or 26 equal quarterly installments commencing on June 15, 2013. All outstanding amounts will be due and payable on the maturity Advances accrue interest at a per annum rate based on the treasury yield curve. Advances on the first facility are repayable in 28 equal quarterly installments commencing on December 15, 2012, or 26 equal quarterly installments commencing on June 15, 2013. All outstanding amounts will be due and payable on the maturity date of September 15, 2019. Advances on the second facility "Model S Facility" are repayable commencing December 15, 2012 or June 15, 2013 in 40 or 38 equal quarterly installments, respectively. All amounts under the Model S Facility will be due and payable on the maturity date of September 15, 2022. Tesla was required to set aside 50% of the net proceeds from an initial public offering and any subsequent offerings of stock occurring before the completion of the projects, up to an aggregate of $100 million to fund cost overruns for Tesla's model S and powertrain projects. The DOE has a warrant to purchase up to 3,090,111 shares of common stock at an exercise price of $7.54 per share. Beginning on December 15, 2018 and until December 14, 2022, the shares under the warrant will vest and become exercisable. As of September 30, 2010, $88.1 million remained in the dedicated account. Source: Tesla Motors Inc. (2010, September 30). 10-Q. Retrieved from http://ir.teslamotors.com/sec.cfm TESLA MOTORS 33 Appendix P: ZEV Credits Automotive sales consist primarily of revenue earned from the sales of the Tesla Roadster, vehicle service, and vehicle options, accessories and destination charges as well as sales of ZEV credits. Automotive sales also consist of revenue earned from the sales of electric vehicle powertrain components, such as battery packs and battery chargers, to other automotive manufacturers. California and certain other states have laws in place requiring vehicle manufacturers to ensure that a portion of the vehicles delivered for sale in that state during each model year are zero emission vehicles. These laws provide that a manufacturer of zero emission vehicles may earn credits, referred to as ZEV credits, and may sell excess credits to other manufacturers who apply such credits to comply with these regulatory requirements. As a manufacturer of solely of zero emission vehicles, Tesla has earned ZEV credits on vehicles sold in such states, and it expects to continue to earn these credits in the future and accordingly sell them to other vehicle manufacturers In order to facilitate the sale of these credits, Tesla enters into contractual agreements with third parties requiring them to purchase ZEV credits at pre-determined prices. Tesla recognizes revenue on the sale of these credits at the time legal title to the credits is transferred to the purchasing party by the governmental agency issuing the credits. Revenue from the sale of ZEV credits totaled $0.9 million, $2.0 million, $2.0 million and $7.6 million for the three and nine months ended September 30, 2010 and the three and nine months ended September 30, 2009, respectively. Source: Tesla Motors Inc. (2010, September 30). 10-Q. Retrieved from http://ir.teslamotors.com/sec.cfm TESLA MOTORS 34 Appendix Q: Future Contractual Obligations Tesla's Future Contractual Obligations Commitment Time Frame Potential Costs Explaination In Financial Statements as of 9/30/10 No Operating Leases Varioius expiration dates through January 2020 Estimated $38.3M Leased office space Capital Leases Various expiration dates through 2013 $0.9M Computer equipment and software, office equipment and furniture Yes Purchase Agreement with Lotus Through December 2011 Estimated $19.7M (as of 9/30/10) Required to purchase a minimum of 2,400 partially assembled Roadster vehicles or gliders No Purchase Agreements with NUMMI (jointly owned by Toyota and Motors Liquidation Company) Transfer of Title in October 2010 $65.5M Purchase of NUMMI facility in Fremont, CA, equipment and spare parts, certain operating permits No Environmental Condition Agreement with NUMMI Through Oct 2020 or until $30M has been spent, whichever comes first (after this Tesla is responsible for any additional costs) Up to $15M, but unpredictable at this time; NUMMI will pay any subsequent costs up to $15M Potential governmentally- required remediation activities for contamination (known or unknown) of soil and groundwater existing prior to purchase of NUMMI. (NUMMI will pay for first four years costs on behalf of Tesla, with Tesla repaying that amount in Oct 2014) No Source: Tesla Motors Inc. (2010, September 30). 10-Q. Retrieved from http://ir.teslamotors.com/sec.cfm TESLA MOTORS 35 Appendix R: Historical Stock Performance and Wall Street Analysis Wall Street Consensus Target Prices *JP Morgan and Goldman Sachs are the primary investment companies covering TSLA. Their research was the most in-depth so we used them to compute market expectations. Their current price targets are $29 and $30 per share; however, we believe most investors are expecting higher cashflows given the stock is trading at $32. TESLA MOTORS 36 Appendix S: Capital Structure Summary $ in Thousands Debt Equity Total % Equity % Debt Cash Restricted Cash Total Assets Total Liabilities Equity Working Capital 2010 $91,557 $194,193 $285,750 68.0% 32.0% $95,107 $88,130 $369,782 $175,589 $194,193 $165,289 Capital Structure Summary 2011 2012 2013 $291,557 $366,557 $392,495 -$19,648 -$144,734 $66,447 $271,909 $221,823 $458,942 -7.2% -65.2% 14.5% 107.2% 165.2% 85.5% $27,914 $341,819 $704,562 $88,130 $88,130 $88,130 $371,810 $1,416,797 $2,560,752 $391,458 $1,561,531 $2,494,305 -$19,648 -$144,734 $66,447 $87,262 $192,216 $637,115 2014 $356,433 $220,397 $576,830 38.2% 61.8% $812,568 $88,130 $2,954,027 $2,733,630 $220,397 $743,905 2015 $317,371 $841,982 $1,159,354 72.6% 27.4% $1,559,104 $88,130 $5,162,654 $4,320,672 $841,982 $1,623,802 *Cash burn rate of $67.1 million in 2011. Model S sales are forecasted to begin in mid-2012. Heavy capital expenditures are primarily the cause for the increases in debt and in 2010 and 2011. **Our base case believes that Tesla will not need to raise additional capital in 2011 and 2012 as they still have $116 million of cash and restricted cash even though equity is negative. ***If the Model S production and sales gets pushed back to the beginning of 2013, Tesla may have to raise additional equity. However, we believe that they would be able to raise the equity at higher stock prices than the present price of $32 given the company’s expected future cash flows. Appendix T: Wall Street Consensus (Implied Cost of Equity) Wall Street Consensus 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 $8,420.0 Revenue $147.0 $671.4 $1,846.0 $2,173.0 $3,672.0 $4,971.0 $6,590.0 $7,209.0 $8,346.0 Growth 33.9% 356.7% 174.9% 17.7% 69.0% 35.4% 32.6% 9.4% 15.8% 0.9% EBITDA -$159.1 -$53.1 $196.0 $149.0 $472.0 $610.0 $686.0 $619.0 $749.0 $748.0 Net Income -$198.3 -$125.4 $140.0 $93.0 $318.0 $420.0 $479.0 $433.0 $531.0 $530.0 +D&A* $16.0 $35.0 $43.0 $45.0 $45.0 $50.0 $50.0 $50.0 $50.0 $50.0 +Stock Comp* $14.0 $16.0 $19.0 $20.0 $22.0 $24.0 $26.0 $28.0 $30.0 $30.0 Change in WC* $17.0 $25.0 $87.0 $35.0 $101.0 $96.0 $117.0 $59.0 $91.0 $27.4 -$94.5 -$136.0 -$180.0 -$360.0 -$100.0 -$138.0 -$158.0 -$195.0 -$212.6 -$2,988.7 -$132.5 $283.8 -$143.9 $153.0 $13.0 $126.0 $490.0 $534.0 $412.0 $507.0 $424.8 -$2,988.7 $283.8 Cap Ex Free CF to Equity Terminal Value Discounted CF's NPV Current Stock Price Current Mkt Cap ($ Mil) Implied Cost of Equity TESLA MOTORS $5,919.0 -$143.9 $153.0 $13.0 $126.0 $490.0 $534.0 $412.0 $507.0 $6,343.8 $0 $32.05 $2,988.7 10.87% 37 *Used only JP Morgan Estimates for these categories. **Wall Street Consensus only through 2012. Used JP Morgan for all future years. ***Terminal Value calculated using a 14 times free cash flow to equity multiple $425 million x 14 = $5.919 billion (Wall Street Forecast). Wall Street Consensus - Adjusted Revenue 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 $147.0 $671.4 $1,846.0 $2,173.0 $3,672.0 $5,468.1 $7,249.0 $7,929.9 $9,180.6 $9,262.0 -192.8% 356.7% 174.9% 17.7% 69.0% 48.9% 32.6% 9.4% 15.8% 0.9% EBITDA -$159.1 -$53.1 $196.0 $149.0 $472.0 $610.0 $686.0 $619.0 $749.0 $748.0 Net Income -$198.3 -$125.4 $140.0 $93.0 $318.0 $462.0 $526.9 $476.3 $584.1 $583.0 +D&A* $16.0 $35.0 $43.0 $45.0 $45.0 $50.0 $50.0 $50.0 $50.0 $50.0 +Stock Comp* $14.0 $16.0 $19.0 $20.0 $22.0 $24.0 $26.0 $28.0 $30.0 $30.0 Change