Tue. Aug 4th, 2020

Elon Musk founded Tesla Motors Inc., an electric car manufacturer and energy storage company

29 min read

Introduction Elon Musk founded Tesla Motors Inc., an electric car manufacturer and energy storage company, in 2003. Tesla is known mostly as the producer of high end, luxury electric cars. In fact, Tesla’s “Model S” was the highest selling electric plug-in car in 2015 (Wall Street Journal). Tesla is recognized for its superior design and high tech capabilities.
This report will look to examine Tesla’s competitive advantage in electric cars and how they will maintain it. How they can remain cutting edge and what that means financially that is; research and development.
The capital structure of Tesla will be critical regarding financing any new projects or maintaining current ones as well as determining how much leverage they will need and
what the strategic tradeoffs of leverage are for an innovative firm (Investopedia).
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what the strategic tradeoffs of leverage are for an innovative firm (Investopedia).
This report will also analyze how Tesla has positioned itself after their recent acquisition of SolarCity and the potential opportunity for charging stations (Balakrishnan). The very important matter of making the firm profitable; they have a luxury model electric car which has made electric cars in general a fashionable mode of transportation but now they need to capitalize on that by making electric cars more accessible to the common consumer.
In the present, Tesla needs to consider its main competitors within the industry such as General Motors. Tesla’s long term objectives and
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In the present, Tesla needs to consider its main competitors within the industry such as General Motors. Tesla’s long term objectives and goals should also be considered, with the future of the industry heading towards fully autonomous vehicles,
a competitive analysis of other tech companies racing to be the first like Google or Apple will be essential.
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a competitive analysis of other tech companies racing to be the first like Google or Apple will be essential.
The firm does however have a few major challenges that need to be addressed. Beginning with a strategy to maintain the competitive advantage they currently hold in electric cars. Popularity for eco-friendly and electric cars has skyrocketed in recent years.
This popularity is coming from both sides of the deal;
consumers are excited to be apart of the proactive movement to protect the environment while the corporation enjoys tax benefits and other government incentives for producing the eco-friendly vehicle.
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consumers are excited to be apart of the proactive movement to protect the environment while the corporation enjoys tax benefits and other government incentives for producing the eco-friendly vehicle.
Other competitors in the electric car industry are beginning to join in on the success making it crucial for Tesla to cement their position within the greater overall landscape of the automotive industry.
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Other competitors in the electric car industry are beginning to join in on the success making it crucial for Tesla to cement their position within the greater overall landscape of the automotive industry.
Tesla’s competitive advantage comes from being cutting-edge, with ever advancing technologies. They’re not just producing electric vehicles; they’re making the car of the future.
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Tesla’s competitive advantage comes from being cutting-edge, with ever advancing technologies. They’re not just producing electric vehicles; they’re making the car of the future.
That is Tesla’s competitive advantage. Largely stemming form Elon Musk’s reputation for founding massively successful ventures such as SpaceX, SolarCity,
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That is Tesla’s competitive advantage. Largely stemming form Elon Musk’s reputation for founding massively successful ventures such as SpaceX, SolarCity,
OpenAI and X.com which later merged with Confinity to become PayPal.
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OpenAI and X.com which later merged with Confinity to become PayPal.
SolarCity was actually purchased by Tesla, presenting the opportunity of charging stations across the United States and Canada (Balakrishnan). If that were to happen,
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SolarCity was actually purchased by Tesla, presenting the opportunity of charging stations across the United States and Canada (Balakrishnan). If that were to happen,
Tesla’s competitive advantage would be almost impossible to overcome for competitors in the electric car industry as no manufacturer currently offers charging stations other than at home and a few gas stations.
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Tesla’s competitive advantage would be almost impossible to overcome for competitors in the electric car industry as no manufacturer currently offers charging stations other than at home and a few gas stations.
The possibility of creating a network of recharging stations opens many doors for Tesla but also begs the question, how would something like that be financed?
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The possibility of creating a network of recharging stations opens many doors for Tesla but also begs the question, how would something like that be financed?
