financial business analysis - tesla motors
TRANSCRIPT
- 1 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8Mod. A – International Accounting
Disruptive innovations in the Automotive: Is Tesla a sustainable business?
- 2 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8Mod. A – International Accounting
Conclusion
Tesla’s economic and financial positions appear to be too fragile for the considering future market
developments.
The analysis performed reaches the conclusion that currently Tesla’s business model appears not to be
sustainable in the long period
- 3 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8Mod. A – International Accounting
Executive Summary
Automotive Industry
Industry Overview: Shifting Paradigm
The Companies: Tesla vs Ford
The Analysis: Disruptive vs Traditional
Operating activities
Growth trends
Sources of financing
ROE and ROA
Major findings
Conclusion
Agenda
- 4 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8Mod. A – International Accounting
The present financial analysis focuses on Tesla Motors, a battery-car start-up based in California which promises to set the base for a great paradigm shift in the Automotive Industry
In order to better appreciate the importance and the scope of what has been defined by many as the next “Big Thing” the analysis compares Tesla’s economic and financial performances over a 5-year period, from 2010-2014, to Ford’s ones
The choice of selecting a company, such as Ford, with a completely different business model, target market and value chain as a main benchmark for Tesla, serves the purpose of gauging the effects of two opposite side of a changing industry on the Companies’ Financial figures and ratios
Executive Summary
- 5 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8Mod. A – International Accounting
Agenda
Executive Summary
Automotive Industry
Industry Overview: Shifting Paradigm
The Companies: Tesla vs Ford
The Analysis: Disruptive vs Traditional
Operating activities
Growth trends
Sources of financing
ROE and ROA
Major findings
Conclusion
- 6 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8Mod. A – International Accounting
Industry Overview: Shifting Paradigm
15.9%
Green Energy Movement: concerned about Environmental sustainability
Cost Efficiency: Electric Cars have low cost maintenance when compared with the fuel cars.
Innovation: High performance cars with user customization.
The Automotive Industry paradigm may be shifting along 3 main axis
Comparison between Tesla’s and Ford’s Market share in the Automotive Industry in US
[2014; % of total market share]
0.01% INNOVATION
GREEN ENERGY
COST
- 7 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8Mod. A – International Accounting
The Companies: Tesla vs Ford
Technology
Supply Chain
Sales Model
R&D
Environment
Electric Engine
User customization
Internal Combustion Engine
Vertically Integrated Tier-based manufacturing model
Company owned sales distribution model
Web based selling model
Franchisee sales distribution model
Disruptive and breakthrough Innovation Incremental Innovation
Environment-Friendly
Zero-emission target
Still in the Initial Phase for Green Energy Development
- 8 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8Mod. A – International Accounting
Agenda
Executive Summary
Automotive Industry
Industry Overview: Shifting Paradigm
The Companies: Tesla vs Ford
The Analysis: Disruptive vs Traditional
Operating activities
Growth trends
Sources of financing
ROE and ROA
Major findings
Conclusion
- 9 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8Mod. A – International Accounting
Operating activities
83%72%
9%19%
5%3%
TESLA
3.419
FORD
144.077100%
R&DSG&ACOGS
POSITIVE EBIT
Breakdown of Revenues components
[2014; $ Mln; % of total revenues]
NEGATIVE EBIT
16%7%
COGS increase primarily because of the amount of Raw materials. From 2013 to 2014 the increase in cost was from $228.2 million to $500.2 million
SG&A Investments are primarily from higher headcount and costs to support an expanded retail and services
R&D Investments have been increasing year by year. In 2014 the increase of almost 50% is primarily to support Model X expenses and Model S upgrades
EBIT difference between Gross Income and SG&A and R&D. Gross Income has been increasing but still below their operation expenses
The analysis on Operating Activities suggests that Tesla’s current margins do not fit with the current
cost structure of production
- 10 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8Mod. A – International Accounting