in WC* $17.0 $25.0 $87.0 $35.0 $101.0 $96.0 $117.0 $59.0 $91.0 $27.4 Cap Ex Free CF to Equity -$132.5 -$94.5 -$136.0 -$180.0 -$360.0 -$100.0 -$138.0 -$158.0 -$195.0 -$212.6 -$2,988.7 -$283.8 -$143.9 $153.0 $13.0 $126.0 $532.0 $581.9 $455.3 $560.1 $477.8 $6,689.2 0 -$2,988.7 -$283.8 -$143.9 $153.0 $13.0 $126.0 $532.0 $581.9 $455.3 $560.1 $7,167.0 Terminal Value Discounted CF's NPV $0 Current Stock Price Current Market Cap ($ mil) $32.05 $2,988.7 Implied Cost of Equity 12.22% *Increased Revenue & Net Income by 10% between 2016 to 2020, which increased Free Cash Flow to Equity by 10% **Completed this analysis as current Wall Street Consensus only consists of primarily JPM and GS forecasts which is not enough coverage for accurate calculation. ***By backing into the ROE of 10.87% using JPM and GS forecasts resulting in a beta of .98, we feel that the beta is close to accurately measured ****Ultimately the beta (market risk) is lower than other automakers & intuition because TSLA is a new technology company that should be less sensitive to market fluctuations. We feel that the company has more company-specific risk, and therefore, the ROE should be higher than only the implied rate of 10.87%. The implied ROE is likely too low because investor cash flow expectations are higher and so those higher cashflows discounted back to $32 results in a higher ROE that makes more sense for a riskier company. We think the total risk (systematic & unsystematic risk) is more like 12.22% as Wall Street Consensus computed by only GS & JPM understates future cash flows. TESLA MOTORS 38 Appendix U: Cost of Capital Calculations Betas Betas (6/28/2010-12/6/2010) Covariance(TSLA,SPY) Variance(SPY) Beta TSLA Covariance(A123,SPY) Variance(SPY) Beta A123 Covariance(Ener1,SPY) Variance(SPY) Beta Ener1 Weight 0.00009 0.00010 0.87 0.00021 0.00010 2.04 Beta Toyota 25.0% 0.00015 0.00010 1.45 0.00007 0.00010 0.71 30.0% Covariance(Ford,SPY) Variance(SPY) Beta Ford 0.00014 0.00010 1.33 20.0% 1.35 Betas (2003 - Present) Covariance(Ford,SPY) Variance(SPY) Beta Ford Weight 0.90 40.0% 0.000232 0.00018 1.29 40.0% Since Inception '11/17/2006 25.0% Covariance(Toyota,SPY) Variance(SPY) Beta Toyota Weighted Average Beta Betas Betas (2003 - Present) Covariance(Toyota,SPY) 0.000162 Variance(SPY) 0.00018 Covariance(FSLR,SPY) Variance(SPY) Beta FSLR Weighted Average Beta 0.000409 0.000294 1.39 20.0% 1.16 100.0% 100.0% *Overall, the betas of car manufacturers will likely be slightly over 1.00. Therefore, if the stock market increases by 1% then car manufacturers will likely achieve returns slightly above 1%. If the market returns drop by 1% then it is likely car manufacturers will experience returns slightly worse than 1%. This is a result of auto manufacturers cash flows being positively or negatively directly associated with the economy, which likely dictates stock prices. Betas computed using average daily returns versus the S&P500. TESLA MOTORS 39 Cost of Debt Company Loan Amount Ford Motor Co Maturity Index Index Rate Spread Rate After Tax $360,000,000 8/1/2018 10-Yr Treasury 3.32% 2.66% 5.98% 3.89% $1,250,000,000 1/15/2020 10-Yr Treasury 3.32% 2.49% 5.81% 3.78% Ford Holding LLC $133,471,000 3/1/2020 10-Yr Treasury 3.32% 3.97% 7.29% 4.74% Toyota Motor Co $750,000,000 6/17/2020 10-Yr Treasury 3.32% 0.49% 3.81% 2.48% Toyota Motor Co $70,000,000 6/20/2019 Jap. Govt Bond 1.30% 0.14% 1.44% 0.94% 3.32% 1.95% 5.27% 3.43% 3.32% 1.48% 4.80% 3.12% 3.32% 0.00% 3.32% 2.16% Ford Motor Credit Average FINRA/Bloomberg Investment Grade U.S. Corporate Bond Index* DOE Loans $465.1 million 9/2019, 9/2022 *Average Duration 4.67. **WACC used for terminal value: 8.83% ***Weight for WACC used for capital structure in 2015: 72.6% equity & 27.4% debt WACC Summary - Current Ke Kd Beta WACC Derived using Wall Street Consensus Rate After Tax Rate Tax Rate 10.87% 3.32% 2.2% 35.0% 0.98 8.08% Ke Kd Beta WACC Derived using Adjusted Wall Street Consensus 12.22% 3.32% 2.2% 35.0% 0.98 9.00% 68.0% 32.0% 100.0% Ke Kd Beta WACC WACC Summary - 2020 (Perpetuity Calculation) Rate After Tax Rate Tax Rate 10.87% 5.27% 3.43% 35.0% 0.98 8.83% Weight 72.6% 27.4% 100.0% Weight 68.0% 32.0% 100.0% Conclusions: 1) Investors have much higher return expectations than Consensus meaning that the cost of equity is really higher b/c cash flows will be higher. 2) The systematic risk of TSLA as measured by beta is currently less than traditional automakers, which have an average of slightly over 1.0. Battery producers we evaluated had betas of over 1.5. TESLA MOTORS 40 Appendix V: Stock Price Sensitivity Analysis for Bullish and Bearish Outlooks Stock Price Projections - Bullish Case $ in Millions 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 147 1,019 2,192 2,495 4,488 5,834 7,584 8,343 9,177 10,095 % Growth 34% 593% 115% 14% 80% 30% 30% 10% 10% 10% EBITDA -198 -101 236 175 641 865 1125 1349 1484 1633 % Growth 38% -49% -333% -26% 266% 35% 30% 20% 10% 10% EBIT -208 1,610 Revenue % Growth EBIT(1-.35) -208 -115 223 165 632 853 1,109 1,330 1,464 -45% -293% -26% 282% 35% 30% 20% 10% 10% -115 145 107 411 554 721 865 951 1,046 +D&A 17.5 22 24 27 29 32 35 39 43 47 Cap Ex -136 -86 -75 -125 -160 -108 -138 -165 -183 -200 0 0 -49 -49 -49 -49 -49 -49 -49 -49 -327 -179 45 -40 231 430 570 690 763 Principal Paydown** Free CF to Firm Terminal Value FCF to Firm Discounted PV (in Mil) 845 14,916 -327 -179 45 -40 231 430 570 690 763 15761 $7,632.0 Shares (in Mil) 97.8 Intrinsic Value $78.04 *Terminal value in 2020 is computed using a perpetuity growth rate of 3% and using a WACC of 8.83%. **WACC of 8.83% calculated using the target capital structure in 2015 and cost of capital in the Cost of Debt Chart for the terminal value. Cash flows between 2011 and 2020 are discounted using a WACC of 9.00%. ***Principal paydown of DOE loan to achieve desired capital structure. Remaining debt assumed to be taken on by new debt investors in 2020. ****Bullish case consists of scrapping the Generation III concept and adding more products using existing technology that will lower capital expenditure costs from significantly less R&D and production costs. This also keeps Tesla positioned in the market towards the high-end more effectively. TESLA MOTORS 41 Stock Price Projections - Bearish Case Revenue % Growth EBITDA % Growth 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 $147.0 $628.0 $1,846.0 $2,173.0 $3,672.0 $4,773.6 $6,205.7 $6,826.2 $7,508.9 $8,259.8 34% 327% 194% 18% 69% 30% 30% 10% 10% 10% -$198.0 -$154.0 $153.0 $104.0 $427.0 $576.5 $749.4 $899.3 $989.2 $1,088.1 -346% -22% -199% -32% 311% 35% 30% 20% 10% 10% -$208.0 -$168.0 $140.0 $94.0 $418.0 $564.3 $733.6 $880.3 $968.3 $1,065.2 -19% -183% -33% 345% 35% 30% 20% 10% 10% -$208.0 -$168.0 $91.0 $61.1 $271.7 $366.8 $476.8 $572.2 $629.4 $692.4 $17.5 $22.0 $24.2 $26.7 $29.3 $32.3 $35.5 $39.0 $42.9 $47.2 Cap Ex -$136.0 -$85.5 -$130.0 -$180.0 -$365.0 -$107.5 -$137.5 -$165.0 -$182.5 -$200.0 Free CF to Firm -$326.6 -$231.5 -$14.8 -$92.2 -$64.0 $291.6 $374.8 $446.2 $489.9 EBIT % Growth EBIT(1-.35) +D&A Terminal Value FCF to Firm PV Shares Intrinsic Value $539.6 $9,533.0 -$326.6 -$231.5 -$14.8 -$92.2 -$64.0 $291.6 $374.8 $446.2 $489.9 $10,072.6 $4,470.4 97.8 $45.71 *Terminal value in 2020 is computed using a perpetuity growth rate of 3% and using a WACC of 8.83%. **WACC of 8.83% calculated using the target capital structure in 2015 and cost of capital in the Cost of Debt Chart. ***WACC 9.00% used for discounting CF’s through 2020 using DOE debt costs and ROE of 12.22%. TESLA MOTORS 42 TESLA MOTORS 7.02 7.02 Wei ghted Avera ge Sha res , Ba s i c Weighted Average Shares, Diluted -55,944 NET INCOME -7.97 -7.97 -1,331 -53,228 -47.5% 159 -2,690 -55,918 26 Ba s i c EPS Diluted EPS -25,998 -51,897 7.30 7.30 -4.04 -4.04 7.64 7.64 -5.04 -5.04 -38,517 47 -464 -38,508 9 0 -182 -29,401 118 -29,519 -6,729 -38,091 -3,221 -29,219 -31,362 37,623 29,850 OPERATING INCOME 22,207 16,585 Non-Opera ting Income / EBIT EBIT Margin % Ineres t Income Interes t Expens e EBT Total Ta xes 15,416 6,261 22.0% 20,266 1,878 22,144 23,971 4,434 28,405 Q2 2010A 13,265 19,282 17.2% 42,150 37.7% 61,432 Res ea rch a nd Devel opment % of Revenue SG&A % of Revenue Total Operating Expenses 3,852 18.5% 16,858 102 16,960 9,535 8.5% 102,408 0 102,408 Cos t of Products Cos t of Servi ces Total Cost of Revenues 20,585 227 20,812 Q1 2010A GROSS PROFIT Gross Margin 111,943 0 111,943 659% 2009A Product Revenues Servi ce Revenues Total Revenues % Increase (Y o Y) Revenues (in 000's) 