Often start ups, particularly tech start ups depending on innovation,
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Often start ups, particularly tech start ups depending on innovation,
are hesitant to take on leverage because of the loan covenants that can restrict how the firm spends its money or uses its assets.
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are hesitant to take on leverage because of the loan covenants that can restrict how the firm spends its money or uses its assets.
These firms want to be able to act quickly and
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These firms want to be able to act quickly and
take advantage of opportunities when they present themselves which may not possible if they obligations regarding the use of assets or borrowed funds.
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take advantage of opportunities when they present themselves which may not possible if they obligations regarding the use of assets or borrowed funds.
A large part of this report will be examining Tesla’s capital structure, how they plan on financing the necessary research and
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A large part of this report will be examining Tesla’s capital structure, how they plan on financing the necessary research and
development to maintain the competitive advantage, the resulting payout policy and how much debt the could/should (potentially) they take on (Investopedia).
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development to maintain the competitive advantage, the resulting payout policy and how much debt the could/should (potentially) they take on (Investopedia).
As a relatively young start-up, only thirteen years old, Tesla has posted net losses in every year since its inception.
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As a relatively young start-up, only thirteen years old, Tesla has posted net losses in every year since its inception.
This is not abnormal for start-ups by any stretch of the imagination, however at some point the ever-present question of “how will the firm become profitable?” must be answered.
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This is not abnormal for start-ups by any stretch of the imagination, however at some point the ever-present question of “how will the firm become profitable?” must be answered.
Tesla made itself relevant in the automotive industry with their electric sports car and luxury sedan but that strategy isn’t gong to allow for the firm to become profitable.
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Tesla made itself relevant in the automotive industry with their electric sports car and luxury sedan but that strategy isn’t gong to allow for the firm to become profitable.
Now that they have made electric cars cool and popular, Tesla needs to design a model that has a greater reach to the market.
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Now that they have made electric cars cool and popular, Tesla needs to design a model that has a greater reach to the market.
A model that is more accessible to the average person, allowing Tesla to maximize on its popularity by mass-producing a less expensive model.
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A model that is more accessible to the average person, allowing Tesla to maximize on its popularity by mass-producing a less expensive model.
A DuPont Analysis of Tesla will allow for some quantitative analysis.
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A DuPont Analysis of Tesla will allow for some quantitative analysis.
Financial Management Sound financial planning is one of the most important starting points for the determination of whether or
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Financial Management Sound financial planning is one of the most important starting points for the determination of whether or
not Tesla is set to reverse the long-lived trend of loss making that has been with the company for the last thirteen years.
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not Tesla is set to reverse the long-lived trend of loss making that has been with the company for the last thirteen years.
Tesla is a publicly traded company with a market price per share of 225.61 USD at the time of presenting this report (Wall Street Journal).
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Tesla is a publicly traded company with a market price per share of 225.61 USD at the time of presenting this report (Wall Street Journal).
Over the last year the company has its lowest market price per share of 143.67 USD on Feb 10, 2016 and
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Over the last year the company has its lowest market price per share of 143.67 USD on Feb 10, 2016 and
the highest price of 265.42 USD on April 06, 2016 (Figure 1). Generally, the price of the share has been rather stable and
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the highest price of 265.42 USD on April 06, 2016 (Figure 1). Generally, the price of the share has been rather stable and
by extension, this can be interpreted to mean that the strategy of the company has been consistently receiving support from the market and
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by extension, this can be interpreted to mean that the strategy of the company has been consistently receiving support from the market and
that is at least for the one year in focus (Wall Street Journal).
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that is at least for the one year in focus (Wall Street Journal).
Figure 1: Tesla Motors, Inc. Stock Chart (Sourcehttp://www.nasdaq.com/symbol/tsla/stock-chart) Public trading of a company marks an important starting point for the analysis of a company’s financial practices.
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Figure 1: Tesla Motors, Inc. Stock Chart (Sourcehttp://www.nasdaq.com/symbol/tsla/stock-chart) Public trading of a company marks an important starting point for the analysis of a company’s financial practices.