Tesla’s profitability over the previous five years has seen some dramatic changes, though one thing has remained constant: their losses
The losses mainly pertain to Tesla’s fast development as a relative newcomer in the automotive industry
Ford’s sales continuously have risen, yet the growth of Tesla is exponential in comparison
In terms of Tesla’s gross profit ratio, although this ratio dictate more cost than revenue, they remain higher than the industry giant Ford
Growth Trends
Trend of Tesla’s Revenues
[2010 – 2014; $ Mln]
413204117
+59%
3.198
2014201220112010 2013
2.013
20122011 2013
40
20
35
30
20142010
25
FORDTESLA
Gross Profit Ratio trend comparison
[2010 – 2014; %]
On the profitability side historical data confirm that If they continue on their trajectory, their sales and
operations will start to become profitable
- 11 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8Mod. A – International Accounting
The automotive sector due to its capital-intensive structure, relies more than any other sector on heavy borrowing
Ford Debt-Equity percentage show a year on year decrease on the last five years, Tesla, displays a more irregular pattern. Its reliance on debt has increased in the last years
The comparison with Ford becomes interesting when comparing Total Debt and Total Asset. In this case it appears like, despite of a heavy reliance on debt compared to other sources of financing, Tesla is well below the average level of Ford and the main Automotive players
Sources of Financing
2
8
4
6
02010 2011 20142012 2013
12
10
FORDTESLA
Liabilities to Equity trend comparison
[2010 – 2014; Absolute value]
Even though ratio analysis shows that the actual level of debt is well managed, the strong leverage Tesla is
exploiting now has to be backed up by a considerable amount of profits in the year to com
201320112010 2014201210
50
60
40
70
30
20 TESLAFORD
Total Debt and Total Assets trend comparison
[2010 – 2014; Absolute value]
- 12 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8Mod. A – International Accounting
ROE and ROA
ROE %
ROA %
-37
-118-113
-200
-150
-100
-50
-250
0 -19
-227
-46
0
-10
-30
-50
-60
-20
-40
-4 -7
-43
-60
1234
282
0
100
150
250
300
50
2010
200
20122011 20142013
37
2
4
12
8
6
10
2
12
4
2012 20132011 20142010
43
2010 2011 2012 2013 2014
- 13 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8Mod. A – International Accounting
Agenda
Executive Summary
Automotive Industry
Industry Overview: Shifting Paradigm
The Companies: Tesla vs Ford
The Analysis: Disruptive vs Traditional
Operating activities
Growth trends
Sources of financing
ROE and ROA
Major findings
Conclusion
- 14 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8Mod. A – International Accounting
In performing the analysis on Tesla’s operating activities and cash flows and comparing with Ford’s, focusing on Tesla’s variability was paramount. Ford’s stability as an incumbent showed limited variability. These indications are key to analyzing the entrant of a innovative start-up to a long time incumbent. The conclusion on operating activity analysis suggests that Tesla’s current margins do not fit with the cost structure of production. If the trend continues along its current trajectory, its hard to imagine that it will be sustainable in the long term.
Revenues are growing at a promising rate even though there are still concerns regarding the sustainability of the income statements lines i.e. gross profit margin net income and EBITDA.
Looking at the capital and debt structure of Tesla, the company is currently benefiting from a low rate of debt issuance and high level of capital injection from the market. Nonetheless, the current method Tesla is using to manage debt and capital leverage appears to not be sustainable in the long term.
Major findings
Operating Activities
Growth trends
Sources of Financing
- 15 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8Mod. A – International Accounting
Agenda
Executive Summary
Automotive Industry
Industry Overview: Shifting Paradigm
The Companies: Tesla vs Ford
The Analysis: Disruptive vs Traditional
Operating activities
Growth trends
Sources of financing
ROE and ROA
Major findings
Conclusion
- 16 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8Mod. A – International Accounting
Conclusion
Tesla’s economic and financial positions appear to be too fragile for the considering future market
developments.
The analysis performed reaches the conclusion that currently Tesla’s business model appears not to be
sustainable in the long period