92.27 92.27 -0.38 -0.38 -34,935 100 -298 -34,852 83 3,180 -34,654 -37,834 47,130 20,432 26,698 9,296 29.8% 19,457 2,488 21,945 23,350 7,891 31,241 Q3 2010A 97.8 94.2 -0.57 -0.57 -55,637 100 -555 -55,628 9 -6,729 -55,172 -48,443 55,800 30,800 25,000 7,357 25.1% 21,658 348 22,006 28,574 789 29,363 Q4 2010E 97.8 94.2 -1.68 -1.62 -158,608 -13,499 -157,136 -143.1% 247 -1,499 -158,389 219 -143,637 80,379 73.2% 90,024 82.0% 170,403 26,766 24.4% 78,239 4,816 83,055 96,480 13,341 109,821 -1.9% 2010E 98.0 94.6 -0.37 -0.37 -36,361 50 -874 -36,243 118 -3,221 -35,418 -32,197 36,000 16,000 20,000 3,803 21.5% 9,893 4,019 13,911 12,691 5,023 17,714 Q1 2011E 98.6 94.8 -0.50 -0.50 -48,809 50 -1,249 -48,800 9 -5,000 -47,601 -42,601 52,000 22,000 30,000 9,399 21.8% 29,678 4,019 33,696 38,073 5,023 43,095 Q2 2011E Forecasted Income Statement 99.2 95.5 -0.51 -0.51 -50,315 50 -1,624 -50,197 118 3,180 -48,623 -51,803 64,000 25,000 39,000 12,197 21.9% 39,570 4,019 43,589 50,763 5,023 55,786 Q3 2011E 101.5 98.9 -0.77 -0.77 -78,357 50 -1,999 -78,348 9 -5,000 -76,399 -71,399 78,000 28,000 50,000 6,601 21.7% 19,785 4,019 23,804 25,382 5,023 30,405 Q4 2011E 101.5 98.9 -2.16 -2.11 -213,842 -10,041 -208,041 -141.5% 200 -5,747 -213,588 254 -198,000 139,000 94.6% 91,000 61.9% 230,000 32,000 21.8% 98,926 16,074 115,000 126,908 20,092 147,000 33.9% 2011E 103.0 95.4 -1.21 -1.21 -125,086 -14,000 -115,160 -11.3% 200 -9,872 -124,832 254 -101,160 150,000.00 14.7% 112,000.00 11.0% 262,000 160,840 15.8% 841,179 16,514 857,694 997,725 20,808 1,018,534 592.9% 2012E 105.0 96.3 2.01 2.01 211,180 -13,000 222,620 10.2% 200 -11,386 211,434 254 235,620 161,000.00 7.3% 135,000.00 6.2% 296,000 531,620 24.2% 1,643,777 16,924 1,660,701 2,170,846 21,475 2,192,321 115.2% 2013E 106.0 97.3 1.45 1.45 153,950 -10,000 165,238 6.6% 200 -11,234 154,204 254 175,238 267,000.00 10.7% 148,000.00 5.9% 415,000 590,238 23.7% 1,887,739 17,199 1,904,938 2,473,681 21,495 2,495,176 13.8% 2014E 107.0 98.3 5.81 5.81 621,586 -9,000 631,747 14.1% 200 -10,107 621,840 254 640,747 177,000.00 3.9% 240,000.00 5.3% 417,000 1,057,747 23.6% 3,411,604 18,389 3,429,993 4,464,890 22,849 4,487,740 79.9% 2015E Appendix W: Financial Statement Forecasts 43 *Selling, general and administrative expenses- consist primarily of personnel and facilities costs related to our Tesla stores, marketing, sales, executive, finance, human resources, information technology and legal organizations, as well as litigation settlements and fees for professional and contract services. **Research and development expenses- consist primarily of personnel costs for our teams in engineering and research, supply chain, quality, manufacturing engineering and manufacturing test organizations, prototyping expense, contract and professional services and amortized equipment expense. Also included in research and development expenses are development services costs that we incur, if any, prior to the finalization of agreements with our development services customers as reaching a final agreement and revenue recognition is not assured. Development services costs incurred after the finalization of an agreement are recorded in cost of revenues. Demand Drivers Segment 2009A 2010 Roadster 2011E 2012E 2013E 2014E 2015E 1,050 100.0% U.S. Volume 630 308 280 278 750 875 Europe & Other Volume 200 252 280 93 750 875 900 Total Volume 830 560 560 371 1,500 1,750 1,950 74,814 Base Price 112,545 112,816 112,350 110,680 77,305 77,305 D&D (Destination & Delivery) 1,849 1,726 1,690 1,820 1,690 1,690 1,710 Options 26,099 25,586 25,350 25,674 17,442 17,442 16,953 ZEV Credit 6,831 4,675 3,750 3,747 2,000 1,500 1,077 Average Selling Price 147,323 144,803 143,140 141,920 98,438 97,938 94,553 Cogs of Goods Sold per Unit 113,590 119,100 114,042 111,532 67,704 67,704 65,837 Gross Profit per Unit 33,733 25,703 29,099 30,388 30,734 30,234 28,716 Revenues 122,278,300 81,089,624 80,158,400 52,652,290 147,656,700 171,391,150 184,378,590 COGS 94,280,000 66,696,000 63,863,240 41,378,369 101,555,250 118,481,125 128,382,450 Gross Profit 27,998,300 14,393,624 16,295,160 11,273,921 46,101,450 52,910,025 55,996,140 Gross Margin on ASP 22.9% 17.8% 20.3% 21.4% 31.2% 30.9% 30.4% Gross Margin on ASP less ZEV Credit Revenue 18.3% 14.5% 17.7% 18.8% 29.2% 29.3% 29.2% U.S. Volume 6,000 13,500 16,000 23,000 Europe & Other Volume 4,000 9,000 10,000 18,500 Total Volume 10,000 22,500 26,000 41,500 Target Market 946,251 905,482 870,772 831,546 1.1% 2.5% 3.0% 5.0% Model-S ICA Projections % of Target Market Wall Street Consensus Total Volume 5,500 18,500 22,000 37,500 Target Market 946,251 905,482 870,772 831,546 % of Target Market 0.6% 2.0% 2.5% 4.5% Base Price - 160 mile range % of Sales 20% 20% 20% 20% TESLA MOTORS 44 Base Price - 230 mile range % of Sales 50% 50% 60% 60% Base Price - 300 mile range % of Sales 30% 30% 20% 20% Base price - 160 mile range 61,012 61,012 60,873 59,285 Base price - 230 mile range 73,874 73,874 73,705 72,234 Base price - 300 mile range 82,270 82,270 82,083 80,688 Base price - Blended 73,820 73,820 72,814 71,335 D&D (Destination & Delivery) 1,157 1,157 1,150 1,178 Options 9,480 9,480 9,316 9,262 ZEV Credit 3,000 2,400 1,846 1,108 Average Selling Price - ICA Projected Average Selling Price Consensus 87,457 86,857 85,127 82,883 88,007 86,917 85,960 83,144 Cogs of Goods Sold per Unit 74,552 66,093 65,276 63,854 Gross Profit per Unit 12,906 20,764 19,851 19,029 Revenues - ICA 874,573,200 1,954,289,700 2,213,290,000 3,439,647,800 COGS - ICA 745,516,000 1,487,101,500 1,697,168,000 2,649,941,500 Gross Profit - ICA 129,057,200 467,188,200 516,122,000 789,706,300 Gross Margin on ASP 14.8% 23.9% 23.3% 23.0% Gross Margin on ASP less ZEV Credit Revenue 11.3% 21.1% 21.2% 21.6% Revenues - Consensus 484,039,500 1,607,968,500 1,891,114,000 3,117,899,000 COGS - Consenus 407,822,500 1,223,400,500 1,446,236,000 2,399,472,500 Gross Profit - Consensus 76,217,000 384,568,000 444,878,000 718,426,500 Gross Margin on ASP 15.7% 23.9% 23.5% 23.0% Gross Margin on ASP less ZEV Credit Revenue 12.6% 21.2% 21.6% 21.8% Gross Profit % Difference vs Consensus 40.9% 17.7% 13.8% 9.0% U.S. Volume 4,000 8,000 Europe & Other Volume 1,500 3,000 Total Volume 5,500 11,000 Base Price 59,863 59,863 D&D (Destination & Delivery) 1,108 1,108 Options 4,327 4,327 ZEV Credit 2,909 2,909 Average Selling Price 68,207 68,207 Cogs of Goods Sold per Unit 50,818 50,818 Gross Profit per Unit 17,389 17,389 375,139,500 750,279,000 ICA - Projections Consensus - Projections Top Hat (Don't go ahead w/ Gen III) Revenues TESLA MOTORS 45 COGS 279,500,000 559,000,000 Gross Profit 95,639,500 191,279,000 Gross Margin on ASP 25.5% 25.5% Gross Margin on ASP less ZEV Credit Revenue 21.2% 21.2% 10,065 Power-Train Business (Battery Packs & Chargers) Consumer Vehicles Volume 30 855 2,750 4,700 5,300 8,900 Average Selling Price 20,000 18,000 17,000 15,000 13,000 10,000 9,000 Revenues 600,000 15,390,000 46,750,000 70,500,000 68,900,000 89,000,000 90,585,000 Volume 0 0 0 0 0 0 0 Average Selling Price 0 0 0 0 0 0 0 Revenues 0 0 0 0 0 0 0 Revenues 600,000 15,390,000 46,750,000 70,500,000 68,900,000 89,000,000 90,585,000 COGS 450,000 11,542,500 35,062,500 54,285,000 55,120,000 72,090,000 74,279,700 Gross Profit 150,000 3,847,500 11,687,500 16,215,000 13,780,000 16,910,000 16,305,300 25.0% 25.0% 25.0% 23.0% 20.0% 19.0% 18.0% Commercial Vehicles Total Power Train Business Gross Margin Development Services Prototypes Revenues 100.0% 13,341,100 20,091,600 20,808,210 21,474,800 21,494,850 22,849,410 COGS 4,816,320 16,074,260 16,514,131 16,924,250 17,198,875 18,389,350 Gross Profit 8,524,780 4,017,340 4,294,079 4,550,550 4,295,975 4,460,060 63.9% 20.0% 20.6% 21.2% 20.0% 19.5% Gross Margin Total Revenue 122,878,300 109,820,724 147,000,000 1,018,533,700 2,192,321,200 2,870,315,500 4,487,739,800 COGS 94,730,000 83,054,820 115,000,000 857,693,500 1,660,701,000 2,184,438,000 3,429,993,000 Gross Profit 28,148,300 26,765,904 32,000,000 160,840,200 531,620,200 685,877,500 1,057,746,800 TESLA MOTORS 46 TESLA MOTORS 47 51,699 7 5,193 -204,914 -199,714 Shareholders' Equity Common Stock Addi ti ona l Pa i d-In Ca pi ta l Reta i ned Ea rni ngs Total Shareholders' Equity Total Liabilities and Shareholders' Equity 101,178 0 56,602 0 888 Common Stock Wa rra nt Li a bi l i ty Long-Term Debt Converti bl e Preferred Stock Wa rra nty Li a bi l i ty Ca pi ta l Lea s e Obl i ga ti ons Total Convertible Preferred Stock 48,019 87,935 Res erva ti on Pa yments Total Current Liabilities 0 4,810 62,300 150,235 24,357 