Notably, the public stature of the company predisposes the company to the need for compulsory reporting of its financial activities.
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Notably, the public stature of the company predisposes the company to the need for compulsory reporting of its financial activities.
This is because of the need for the company to make the statutory filings with the SEC. As a consequence of the reporting requirements,
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This is because of the need for the company to make the statutory filings with the SEC. As a consequence of the reporting requirements,
the investors and other users of the accounting information are able to easily access it and
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the investors and other users of the accounting information are able to easily access it and
use it in making important decisions on the positions that they ought to take with the investment decision on the company (Wall Street Journal).
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use it in making important decisions on the positions that they ought to take with the investment decision on the company (Wall Street Journal).
The review of the company’s investor relations information indicates a continued commitment to the publication of relevant financial information for the use by the public.
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The review of the company’s investor relations information indicates a continued commitment to the publication of relevant financial information for the use by the public.
The annual reports produced by the company are published periodically by the company and these are also accessible through the company’s official website.
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The annual reports produced by the company are published periodically by the company and these are also accessible through the company’s official website. Additionally, the company produces other periodic reports detailing information that is both statutory and non-statutory and as a consequence, the parties interested in the organization have in return the opportunity to be able to test the company’s resolve in financial management practices.
The analysis of the financial statements of Tesla indicates that the company produces its annual reports alongside the annual, biennial,
and 5 year strategic plans that also include rough budget estimates.
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and 5 year strategic plans that also include rough budget estimates.
These important financial management tools are used by the organization in setting targets of both financial expenditure and revenues from the company’s ordinary operations.
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These important financial management tools are used by the organization in setting targets of both financial expenditure and revenues from the company’s ordinary operations.
Whenever the organization has any deviations from the budgeted values, the company’s financial reports indicate a strong resolve in the company’s management to maintain the costs low and to grow the revenues.
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Whenever the organization has any deviations from the budgeted values, the company’s financial reports indicate a strong resolve in the company’s management to maintain the costs low and to grow the revenues.
Notably, the company has managed to grow the revenues over the years and
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Notably, the company has managed to grow the revenues over the years and
at the same time it has been able to lower its costs in support of its strategy towards the growth of revenues and turning to profitability.
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at the same time it has been able to lower its costs in support of its strategy towards the growth of revenues and turning to profitability.
Like many start-ups however,
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Like many start-ups however,
the corporation has had its fair share of challenges with financial management especially when considered that some of its products have involved several failures with hefty financial setbacks.
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the corporation has had its fair share of challenges with financial management especially when considered that some of its products have involved several failures with hefty financial setbacks.
For instance, some of the failures include accidents from its Tesla S models that have been blamed on the organization’s failures with regard to the auto-drive systems.
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For instance, some of the failures include accidents from its Tesla S models that have been blamed on the organization’s failures with regard to the auto-drive systems.
Notably, these have resulted in major lawsuits and claims against the company which has had little to no funds committed to its contingency funds owing to the competing interests and financial needs in the organization.
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Notably, these have resulted in major lawsuits and claims against the company which has had little to no funds committed to its contingency funds owing to the competing interests and financial needs in the organization.
Notably, the availability of this information in the public domain contributes in providing adequate information for the traders and investors on Wall Street.
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Notably, the availability of this information in the public domain contributes in providing adequate information for the traders and investors on Wall Street. This is because the release of the information into the market influences the decisions that the players on Wall Street take with regard to the future of the corporation.
Looking into the financial reports of the organization indicates the quality and kind of information considered to be useful for the investors in measuring the performance of the organization. According to analysis Tesla has consistently highlighted the revenues projections against the cost of the organization in all the published financial reports.
The corporation has also consistently ensures that information in the reduction of the losses and improvement in profitability has always been emphasized in the analysis and it is this information that continuously gives hope to the investors of the organization.
It greatly influences the value of shares of the company and additionally,
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It greatly influences the value of shares of the company and additionally, it also helps in ensuring that the organization’s employees are able to depend on the financial management practices of the organization in ensuring that sharp changes in the prices of he shares in the market are not observed.
As a matter of fact, Tesla is one of the companies in the US whose price has remained largely stable over the years despite making losses over the years and
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As a matter of fact, Tesla is one of the companies in the US whose price has remained largely stable over the years despite making losses over the years and
other than the hope created by the company’s innovativeness and the good management under Elon Musk,
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other than the hope created by the company’s innovativeness and the good management under Elon Musk,
the financial management practices of the organization as embodied in the financial reports help in stabilizing the markets (Wall Street Journal).
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the financial management practices of the organization as embodied in the financial reports help in stabilizing the markets (Wall Street Journal).
Tesla has consistently made losses over the years since its inception.
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Tesla has consistently made losses over the years since its inception.
The meaning of this is that it leads to continued suppression of the various avenues that the company can use to demonstrate its performance.
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The meaning of this is that it leads to continued suppression of the various avenues that the company can use to demonstrate its performance.
Ordinarily, a company publishes information the earnings per share as well as the dividends. However,
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Ordinarily, a company publishes information the earnings per share as well as the dividends. However,
Tesla may be able to adequately use these performance measures to show how well it performs especially to the ordinary investor who focuses on dividend payments and positive earnings per share.
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Tesla may be able to adequately use these performance measures to show how well it performs especially to the ordinary investor who focuses on dividend payments and positive earnings per share.
I fact, the company may also not be able to use its profits from operations as an indicator of its performance and
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I fact, the company may also not be able to use its profits from operations as an indicator of its performance and
this is because of the fact that over the years the company has made losses from operations.
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this is because of the fact that over the years the company has made losses from operations.
Nonetheless,
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Nonetheless,
the company can positively demonstrate its performance through the changes in the gross profits of the company especially given the fact that over the years the company has been able to meet its direct costs.
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the company can positively demonstrate its performance through the changes in the gross profits of the company especially given the fact that over the years the company has been able to meet its direct costs.
The economic perspective of this measure of performance is that the corporation should be able to meet all the variable costs for it to be allowed to operate and
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The economic perspective of this measure of performance is that the corporation should be able to meet all the variable costs for it to be allowed to operate and
since over the years the company has consistently met all the variable costs, then it is able to continue its operations.
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since over the years the company has consistently met all the variable costs, then it is able to continue its operations.
Additionally, the company has been able to continuously decrease the proportion of the variable costs and consequently they grow the gross margins.
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Additionally, the company has been able to continuously decrease the proportion of the variable costs and consequently they grow the gross margins.
By extension this indicates the firm’s growing ability to meet not only the variable costs but also the fixed costs and
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By extension this indicates the firm’s growing ability to meet not only the variable costs but also the fixed costs and
the continued growth of the gross margin posits the company in a better position to turn around and start reporting profits.
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the continued growth of the gross margin posits the company in a better position to turn around and start reporting profits.
Profitability Gross Margin 22.82 Operating Margin -19.16 Pretax Margin -23.09 Net Margin -21.96 Return on Assets -12.75 Return on Equity -88.84 Return on Total Capital -24.15 Return on Invested Capital -29.17
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Profitability Gross Margin 22.82 Operating Margin -19.16 Pretax Margin -23.09 Net Margin -21.96 Return on Assets -12.75 Return on Equity -88.84 Return on Total Capital -24.15 Return on Invested Capital -29.17
The other measure of performance that the company strongly offers in the financial statements is the growth in revenues of the company.
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The other measure of performance that the company strongly offers in the financial statements is the growth in revenues of the company.
Year over year growth in the revenues of Tesla motors has been more than 20% (Wall Street Journal).
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Year over year growth in the revenues of Tesla motors has been more than 20% (Wall Street Journal).
This indicates the increase acceptance of the Tesla ecofriendly cars that are majorly meant for high end markets. Additionally, the revenue sources have increased over the years and this contributes to the firms continued progress towards profitability.
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This indicates the increase acceptance of the Tesla ecofriendly cars that are majorly meant for high end markets. Additionally, the revenue sources have increased over the years and this contributes to the firms continued progress towards profitability.