341 11,145 4,073 Liabilities Accounts Pa ya bl e Current Porti on of Ca pi ta l Lea s es Accrued Expens es Current Deferred / Unea rned Revenue Long-Term Deferred / Unea rned Revenue Other Long-Term Li a bi l i ti es (Wa rra nti es ) Total Non-Current Liabilities Total Liabilities 9,277 0 3,320 16,650 2,180 31,427 0 18,793 1,220 259 0 20,272 51,699 Q4 2008A Assets Ca s h a nd Ca s h Equi va l ents Res tri cted Ca s h Recei va bl es Inventory Prepa i d Expens e Total Current Assets Opera ti ng Lea s e Vehi cl es , Net Property, Pl a nt, a nd Equi pment, Net Res tri cted Ca s h Other Non-Current As s ets Other As s ets Adjus tments Total Non-Current Assets Total Assets In (000's) 130,424 7 7,124 -260,654 -253,523 319,225 1,240 3,459 7,233 64,722 0 0 1,734 800 26,048 57,489 15,242 290 14,532 1,377 69,627 0 3,488 23,222 4,222 100,559 0 23,535 3,580 2,750 0 29,865 130,424 Q4 2009A 145,320 8 10,868 -290,173 -279,297 319,225 1,427 3,862 46,287 105,392 0 29,920 10,359 719 25,989 59,105 18,190 293 7,922 6,711 61,546 0 5,931 28,588 4,537 100,602 0 26,866 7,487 10,365 0 44,718 145,320 Q1 2010A 147,974 8 18,906 -328,689 -309,775 319,225 2,116 5,007 69,890 138,524 0 45,419 16,709 639 26,246 68,634 25,634 296 8,359 8,099 47,304 0 6,467 29,518 6,745 90,034 0 33,156 5,361 19,423 0 57,940 147,974 361,621 93 583,454 -363,624 219,923 0 2,514 6,058 72,370 141,698 6,675 56,557 0 566 27,869 69,328 26,990 291 10,701 3,477 96,563 88,130 8,062 39,508 8,870 241,133 5,743 91,892 10,753 12,100 0 120,488 361,621 Q3 2010A 369,782 94 613,360 -419,261 194,193 0 1,468 5,873 106,139 175,589 6,675 91,557 0 566 26,426 69,450 27,900 294 8,370 6,460 95,107 88,130 14,681 27,507 9,314 234,739 5,743 116,460 10,753 13,310 -11,223 135,043 369,782 354,596 94 613,360 -455,621 157,833 0 886 3,543 153,226 196,763 6,675 141,557 0 566 15,942 43,536 18,000 297 5,400 3,897 74,842 88,130 8,857 17,389 9,779 198,997 5,743 147,896 10,753 14,641 -23,434 155,599 354,596 394,498 94 613,360 -504,430 109,024 0 2,155 8,619 209,572 285,474 6,675 191,557 0 566 32,322 75,902 26,000 300 7,800 9,481 57,769 88,130 21,548 42,120 10,268 219,835 5,743 177,758 10,753 16,105 -35,696 174,663 394,498 423,048 94 613,360 -554,745 58,709 0 2,789 11,157 262,745 364,339 6,675 241,557 0 566 47,418 101,594 32,000 303 9,600 12,273 52,033 88,130 27,893 54,486 10,782 233,324 5,743 207,206 10,753 17,716 -51,694 189,724 423,048 371,810 94 613,360 -633,102 -19,648 0 1,520 6,081 306,399 391,458 6,675 291,557 0 566 27,364 85,059 39,000 306 11,700 6,689 27,914 88,130 15,202 29,755 11,321 172,321 5,743 236,199 10,753 19,487 -72,694 199,488 371,810 Q4 2010E Q1 2011E Q2 2011E Q3 2011E Q4 2011E Forecasted Balance Sheet Q2 2010A 1,416,797 94 613,360 -758,188 -144,734 0 50,927 203,707 628,431 1,561,531 6,675 366,557 0 566 407,413 933,100 262,000 309 39,300 224,077 341,819 88,130 254,633 428,847 11,887 1,125,316 5,743 299,668 10,753 21,436 -46,118 291,482 1,416,797 2012E 2,560,752 94 613,360 -547,007 66,447 0 109,616 438,464 947,816 2,494,305 6,675 392,495 0 566 723,466 1,546,489 296,000 312 44,400 482,311 704,562 88,130 548,080 830,351 12,481 2,183,603 5,743 350,434 10,753 23,579 -13,361 377,148 2,560,752 2013E 2,954,027 94 613,360 -393,057 220,397 0 124,759 499,035 987,468 2,733,630 6,675 356,433 0 566 823,408 1,746,162 311,250 315 62,250 548,939 812,568 88,130 623,794 952,469 13,105 2,490,066 5,743 448,776 10,753 25,937 -27,249 463,960 2,954,027 2014E 5,162,654 94 613,360 228,528 841,982 0 224,387 897,548 1,446,547 4,320,672 6,675 317,371 0 566 1,480,954 2,874,124 342,999 318 62,550 987,303 1,559,104 88,130 1,121,935 1,714,997 13,760 4,497,926 5,743 579,453 10,753 28,531 40,248 664,728 5,162,654 2015E TESLA MOTORS 48 -2,046.0 -53.5 41,189.0 216.0 40,328.5 9,463.5 60,163.5 69,627.0 Net Change in Cash and Cash Equivalents Cash and Cash Equivalents, Beginning of Period Cash and Cash Equivalents, End of Period -- -- -4,227.5 0.0 -389.5 -4,617.0 -17,846.5 -26,248.0 -688.5 1,449.0 714.0 529.0 419.0 41.0 -14,428.5 1,941.5 595.5 319.0 -385.0 515.0 Q4 2009A Cash Flow From Financing Activities Long-Term Debt Proceeds Long-Term Debt Repayment Total Debt Common Stock Proceeds Debt / Equity Issuance Costs Capital Leases Preferred Stock Sale or Repurchase Stock Options, Rights, Warrants, and Restricted Stock Net Cash From Financing Activities Cash Flow From Investing Activities Payments related to acquistion of Manufacturing Facility Purchase of P P& E Increase in Restricted cash in DOE Account Other Investing Activities Net Cash From Investing Activities Accounts Payable Accrued Expenses and Accrued Liabilities Deferred Revenue / Expenses & Deferred Dev Comp Reservation Payments Other Long Term Liabilities Net Cash From Operating Activities (In 000's) Cash Flow From Operating Activities Net Income / Income from Continuing Operations Depreciation / Amortization / Accretion Stock Based Compensation Provision for Inventory Obsolescence Infrequent / Unusual Items Fixed / Intangible Assets Gain or Loss Change in Fair Value of Convertible Pref stock warrants Changes in Assets and Liabilities Receivables Inventory Prepaid Expenses Operating Lease Assets Other Assets 5,824.5 -12,690.8 -6,345.4 10,118.4 -24,731.4 -12,365.7 -465.7 -489.0 -513.4 0.0 0.0 0.0 -1,331.0 -1,464.1 -1,610.5 50,000.0 0.0 50,000.0 0.0 0.0 -78.0 -200.0 50,122.0 50,000.0 0.0 50,000.0 0.0 0.0 -78.0 -200.0 50,122.0 25,480.0 -20,265.2 -17,072.8 69,627.0 95,107.0 74,841.9 95,107.0 74,841.9 57,769.1 91,557.0 0.0 91,557.0 268,842.0 -3,691.0 -310.0 -941.0 357,339.0 -5,736.0 57,769.1 52,033.0 50,000.0 0.0 50,000.0 0.0 0.0 -77.0 -200.0 50,123.0 -107,000.0 -34,000.0 -34,000.0 -34,000.0 -88,130.0 0.0 0.0 0.0 -1,852.0 0.0 0.0 0.0 -196,982.0 -34,000.0 -34,000.0 -34,000.0 8,903.0 -9,900.0 8,000.0 6,000.0 -4,462.0 -2,970.0 2,400.0 1,800.0 6,200.8 -2,562.8 5,584.0 2,792.0 378.5 -10,484.1 16,379.2 15,096.8 2,413.5 -2,329.8 5,076.3 2,538.2 -134,877.0 -36,387.2 -33,194.8 -21,859.0 -11,194.4 -4,936.3 -3,552.5 -5,932.0 -2,028.0 -158,607.5 -36,360.6 -48,809.0 -50,314.8 11,152.9 3,761.9 4,138.1 4,551.9 20,124.0 9,811.0 12,811.0 15,811.0 1,053.0 501.0 601.0 701.0 --------5,610.0 0.0 0.0 0.0 2011E -520.9 -2,247.4 -2,007.1 0.0 -6,177.2 -24,119.1 52,033.0 27,913.9 -67,193.1 95,107.0 27,913.9 50,000.0 200,000.0 0.0 0.0 50,000.0 200,000.0 0.0 0.0 0.0 0.0 -78.0 -311.0 --200.0 800.0 50,122.0 200,489.0 -34,000.0 -136,000.0 0.0 0.0 0.0 0.0 -34,000.0 -136,000.0 7,000.0 11,100.0 2,100.0 3,330.0 -5,584.0 229.2 -20,054.2 937.7 -5,076.3 208.4 -40,241.1 -131,682.1 12,690.8 24,731.4 -539.1 0.0 -1,771.6 -78,357.3 -213,841.7 5,007.1 17,458.9 18,811.0 57,244.0 801.0 2,604.0 ----0.0 0.0 Forecasted Statement of Cash Flows 2010E Q1 2011E Q2 2011E Q3 2011E Q4 2011E 313,905.2 27,913.9 341,819.1 75,000.0 0.0 75,000.0 0.0 0.0 -78.0 -200.0 75,122.0 -85,500.0 0.0 0.0 -85,500.0 223,000.0 27,600.0 217,388.4 380,049.4 197,625.8 324,283.2 -239,431.1 -399,092.1 -566.0 0.0 -1,948.7 -125,085.5 22,031.1 21,811.0 901.0 --0.0 2012E 362,742.5 341,819.1 704,561.6 75,000.0 -49,061.9 25,938.1 0.0 0.0 -77.0 -200.0 26,061.1 -75,000.0 0.0 0.0 -75,000.0 34,000.0 5,100.0 258,233.3 316,052.5 234,757.5 411,681.4 -293,446.9 -401,503.8 -594.3 0.0 -2,143.6 211,180.4 24,234.2 24,811.0 1,001.0 --0.0 2013E 10,000.0 -49,061.9 -39,061.9 0.0 0.0 -78.0 -200.0 -38,939.9 -160,000.0 0.0 0.0 -160,000.0 31,749.3 300.0 438,364.0 657,546.1 398,512.8 945,475.9 -498,141.0 -762,527.5 -655.3 0.0 -2,593.7 621,585.7 29,323.4 30,811.0 1,201.0 --0.0 2015E 108,006.8 746,536.0 704,561.6 812,568.4 812,568.4 1,559,104.4 13,000.0 -49,061.9 -36,061.9 0.0 0.0 -78.0 -200.0 -35,939.9 -125,000.0 0.0 0.0 -125,000.0 15,250.0 17,850.0 66,628.1 99,942.1 60,571.0 268,946.6 -75,713.7 -122,118.5 -624.0 0.0 -2,357.9 153,950.1 26,657.7 27,811.0 1,101.0 --0.0 2014E Appendix X: Capital Expenditure Summary Capital Expenditure Summary 2009A Beginning PP&E Gross Adjustments Purchases Ending PP&E Gross Depreciation Adjustment Accumulated Depreciation Net PP&E 2010 24,381 2011E 2012E 2013E 2014E 2015E 11,884 36,265 6,940 0 -12,730 36,265 -2,898 107,000 140,367 11,153 1,174 -22,709 140,367 0 136,000 276,367 17,459 0 -40,168 276,367 0 85,500 361,867 22,031 0 -62,199 361,867 0 75,000 436,867 24,234 0 -86,433 436,867 0 125,000 561,867 26,658 0 -113,091 561,867 0 160,000 721,867 29,323 0 -142,414 23,535 116,460 236,199 299,668 350,434 448,776 579,453 Capital Expenditures Detail ($ in Mil's) Store Count Capital Required to Open Stores Incremental Capital Required Total Volume (Including Powertrain) Total Powertrain Capacity