Notably, the firm’s investment in electric charging stations has been a major contributor to the firms’ growth of revenues in that it directly gains revenues from the charging stations and
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Notably, the firm’s investment in electric charging stations has been a major contributor to the firms’ growth of revenues in that it directly gains revenues from the charging stations and
secondly because the growth in the number of charging stations encourages the purchase of Tesla’s electric cars.
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secondly because the growth in the number of charging stations encourages the purchase of Tesla’s electric cars.
Notably, this has been a key selling point for the company and its performance and
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Notably, this has been a key selling point for the company and its performance and
drawing from companies that had faced the same problems on profitability as Tesla is currently facing, it is highly likely that in the coming few months,
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drawing from companies that had faced the same problems on profitability as Tesla is currently facing, it is highly likely that in the coming few months,
the continued innovations by Tesla are likely to continue enabling the corporation to grow its revenues and edge closer to profitability (Yahoo Finance).
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the continued innovations by Tesla are likely to continue enabling the corporation to grow its revenues and edge closer to profitability (Yahoo Finance).
The importance of revenue growth rates and the growth in the gross margin cannot be overemphasized. A quick search of Tesla shares and
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The importance of revenue growth rates and the growth in the gross margin cannot be overemphasized. A quick search of Tesla shares and
analysts reports indicates that the observation of the revenues is the major contributing factor in expert opinions on the performance of Tesla.
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analysts reports indicates that the observation of the revenues is the major contributing factor in expert opinions on the performance of Tesla.
Notably, experts and analysts indicate that for a company that has never reported any profits, the prospects for profitability hold the greatest weight in the determination of the company’s future possibility of growing to profitability.
If the revenues are observed to contract instead of grow, the company cannot be able to support its future cash requirements, the credit worthiness dwindles, and additionally the ability of the company to continue operations falls in doubt.
However when the revenues rise faster than the costs of the company, then the company posts the possibility of a future that is profitable and this is particularly one of the reasons that Tesla has never completed its financial reports without giving projections or future growth in revenues (Yahoo Finance).
Notably, the growth in revenues measured against the projections marks one of the best instances of determining the performance of the corporation and this is one of the reasons why Tesla continues to publish this information.
Notably, the analysis at this stage majorly includes trend analysis. Other than trend analysis as broadly defined above, the company is compared to its peers in the industry and more so with General Motors as the key competitor.
In comparative analysis the company’s revenue growth is compared to that of general Motors. The comparison is based on the fact that the two companies operate in the same industry even though Tesla makes vehicles for the future.
Notably, competition has been rife for Tesla especially due to the fact that the firm has not been able to make products that attract the mass markets and instead it has focused on vehicles that are meant for the people with higher incomes.
When comparative analysis for the company is conducted, the growth in revenues is measured to show the extent to which the company’s products continue to get accepted in the United States as a replacement for the products made by other manufacturers such as general Motors (Yahoo Finance).
Over the years the revenues of Tesla have been growing at a faster rate than those of general motors and other companies in the industry. This indicates the continued acceptance of the company’s cars especially when considered that they are new to the industry and that over the same time companies like Ford and General Motors have at times reported decreases in the revenues (Wall Street Journal).
Lastly in the analysis of the firm’s performance is the consideration of the number of vehicles that the company sells year on year. As a measure of performance, the sales volumes are important in that they indicate the rate at which the cars are being accepted. Contraction in the volume of cars sold would mean that the company may never turn to profitability but as the volume of cars sold increases, the company’s future is considerably bright. This is because the firm considerably grows its ability to meet the fixed costs especially when considered that the industry in which the company operates is capital intensive.
Capital Structure The capital structure of Tesla Inc. is one of the major areas of interest in the consideration of the corporation. This is so because the company is the first of its kind in the high performance electric cars industry.
Secondly, the motor vehicle industry is a capital intensive industry and thirdly, majority of the company’s predecessors in the motor vehicle industry have in the past had capital structure concerns. More specifically, it is only Ford that has not gone bankrupt among the players in the motor vehicle industry and even then, it is important to note that the company almost went bankrupt during the last global financial crises (Investopedia).