Capital Required to Build 10k of Capacity Incremental Capital Required Total Vehicle Assembly Capacity 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 10 32 44 65 75 85 105 140 175 225 250 250 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 11.0 6.0 10.5 5.0 5.0 10.0 17.5 17.5 25.0 12.5 0.0 1,731 4,060 11,270 32,400 33,150 56,260 87,441 126,230 150,792 172,396 179,151 30,000 30,000 30,000 30,000 30,000 60,000 60,000 90,000 120,000 180,000 180,000 10 10 10 10 10 10 10 10 10 10 10 0 0 0 0 30 0 30 30 60 0 30,000 30,000 30,000 50,000 50,000 150,000 250,000 250,000 250,000 250,000 50 50 50 50 30,000 Incremental Capital Required Incremental Capital to Develop Top-Hat Total Incremental Capital Required Maintenance CapEx Total Incremental Capital Required % of Total Revenues TESLA MOTORS 0 0 0 0 50 50 50 50 50 50 11 6 11 55 105 140 68 98 105 123 50 96 130 75 20 20 20 40 40 60 60 150 107 136 86 75 125 160 108 138 165 183 200 97.4% 92.5% 8.4% 3.4% 5.0% 3.6% 2.0% 2.1% 2.1% 2.0% 1.8% 49 *We estimated capital expenditures to be lower in 2013, 2014, and 2015 as we recommended to not go ahead with the Generation III cars since buyers of those cars would not likely be in our higher-end target market. In addition, those cars would require a different powertrain and other components that would require additional investment in vehicle assembly capacity. We kept expense of $50k per year because we believe Tesla should expand into other types of cars like min-vans, etc but that still use the same powertrain and other technology. Therefore, new assembly capacity would be required, but would be much less than Gen III assembly. TESLA MOTORS 50 Appendix Y: Model S Sales Forecasts *Tables included for purposes of comparison between our predictions and those of the industry. **Our bullish case assumes that Tesla is able to achieve sales 0.5% above Wall Street consensus expectations. ***0.5% increase in reasonable expectations for Tesla given its stated initial sales objective of 20,000 sales per year and objective of reaching 30,000 Model S units (vehicle totals, not including Model S powertrains) sold per year. TESLA MOTORS 51 Appendix Z: Competitor Analysis The Model S will face competition from existing and future automobile manufacturers in the luxury category, including Audi, BMW, Lexus, and Mercedes. While most automakers (Nissan, General Motors, Ford, Honda, and Volkswagen to name a few) are planning to enter the EV market in the next few years, we believe that the most significant competition for the Model S will be from the luxury category. Additionally, the Model S target market is already purchasing hybrid and plug-in hybrids vehicles1, and we believe that Tesla will see particular competition from the Toyota Prius, a car that does not require dramatic consumer behavior change and is established as a significant status symbol among “affluent environmentalists.” BMW BMW has recently been ramping up its EV capabilities and announced that it will hire 2,600 new employees by the end of 2011 to focus on electric and hybrid technology. 2 BMW plans to launch two fully electric vehicles – the ActiveE (2011) and the MegaCity Vehicle (2013). The ActiveE (pictured below) is based on the BMW 1 Series Coupé. It will have seating for four people and go 0-60 mph in approximately 8.5 seconds. The MegaCity Vehicle will be a compact, urban hatchback with a carbon fiber passenger cell and aluminum chassis components. It is expected to have about 100 miles of range.3 BMW ActiveE Concept, Source: www.bmw.com Audi Franciscus van Meel, Audi’s manager for electric mobility strategy recently stated, "By 2020, we want to be the leading premium seller of electric vehicles. We will successively bring out a variety of hybrid models and electric vehicles…Today we're assuming that our sales of Audi e-tron electric cars will rise to a six-figure volume by 2020(4)." Audi plans to launch their first e-tron EV (pictured below) by 2012. Audi recently opened a $90M, 14,000-square-meter electric-drive development and test center at its headquarters and plans to hire 840 people to help develop electric powertrains and batteries. 5 The Audi e-tron is a high-performance electric sports car that will likely compete with the Roadster. This two-seater car will accelerate from 0 to 100 km/h (0 – 62.14 mph) in 4.8 seconds, and from 60 to 120 km/h (37.28 – 74.56 mph) in 4.1 seconds. The lithium-ion battery will have a range of approximately 50 – 150 miles. TESLA MOTORS 52 Audi e-tron Concept | October 06, 2009 | Source: Audi Toyota The Toyota Prius is “the unofficial greenmobile for Toyota and the world.”(6) Toyota is expected to launch its first plug-in hybrid Prius – the Prius PHV – in 2012. The car is essentially identical to the Prius, except for the plug-in technology. It is much slower than the Tesla, Audi, and BMW cars, with a 0-to-60-mph time of 11.3 seconds. However, as Car and Driver points out, “the Prius never has been and never will be about driving delight, but rather is about maximum fuel economy.”(7) With a full charge, the Prius PHV can travel up to 13 miles with on electric power. The expected cost $47.5k. Toyota Prius PHV. Source: Toyota Source: 1 ―Given the premium that must be paid for a hybrid like the Toyota Prius or Lexus RX Hybrid, it‘s no surprise the people who buy them are affluent – 42 percent of households with a hybrid in the driveway have an annual income exceeding $100,000. That‘s more than twice the national median. Hybrid owners are two to three times more likely to practice yoga, ski, hike or belong to a gym. They are twice as likely to hold a college degree and three times more likely to have post-graduate degrees. Thirty-eight percent identify themselves as Democrats, 14 percent as Republicans and 34 percent said they are independents. The rest of them didn‘t say how they vote.‖ http://www.wired.com/autopia/2007/12/hybrid-owners-w/ TESLA MOTORS 53 2 Reiters C. Retrieved from http://www.bloomberg.com/news/2010-12-06/bmw-seeks-2-600-new-employees-by-end-of-2011-on-electrichybrid-systems.html 3 Tingwall E. Retrieved from http://www.automobilemag.com/green/news/1007_2013_bmw_megacity_vehicle/index.html 4 The Motor Report. Retrieved from http://www.themotorreport.com.au/51099/audi-looking-to-dominate-premium-ev-mar 5 Krix P. Retrieved from http://www.autonews.com/apps/pbcs.dll/article?AID=/20101123/ANE/311239980/1193 6 Siler S. Retrieved from http://www.caranddriver.com/reviews/car/10q2/2012_toyota_prius_plug-in_hybrid-first_drive_review 7 Ibid Siler S. TESLA MOTORS 54 Appendix AA: Tesla Roadster and Model S Images The Tesla Roadster TESLA MOTORS 55 (Image source: Tesla Motors) The Tesla Model S TESLA MOTORS 56 (Image Source: Tesla Motors) TESLA MOTORS 57 Appendix AB: The Tesla Brand Community A key differentiator and strength for Tesla is the community that has developed around the Tesla brand. These community members are called Tesla Enthusiasts and they connect with each other online and in person to share their enthusiasm for the cars and the company. The community conversation is in some cases organic and in other cases guided and managed by Tesla. Tesla Website The Tesla website include a section titled “Enthusiasts,” which includes a blog (written by both Tesla employees and Tesla owners), picture gallery with owners and their cars, forums where Enthusiasts can “talk Tesla,” and an accessories shop where Enthusiasts can purchase Tesla gear. While Tesla manages the content of the website, they appear to allow conversation to flow organically in the forums, although users must register on the website in order to post comments. Photo gallery of owners with their Roadsters TESLA MOTORS 58 Tesla Enthusiasts who have reserved a Model S often include their personal reservation number as part of their signature in the Enthusiast Forums. Facebook: Tesla manages a Facebook page that has nearly 25,000 fans. The company posts several times a week with each post typically generating between 100 and 400 “likes” and in some cases over 100 comments from fans. While Tesla provides the initial content for each post, the conversation between Enthusiasts usually unfolds organically. Tesla stories from owners are called “Teslamonials.” TESLA MOTORS 59 Tesla posts pictures owners with their cars. (This post received 162 “likes” from other Tesla fans). Tesla owners never tire of “talking Tesla.” TESLA MOTORS 60 YouTube: Tesla has posted over 25 videos on YouTube, generating thousands of