Secondly, Tesla has consistently reported losses since it started and this point to the fact that debt has been one of the ways it has managed to remain afloat. The company’s shares shot from $20 dollars a share to a high of $280 in 2015 before stabilizing at the current price of $250 (MarketWatch).
For a company that has never reported a profit, the rise in the market price per share points to the presence of other financial factors influencing the valuation. In this particular case, the capital structure of the corporation is considered to be among the factors influencing the performance of the share prices (Investopedia).
The capital structure of Tesla cannot be considered to be optimal especially when considered that the levels of debt have been rising rapidly over the years. The rise in the capital levels is as a result of the need to invest in major projects including the recent investment in charging stations across the United States and Canada.
The numbers indicate that the debt levels rose from $598 million in 2013 to more than $2 billion in 2015. The implications of this are that the debt to equity ratio rose to more than 245.5% in 2015 (Investopedia).
In 2016, the total debt to equity ratio stands at 264.12% while the total debt to total capital ratio stands at 72.54%. In other words, more than 72% of the company’s total capital is funded through debt.
This indicates the existence of high levels of exposure to the debt markets, changes in interest rates, and changes in other properties of the debt markets. The high debt levels put the company at the risk of going insolvent and declaring bankruptcy especially when considered that its predecessors such as General Motors have in the past filed for bankruptcy.
At the time of presenting this report General Motors had a lower debt to total capital ratio of 61.28% and an even lower debt to equity ratio of 158.29%. On the other hand Ford had a capital structure comprising of 82.26% debt and the implications.
The most important point to note in this case is the fact that Tesla’s debt levels are higher than those of General Motors but lower than those of Ford but even in such a case, the current gross margin and the recent recalls of vehicles threatens the ability of the firm to continue its operations.
To put this into perspective, this means that the levels of exposure for the company’s financials is extremely high hence the need to consider lower debt levels. If a crises such as the last financial crises were to occur in the current state of the company’s financial structure it is highly likely that the company will file for bankruptcy.
The only advantage is the fact that the long-term debt to total capital ratio is lower at 56.54% (MarketWatch).
Tesla Capital Structure Total Debt to Total Equity 264.12 Total Debt to Total Capital 72.54
http://quotes.wsj.com/TSLA/financials 88%
http://mmwatcher.tk/investing/stock/TSLA/profile 92%
Tesla Capital Structure Total Debt to Total Equity 264.12 Total Debt to Total Capital 72.54
Total Debt to Total Assets 35.54 Long-Term Debt to Equity 205.86 Long-Term Debt to Total Capital 56.54 Despite the high debt levels,
the company cannot finance its capital projects with equity capital.
http://www.stern.nyu.edu/~adamodar/pdfiles/acf3E/book/ch9thru12.pdf 75%
the company cannot finance its capital projects with equity capital.
This is because of the fact that over the years the equity capital has proven to be an expensive source of capital.
http://www.stern.nyu.edu/~adamodar/pdfiles/acf3E/book/ch9thru12.pdf 73%
This is because of the fact that over the years the equity capital has proven to be an expensive source of capital.
For instance, the current levels of the market price per share are more than ten times of the price level in 2013.
http://www.stern.nyu.edu/~adamodar/pdfiles/acf3E/book/ch9thru12.pdf 71%
For instance, the current levels of the market price per share are more than ten times of the price level in 2013.
Consequently, the firm may be required to take up more debt capital for expansion. However, before taking up more debt capital the firm must conduct a proper sensitivity analysis in order to determine the possibility of the company being unable to pay the debts that it has accrued over the years.
Additionally, the firm would be required to determine the optimal capital structure taking into consideration the sensitivity of its revenues, the cost of debt, and the cost of equity (Investopedia). Utilization of mergers and acquisitions is one of the important avenues through which a firm can leverage while at the same time expanding its operations.
Tesla has been actively engaging its M&A capacity and the best indicator for this is the recent acquisition of SolarCity. SolarCity merger was announced in June 2016 and it provides Tesla with the opportunity build charging stations for the Tesla electric cars.
The acquisition of SolaCity places Tesla in a strategic position for the launch of large-scale production of the cars considering that with the ease of recharging, the cars are more likely to attract more customers.
Additionally, the program allows the electric to become the everyday car considering that recharging is set to become as efficient as the refueling at an ordinary gas station (Balakrishnan). The utilization of the M&A capacity falls at the center of this strategic positioning and as a consequence, the long-term provides good opportunities for the organization.
Going forward, Tesla should source deals that do not only allow it to have the charging stations but also in the production batteries need for the process (MarketWatch). Investment in innovative deals means that the company requires becoming more innovative. In the recent past the company has experienced various recalls of vehicles especially those whose autopilot systems failed or even risked causing accidents. The company needs to ensure that more research is conducted into ensuring that the problems with the autopilot system are corrected and that the company is able to reduce the losses that have been resulting from the recalls and plausible legal suits for accidents caused by the failing autopilot systems. Notably, the company has to invest in ensuring that the autopilot system is not only being used in the marketing of the company but also in ensuring the safety of the customers (MarketWatch).
One particular important reason for investment in a safer autopilot system is ensuring that the company remains competitive. At the moment Tesla the only company greatly recognized for making cars of the future. The investment in a safer autopilot system would help in assuring the customers of their safety when using the Tesla cars and additionally, it also helps in ensuring that the customers do not revert to the use of gas consuming cars as this would hurt the company’s current green reputation.
In addition to the above, the company needs to invest in the production of cars that are cost friendly to the ordinary citizens in the United States and elsewhere across the world. This is because the current target of the luxury cars market limits the number of customers that the company can access as well as making it hard for the mass markets to afford the cars. If the company managed to lower the cost of production, maintain high quality, and offer affordable prices, it would ensure that the company is able to compete effectively especially in the mass markets. Targeting the mass markets would provide Tesla with the opportunity to exponentially grow its revenues.
International Operations At the moment the company has its operations only in the United States and in Canada. Starting at the local market enables Tesla to effectively understand the impact that the new Tesla Model S has on the customers. The operations are expected to take shape in other parts of the world as the adoption of green cars takes shape globally. It is expected that with time the company will be able to venture in European markets including the UK, Germany, and France among other countries. Notably, the establishment of charging stations remains one of the key things of consideration in many parts across the world and as the charging stations continue taking shape, the adoption of the car of the future will continue effectively.
Options Tesla utilizes currency options in the hedging against foreign currency fluctuation and interest rates changes. Notably, Tesla has high exposure to the Canadian Dollar especially when considered that it transacts with the country’s customers often. Additionally, the company has exposure to other currencies considering the imports denominated in currencies other than the USD. It is this exposure that creates the need for Tesla to consider hedging by use of currency options. In a nutshell this helps the organization to safeguard itself against changes in foreign exchange rates and changes in interest rates as they relate to transaction exposure.
Risk Profile Tesla is considered to have a vulnerable risk profile. This is according to Standard & Poor’s Ratings Services. Tesla was given a B- rating for corporate credit indicating the level of risk. The high level of risk is associated with the fact that the debt levels of the company have been on the rise since 2013. The rating is also linked to the company’s limited product range especially with the consideration of cars focus only on the luxury purchases. Secondly, there is the concern with the small scale production, and thirdly, the mass adoption of the cars provides enormous risk as the increases are not in the foreseeable future. Additionally, there has been the risk of litigation paused by the company’s autopilot systems which have been reported to fail in several cars in the recent past. This exposes the company to heavy and punitive fines.
The company has a strategic plan outlining the steps that it plans to take in order to grow the demand for its cars. Focusing on the production of affordable cars happen to be one of the key strategies in ensuring growth of the demand for its products. Secondly, the company uses options to protect itself against foreign exchange risks and thirdly, the company focused on growing its revenues hence ensuring that it is able to generate enough revenues to meet the interest and principal payment.

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