views. Tesla Enthusiasts also often post their own videos about their Tesla car. Several Enthusiasts have created their own Tesla commercials. Tesla’s video introducing the Model S has received almost 300,000 views. This Tesla Enthusiast’s commercial has generated nearly 40,000 views. TESLA MOTORS 61 Fan Websites: Tesla fans have also created their own websites and forums for connecting with other fans and discussing their cars. Events: Tesla Enthusiasts come together at Tesla sponsored events (Roadster Rallies, electric vehicle conference) and other events organized by owners. TESLA MOTORS 62 TUESDAY, APRIL 20, 2010 Northern California Roadster Record! By Dan Myggen, Customer Advocate TAGS: EVENTS / ROADSTER / 8 COMMENTS Roadster owners are a fascinating group of people with varied backgrounds and great stories to tell. I’ve had the pleasure of getting to know many of them over the past year delivering cars from our Menlo Park store. After rejoining our headquarters Customer Service team, it’s the daily interaction with our owners I miss most. When asked to help host the March 21st Road Rally for local customers, I didn’t hesitate. We kicked off the event at the Tesla Store Menlo Park. Once everyone had assembled in the parking lot and enjoyed some coffee and snacks, we had a quick drivers’ meeting and were off. Up Sand Hill Road we went, passing some of the very VCs whose investments made these cars possible in the first place. We hopped on Highway 280, where Roadsters are becoming a familiar sight, then took the 92 towards the coast. Highway 92 is made for the Roadster – its a fun little twisty road that courses over Crystal Springs Reservoir and up into the coastal hills which greet the Pacific fog each evening. From the crest, we made our way down into the sleepy hamlet of Half Moon Bay. We cruised down the coast as the morning fog dissipated, exposing some of the best scenery the Pacific has to offer. After a dozen breathtaking miles on PCH, we stopped at Pomponio State Beach to line up the Roadsters for their photo shoot. As we pulled in, I tallied up the Roadsters. There were thirty customer cars and four cars from our company fleet. A few of our earliest customers were there touting odometers that read over 20,000 miles. I was driving Validation Prototype 11 which had the highest mileage of any Roadster present, with roughly 67,000 miles on the odometer. Not bad for a car just over two years old! Leading the pack was our beloved VIN 750, the car we watched drive across the country to Detroit for NAIAS in January. In the parking lot of Pomponio State Beach, we checked out the cars (a great opportunity to see color combos and customizations), and owners traded stories of how they came to be Roadster Owners. We took a group photo to commemorate the largest rally of Roadsters to date (beat that, LA!). We were able to keep a tight grouping as we motored back up the hills to Skyline Boulevard, the famous ribbon of blacktop running along the hilltop crest of the peninsula south of San Francisco. This crossroads is home to Alice’s Restaurant, a local favorite for anyone who likes to tackle twisty roads on two or four wheels. This was the site of some of our earliest test drives, so this hilltop intersection is certainly a special place for Tesla. As we piled up for the stop sign, we could see restaurant patrons pouring out to have a look and give us a wave. While Roadsters may have become a regular sight in the Bay Area, seeing 34 of them in a row is certainly a spectacle! After we slid down the hill and made our way into Palo Alto, we pulled into the parking lot of our new Headquarters where lunch was waiting. Since most of the building is still a hardhat zone while we prepare to build electric powertrain components, we ate in the sunshine, discussing the merits of solar power, electric drive, and the special feeling of being a member of the Roadster Owner Community. I can’t think of a better way of spending a Sunday morning with a Roadster. If you can, let us know, we’re listening. TESLA MOTORS 63 Appendix AC. Model S Battery Technology Battery Cell Form Factor, Chemistry, and Safety. Battery packs can differ in cell-form factor (small cylindrical vs. large flat prismatic) and chemistry. Tesla uses small cylindrical cell, lithium-ion batteries, similar to those used in laptops. The packs are organized in multiple cells, each cell containing multiple batteries. The complexity of the more than 5,000 cells in Tesla’s battery packs (compared to less the hundreds in prismatic battery packs) is potentially a concern about safety, but Tesla uses a thermal-liquid cooling system that in theory isolates overheating of any individual batteries, preventing failure between cells and overall battery pack failure.1 To date there have been no overheating incidents with Tesla’s battery packs in the Roadster models. Battery Packs and Range. The battery pack of Tesla’s Roadster provides unparalleled range (244 miles/charge) for less or comparable cost to competitor battery packs ($679/kWh for Roadster 1.0, estimated $469/kWh for Roadster 2.5). 2 Musk has stated the Model S battery pack will be approximately 44% ($299/kWh) the cost of the Roadster 1.0 battery pack.3 In addition, some industry engineers and analysts have stated that battery packs using small-cell cylindrical form factor batteries like those used by Tesla may cost only $200/kWh.4 In November, Panasonic purchased a $30 million stake in Tesla, entering into a strategic partnership with Tesla to supply the lithium-ion cells for the Model S. Whereas Roadster models use lithium cobalt-oxide batteries, Panasonic is supplying lithium nickel-cobalt-aluminum batteries, a less expensive and likely safer chemistry designed for EV and PHEV batteries. Battery Pack Total Cost. The lower costs (per KWh) of Tesla’s battery packs enable Tesla to develop EVs with greater range than other EV manufacturers. Potential range capacity (independent of automobile design) results predominantly from the energy density (kWh) of the battery pack. For example, the Roadster battery pack has an energy density of 53 kWh and a range of 244 miles, the Nissan Leaf an energy density of 24 kWh and a range of 100 miles. The total cost of the battery pack is the product of the energy density and cost/kWh. Nissan Leaf’s battery packs costs approximately $9,000 (24 kWh x $375/kWh) but it provides only a 100-mile range. Model S battery packs will cost between $8,400 and $12,558 ($200 - $300/kWh) for the 160-mile range pack, the higher ranges being most supported by Tesla’s IPO and Musk’s statements.5,6 In addition, the 300-mile range battery pack is 90 kWh, which will cost $18,000 - $26,910. Tesla has already priced the 160-mile range Model S at $49,500 after federal subsidy. If Tesla reduces battery pack costs as rapidly as other battery pack manufacturers, it could reduce the battery pack costs from approximately 26% to 17% of the $49,500 sales price of the base model. Benefits of Battery Pack Costs. Tesla’s battery pack cost advantage enables it to provide superior range without sacrificing design. Thus, it is able to design for aesthetics and performance, position the Model S as a luxury sedan, and still provide an EV with better range than the current economy models such as the Leaf. Rapid reductions in battery pack costs would enable Tesla to choose between increased margins on the Model S or reducing the sales price. Reducing prices would possibly increase the available market, especially with the 300-mile range; however, reductions may not be large enough for the 160-mile and 230-mile models to compete with non-luxury EVs and PHEVs like the Leaf and Volt. In addition, sales price reductions could compromise the Model S positioning as a luxury sedan. TESLA MOTORS 64 Sources: 1 JP Morgan. Tesla Motors: Electrifying Luxury; Initiate With Overweight. August 9, 2010 2 Ibid 3 Tesla Motors Inc. (2010, June 29). Form 424B4. Retrieved from http://ir.teslamotors.com/sec.cfm 4 Yasu M, Ohnsman A. http://www.bloomberg.com/news/2010-12-07/toyota-adopts-tesla-s-laptop-battery-strategy-for-electric-cars.html 5 Ibid Tesla IPO 6 Garthwaite J. Retrieved from http://gigaom.com/cleantech/tesla-ceo-nissans-leaf-battery-is-primitive/ Appendix AD: Fuel/ Energy Costs per Mile of Luxury Sedans vs. Tesla‘s Roadster and Model S Fuel/Energy Costs per Mile MPG $/Gallon Gasoline $ Energy/Mile BMW 550ix ICE 23 $2.96 $0.13 Lexus 460 L AWD 18 $2.96 $0.16 Audi A8 21 $2.96 $0.14 Miles/kW $/kWh $ Energy/Mile Roadster 2.5 4.6 $0.12 $0.03 Model S (160-mile) 3.8 $0.12 $0.03 Model S (230-mile) 3.5 $0.12 $0.03 Model S (300-mile) 3.3 $0.12 $0.04 EV Notes The table demonstrates the cost of fuel or energy used per mile operated of three ICE luxury sedans and Tesla’s Roadster and Model S. Using the average cost of gasoline and the average cost of electricity per kWh in the United States as of December 11, 2010 ($2.96/gallon), Tesla’s EVs are 20 – 25% as expensive per mile in energy used. Source: U.S. Energy Information Administration. Retrieved from http://www.eia.doe.gov/oog/info/gdu/gasdiesel.asp U.S. Energy Information Administration. Retrieved from http://www.eia.doe.gov/cneaf/electricity/epm/epm_sum.html U.S. Department of Energy. Retrieved from http://www.fueleconomy.gov/feg/findacar.htm (for each respective vehicle) Calculated from EV range and kWh per battery (Miles/kWh, e.g., 300 miles/90 kWh = 3.3) TESLA MOTORS 65 Appendix AE: Range, Battery Pack Costs, and Price/Mile For EVs (with information available) Range, Battery Pack Costs, and Price per Mile Manufacturer Tesla Nissan Model Range $/kWh Total Price Price/Mile 244 Energy Density (kWh) 53 Roadster 1.0 $679 $35,987 $147.49 Roadster 2.5 244 53 $468 $24,804 $101.66 Model S 160 42 $299 $12,558 $78.49 Model S 230 66 $299 $19,734 $85.80 Model S 300 90 $299 $26,910 $89.70 Leaf 100 24 $375 $9,000 $90.00 Notes Tesla has reduced its battery pack costs ($/kWh) 56% from the Roadster 1.0 to the Model S. Energy density is a prominent factor determining the range of an EV. However, factors such as automobile design influence range. For example, Tesla likely sacrifices range for aesthetics with the Roadster and Model S. An economy car design would potentially extend the range of a powertrain driven by the Tesla battery packs, however, Tesla has stated that they are manufacturing EVs people actually want to drive. In addition, since the Model S uses the same chassis for each battery pack model but the price/mile is not constant, an increasing margin in price for additional mileage may complicate designing EVs with greater range. Thus, Tesla is exploiting its advantage in battery pack technology and automobile design to produce aesthetic, luxury and sport EVs with 60 – 200% greater range at prices other manufacturers cannot likely meet. Sources: Tesla Motors Inc. (2010, June 29). Form 424B4. Retrieved from http://ir.teslamotors.com/sec.cfm Nissan. Retrieved from http://www.nissanusa.com/leaf-electric-car/index?dcp=ppn.39666654.&dcc=0.216878497#/leaf-electric-car/index TESLA MOTORS 66 Appendix AF: Luxury Models $50,000 - $70,000 and Tesla Luxury Model Sales Projections Luxury Car Sales Projections (by Units Sold) Manufacturer Acura BMW Audi Model Price 2012 2013 2014 2015 RL $46,640 8,486 7,399 8,677 9,437 MDX $47,993 67,515 71,018 71,331 70,059 5-Series $54,925 266,428 252,166 245,753 238,304 X6 $72,750 25,792 27,277 26,466 39,191 Z4 $53,525 22,230 21,071 19,990 31,336 X5 $66,450 107,096 113,476 115,466 114,349 Q7 $53,950 27,339 27,451 42,121 48,311 A6 $53,075 270,974 266,554 252,531 241,230 Cadillac CTS $45,175 71,974 67,125 61,481 58,838 Infiniti M-Series $57,550 22,236 21,836 25,256 28,416 Jaguar XF $65,150 35,154 20,040 28,561 49,040 GS460 $54,070 30,218 30,210 31,984 33,448 GX460 $51,970 22,649 24,682 26,079 28,654 ML-Class $68,375 105,404 106,264 107,812 106,923 E-Class $66,900 275,935 260,192 245,090 221,873 R-Class $50,050 12,992 10,506 0 0 Cayman $56,450 6,329 9,987 10,057 9,615 Cayenne N/A 38,155 37,300 38,132 38,843 Boxster $52,800 10,212 10,575 10,499 10,499 1,427,118 1,385,129 1,367,286 1,375,205 10,000 16,925 23,761 30,637 0.70% 1.21% 1.70% 2.17% 0 0 5,000 8,438 0 1,437,118 0 1,402,054 0.36% 1,396,047 0.60% 1,414,280 Lexus Mercedes-Benz Porsche Total Model S Tesla Top-Hat Models $50,000 - $70,000 $50,000 Total (Including Model S and Top-Hat Models) Sources: Luxury Market Data From CSM Auto (Global Insight), Sourced From JP Morgan Report Tesla Projections From Our Calculations (0.5% increase non-Tesla total/year for Model S, 0.25% increase on non-Tesla total/year for TopHat Models) TESLA MOTORS 67 Appendix AG: Pricing Model Model S Pricing Model “Model S 1.0” Battery Pack Options 160-Mile Range (42kWh) Price After Federal Subsidy $49,500 Estimated Battery Pack Cost ($/kWh) $299 Estimated Total Battery Pack Cost $12,558 Price Less Total Battery Cost $36,942 230-Mile Range (66kWh) $59,500* $299 $19,734 $39,766 300-Mile Range (90kWh) $69,500* $299 $26,910 $42,590 Projected “Model S 2.0” Battery Pack Options 230-Mile Range (66kWh) Price After Federal Subsidy $49,500 Estimated Battery Pack Cost ($/kWh) $200 Estimated Total Battery Pack Cost $13,200 Price Less Total Battery Cost $36,300 300-Mile Range (90kWh) $59,500 $200 $18,000 $41,500 Total battery pack cost = Energy Density (kWh) x Estimated Battery Pack Cost $/kWh *Estimated price Sources: Tesla Motors Inc. (2010, June 29). Form 424B4. Retrieved from http://ir.teslamotors.com/sec.cfm JP Morgan Report Pricing Strategy for Model S 2.0 If Tesla’s battery pack costs reduce to the lowest suggested estimate of $200/kWh, Tesla could eliminate the 160-mile range option, which does not provide as much of an advantage over economy EVs and PHEVs already in the market and has only approximately half the range of luxury ICE sedans. Tesla’s marketing strategy with the Model S has to date focused on the 300-mile range of the Model S, but initially the 300-mile option may be more cost prohibitive to consumers since it will likely cost $20,000 more than the base 160-mile option. For the elimination of the 160-mile option and price reduction of the greater-range options to be profitable, sales must increase to offset the reduction. For example, if Tesla sells 20,000 Model S units in 2013 at its company suggested percentages of 20/50/30% of 160-, 230-, and 300-mile range options, respectively, then it will earn $1.36B in revenues ($57,000; $67,000; $77,000 per option because revenues will not include subsidies). If the pricing reduction strategy increases sales 25% (independent of additional sales for factors such as increased customer acceptability of EVs, increased number of stores and hence availability, etc.), it will record revenues of $1.55B (50/50% sales split of options.) After subtracting battery pack costs (assuming other costs are constant), it would earn $801MM for Model S 1.0 and $972.5MM for Model S 2.0. The break-even point (assuming no increase in fixed overhead costs) using a 50% split of Model S 2.0 sales provides a contribution margin (only sales price less total battery pack cost) of $38,900. To earn $801B (Model S 1.0) in sales price less total battery pack cost margin, it must sell 20,592 Model S 2.0 vehicles. It is reasonable to expect an increase of merely 592 (an increase of only 3%) Model S 2.0 units. TESLA MOTORS 68 Appendix AH: Tesla Store Locations Tesla Store Locations Store Tesla Chicago City Chicago State IL Country US Area North America Status Open Tesla Menlo Park Tesla Phoenix Tesla Atlanta Tesla Las Vegas Tesla New York Tesla San Diego Tesla Washington DC Menlo Park Phoenix Atlanta Las Vegas New York San Diego Washington DC CA AZ GA NV NY CA DC US US US US US US US North America North America North America North America North America North America North America Tesla Boston Tesla Los Angeles Tesla Newport Beach Tesla Seattle Tesla Boulder Tesla Marin Tesla North Florida Boston West Los Angeles Newport Beach Seattle Boulder Marin Tampa MA CA CA WA CO CA FL US US US US US US US North America North America North America North America North America North America North America Open Open Open Open Open Open Opening soon Open Open Open Open Open Open Open Tesla South Florida Tesla Toronto Tesla Austria Tesla London Tesla Spain Tesla Benelux Tesla Copenhagen Tesla Italy Tesla Monaco Tesla München Tesla Paris Tesla Zürich Tesla Australia Tesla Hong Kong Dania Beach Toronto Hong Kong London Mardrid FL ON US Canada Austria England Spain Neatherlands Denmark Italy Monaco Germany France Switzerland Australia Hong Kong S.A.R., China North America North America Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Asia/Pacific Asia/Pacific Open Open Open Open Open Open Open Open Open Open Open Open Open Open Singapore Japan Asia/Pacific Asia/Pacific Open Open Tesla Singapore Tesla Tokyo Kobenhavn Milan Monte Carlo München Paris Zürich Tokyo Source: Tesla Motors Inc. www.teslamotors.com TESLA MOTORS 69 Appendix AI: Recommended Model S Marketing Strategy STEP 1 STEP 2 Promotional Campaign STEP 3 Step 4 Online Engagement The In-Store Experience Brand Community Member •Objective: Drive consumers to website or store •Selected Media: TV & print, supplement wiith online media (YouTube) •Message: Tesla is FUN to drive •Green •Hip •Utilize the Tesla brand community to educate potential Models S consumers ("Teslamonials") via •Tesla Website •Facebook •Other Tesla forums •Sales staff: Educators, techsavvy but cool, trendy, hip •Model S Test Drive: Reinforces the original message: Tesla is FUN to drive. Purchase a Model S •Customer becomes a Tesla Enthusiast and engages with potential consumers at Step 3 Step 1: Promotional Campaign. The objective of the promotional campaign is to generate brand name recognition and spark consumers’ interest, motivating them to research Tesla online or to visit a Tesla store. The promotional message should have both an emotional (cool, hip, status symbol) and rational (technically superior, zero emissions) appeal, but the unifying theme (fun to drive) should remain constant. We recommend magazine and television advertising supplemented by online media. Step 2: Utilize the Tesla Brand Community to Engage New Consumers: Current Tesla owners will make great salespeople. They want the company to survive and are passionate about the Tesla brand. For instance, Dave Severns, a Tesla owner, wrote in a blog entry on the Tesla website that his and his wife’s “Tesla goes with the person who will either drive it the most miles in a given day or who will be promoting it (promoting takes precedence).” Tesla should continue to leverage this enthusiasm, connecting their established community members with potential consumers via online forums, blogs, Facebook, etc. The Tesla website and product reviews will confirm the rational appeal of a Model S, but the brand community can confirm the emotional appeal – consumers will have a taste of what it is like to be “in-the-know” and part of a cool, hip community. The objective of this online engagement is to motivate consumers to visit a Tesla store. TESLA MOTORS 70 Step 3: The In-Store Experience. It is critical for the in-store experience to confirm the promotional message, and we support Tesla’s “Apple store” approach. Store salespeople should be able to educate consumers on all technical aspects of the Model S, and they should be passionate about the brand. Finally, we believe that a test drive of the Model S completes the sale and confirms the “fun to drive” message. Step 4: Welcome New Owners to the Tesla Community: New owners will become Tesla’s brand champions and it will be important to involve them in Step 2 of this marketing process in the future. TESLA MOTORS 71 Appendix J: Citations for Written Report 1 Tesla Motors Inc. (2010, June 29). Form 424B4. Retrieved from http://ir.teslamotors.com/sec.cfm Davis, Joshua. (2006, August). Batteries Included. Wired Magazine. Retrieved from http://www.wired.com/wired/archive/14.08/tesla.html 3 Tesla Motors Inc. (2010, September 30). 10-Q. Retrieved from http://ir.teslamotors.com/sec.cfm 4 Tesla Motors Inc. (2010, June 29). Form 424B4. Retrieved from http://ir.teslamotors.com/sec.cfm 5 Tesla Motors Inc. (2010, September 30). 10-Q. Retrieved from http://ir.teslamotors.com/sec.cfm 6 Tesla Motors Inc. (2010, September 30). 10-Q. Retrieved from http://ir.teslamotors.com/sec.cfm 7 Tesla Motors Inc. (2010, June 29). Form 424B4. Retrieved from http://ir.teslamotors.com/sec.cfm 8 Tesla Motors Inc. (2010, September 30). 10-Q. Retrieved from http://ir.teslamotors.com/sec.cfm 9 JP Morgan. Tesla Motors: Electrifying Luxury; Initiate With Overweight. August 9, 2010 10 http://www.examiner.com/auto-in-los-angeles/estimates-vary-on-electric-vehicle-sales 11 Bloomberg New Energy Finance. Plug-in Vehicles May Make Up 22% of U.S. Auto Sales by 2030. November 1, 2010. 12 Bloomberg New Energy Finance. Plug-in Vehicles May Make Up 22% of U.S. Auto Sales by 2030. November 1, 2010. 13 United States Department of Energy. The Recovery Act: Transforming America’s Transportation Sector Batteries and Electric Vehicles. July 14, 2010 14 Ibid 15 Bloomberg New Energy Finance. Plug-in Vehicles May Make Up 22% of U.S. Auto Sales by 2030. November 1, 2010. 16 JP Morgan. Tesla Motors: Electrifying Luxury; Initiate With Overweight. August 9, 2010 17 Deutsche Bank. Vehicle Electrification: More Rapid Growth; Steeper Price Declines For Batteries. March 7 2010 18 Ibid 19 United States Department of Energy. The Recovery Act: Transforming America’s Transportation Sector Batteries and Electric Vehicles. July 14, 2010 20 Goldman Sachs Group, Inc. Americas: Clean Energy: Energy Storage. June 27, 2010. http://www.docin.com/p61696011.html, p. 26. 21 JP Morgan. Tesla Motors: Electrifying Luxury; Initiate With Overweight. August 9, 2010 22 Tesla Motors Inc. (2010, September 30). 10-Q. Retrieved from http://ir.teslamotors.com/sec.cfm 23 Audi (2009, December 31). Annual Report. Retrieved from http://www.audi.com/com/brand/en/company/investor_relations/financial_reports.html#source=http://www. audi.com/com/brand/en/company/investor_relations/financial_reports/annual_reports.html&container=page 24 BMW Group (2009, December 31). Annual Report. Retrieved from http://www.bmwgroup.com/e/0_0_www_bmwgroup_com/investor_relations/corporate_events/hauptversam mlung/2010/_pdf/BMW_AG_Jahresabschluss_engl.pdf 25 Quantum Fuel Systems Technologies Worldwide. (2010 April 30). 10-K. Retrieved from http://www.sec.gov/Archives/edgar/data/1166380/000119312510157610/d10k.htm 26 Toyota Motor Corporation (2009, March 31). FORM 20-F. Retrieved from http://www.sec.gov/Archives/edgar/data/1094517/000119312509136292/d20f.htm 27 Tesla Motors Inc. (2010, September 30). 10-Q. Retrieved from http://ir.teslamotors.com/sec.cfm 28 Tesla Motors Inc. (2010, September 30). 10-Q. Retrieved from http://ir.teslamotors.com/sec.cfm 29 Tesla Motors Inc. (2010, September 30). 10-Q. Retrieved from http://ir.teslamotors.com/sec.cfm 2 TESLA MOTORS 72 30 Tesla Motors Inc. (2010, September 30). 10-Q. Retrieved from http://ir.teslamotors.com/sec.cfm Tesla Motors Inc. (2010, September 30). 10-Q. Retrieved from http://ir.teslamotors.com/sec.cfm 32 Schwartz A. Retrieved from http://www.fastcompany.com/1668777/former-apple-retail-guru-wants-tospread-his-magic-to-tesla 33 Car and Driver. Retrieved from http://buyersguide.caranddriver.com/tesla/roadster/2011/tesla-roadster 34 Larsen J. Retrieved from http://www.azcentral.com/news/articles/2009/03/27/20090327sr-tesla0328.html 35 Fehrenbacher K. Retrieved from http://gigaom.com/cleantech/how-tesla-will-compete-with-and-become-bigauto/ 36 Tesla Motors, Inc. Tesla IPO, pages 119 - 120 37 Tesla Motors, Inc. Tesla IPO, page 119 -120 38 GE Reports. Retrieved from http://www.gereports.com/ges-consumer-survey-whos-most-likely-to-buy-an-ev/ 39 Ibid 40 Escales, Jennifer Edison and James R. Bettman (2010), “Self-Brand Connections: The Role of Reference Groups and Celebrity Endorsers in the Creation of Brand Meaning,” in Deborah J. MacInnis, C. Whan Park and Joseph R. Priester (eds.), Handbook of Brand Relations, Armonk, New York and London: M.E. Sharpe, 107-123. 41 Muniz, Albert M. and Thomas C. O’Guinn, “Marketing Communications in a World of Consumption and Brand Communities,” in Allan J. Kimmel (ed.), Marketing Communication: New Approaches, Technologies, and Styles, London: Oxford University Press 2005, 63-85. 42 Tesla Motors, Inc. Retrieved from www.teslamotors.com 43 Tesla Motors Inc. (2010, June 29). Form 424B4. Retrieved from http://ir.teslamotors.com/sec.cfm 44 Tesla Motors Inc. (2010, June 29). Form 424B4. Retrieved from http://ir.teslamotors.com/sec.cfm 45 Trend Hunter. Retrieved from http://www.trendhunter.com/trends/green-celebrity-dream-cars-tesla-roadster 46 Tesla Motors, Inc. www.teslamotors.com 47 Schwartz A. Retrieved from http://www.fastcompany.com/1668777/former-apple-retail-guru-wants-tospread-his-magic-to-tesla 48 Tesla Motors, Inc. www.teslamotors.com 31 TESLA MOTORS 73 University of Wisconsin - Madison Wisconsin School of Business - MBA Team A6 Danielle Boyke, Arts Administration, [email protected] Jia Cheng, Supply Chain Management, [email protected] Jared Clevers, Applied Securities Analysis, [email protected] Michael Schroeder, Operations and Technology Management, [email protected] Karen Strupp, Brand and Product Management, [email protected] Image Credit: Tesla Motors
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