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Valuation of Tesla Motors Inc Valuation of Tesla Motors Inc. Copenhagen Business School, August 2014 Master Thesis Supervisor: Peter Sehested Number of standard pages: 80 Number of characters: 186 726 Hand in date: 08.08.2014 Nicoline Eeg Praem Cand.merc. Finance and Strategic Management Executive Summary TSLA Price 31 M arch 14 USD 208.45 Tesla Motors, Inc. Target Price USD 184.01 The purpose of this thesis is to determine value of one Tesla Motors 52-week range USD 37.89 - 254.84 share as of March 31st 2014. An analysis of external and industry specific factors will be followed by an internal analysis of the Key Metrics company, in order to identify the determinants of value creation. The Bloomberg: TSLA US Reuters: TSLA.O thesis moves on to a financial analysis to determine the historical profitability of the company. The analysis is based on a Market cap. USD 25.7bn reclassification and thorough assessment of financial statements. Shares outstanding 123m NIBD, USD -136m Based on the findings from the analysis, Tesla’s financial Enterprise Value, USD 22.6bn performance will be forecasted. A discounted cash flow model is used to determine the equity value, accompanied by a multiples and Shareprice performance 2010-2014 sensitivity analysis, to support the estimated value. Tesla Motors is an innovative manufacturer of premium electric vehicles and electric vehicle powertrains, with the characteristics of a disruptive company. Their current product portfolio includes the Model S luxury sedan. Upcoming products include the Model X in mid-2015 and the Gen 3, a lower priced vehicle in 2017. ROIC Q1 14 -5,8 % Tesla’s growth will depend on factors within the company’s control: EBITDA-margin Q1 14 0,0 % project execution, store and infrastructure expansion, and quality, as EBIT-margin Q1 14 -7,1 % well as external factors: economic development, gasoline prices and WACC 8,1 % the development of battery costs. A key hurdle for Tesla is battery costs. For Tesla to drive electric vehicle adoption and become a mass-market player, battery costs must be reduced from the current estimated cost of USD 320 per kWh. As a young player in a competitive and capital-intensive industry, much of Tesla’s growth depends on proper execution of upcoming projects. In 2020, Tesla expects to produce at full capacity of 500,000 vehicles. I estimate unit sales of 398,000 and an EBITDA-margin of 14.5% in 2020. Based on my estimated value of USD 184.01, I see the current market price as expensive, supported by industry multiples. My estimate is lower than the current market value, indicating that most of the future profit potential is already priced in by the market. Highlights'000 F2012 F2013 E2014 E2015 E2016 E2017 E2018 E2019 E2020 Revenues 413 256 2 013 496 3 203 077 5 399 473 7 524 669 10 699 452 12 927 963 16 166 118 20 849 700 EBITDA (365 458) 44 800 50 735 350 119 704 434 1 084 412 1 424 983 2 210 833 3 032 573 NOPAT (394 418) (63 503) (61 116) 88 457 285 655 468 252 660 149 1 168 049 1 655 819 EPS (0,6) 0,7 2,1 3,4 4,5 8,3 11,9 12,0 Revenue growth 102 % 387 % 59 % 69 % 39 % 42 % 21 % 25 % 29 % Profitability F2012 F2013 E2014 E2015 E2016 E2017 E2018 E2019 E2020 EBITDA-margin -88 % 2 % 2 % 6 % 9 % 10 % 11 % 14 % 15 % EBIT-margin -95 % -3 % -3 % 2 % 5 % 6 % 7 % 10 % 11 % ROIC (NOPAT) -134 % -12 % -8 % 7 % 14 % 16 % 17 % 25 % 28 % Multiples EV/Sales EV/EBITDA EV/EBIT 2014 2015 2020 2014 2015 2020 2014 2015 2020 TSLA 7.1x 4.2x 1.1x 445x 64.5x 7.4x N/A 191.5x 10.2x Peers 0.9x 1.0x 7.2x 6.2x 11.7x 9.2x 2 Table of Contents 1.0 Introduction and Motivation .................................................................................................................... 5 1.1 Problem Statement ....................................................................................................................................... 6 1.2 Delimitation ................................................................................................................................................. 7 1.3 Models and methodology ............................................................................................................................ 7 1.3.1 Data collection ..................................................................................................................................... 7 1.3.2 Strategic Analysis ................................................................................................................................. 8 1.3.3 Financial Analysis ................................................................................................................................ 9 1.3.4 Valuation .............................................................................................................................................. 9 2.0 Introduction to Tesla Motors and the Automotive Industry ............................................................... 10 2.1 Tesla Motors .............................................................................................................................................. 10 2.2 The Automotive Industry........................................................................................................................... 12 2.2.1 The Electric Vehicle Market ............................................................................................................... 13 2.3 Historical Events and Share Price Developments ..................................................................................... 14 2.4 Organization .............................................................................................................................................. 15 2.4.1 Strategy and Business Model ............................................................................................................. 15 2.5 Ownership Structure .................................................................................................................................. 15 2.6 Business Segments .................................................................................................................................... 15 2.6.1 Development and Sales of Powertrain Components .......................................................................... 16 2.6.2 Emission credits ................................................................................................................................. 16 2.6.3 Stationary storage .............................................................................................................................. 17 2.6.4 Automobiles ........................................................................................................................................ 17 2.7 Geographical Segments ............................................................................................................................. 19 3.0 Strategic Analysis .................................................................................................................................... 20 3.1 PEST(EL) Analysis ................................................................................................................................... 20 3.1.1 Political and legislative drivers ......................................................................................................... 20 3.1.2 Economic drivers ............................................................................................................................... 22 3.1.3 Social and environmental drivers ...................................................................................................... 27 3.1.4 Technological drivers ......................................................................................................................... 27 3.1.5 Conclusion of External Analysis ........................................................................................................ 29 3.2 Porters Five Forces .................................................................................................................................... 29 3.2.1 Threat of substitutes ........................................................................................................................... 30 3.2.2 Threat of new entrants ....................................................................................................................... 30 3.2.3 Bargaining power of customers ......................................................................................................... 31 3.2.4 Bargaining power of suppliers ........................................................................................................... 31 3.2.5 Intensity of existing rivalry ................................................................................................................. 32 3.2.6 Conclusion of Porter´s Five Forces ................................................................................................... 33 3.2.7 Market outlook for the automotive industry ....................................................................................... 33 3.3 Internal Analysis ........................................................................................................................................ 34 3.3.1 Value chain analysis .......................................................................................................................... 34 4.0 Financial Statement Analysis ................................................................................................................
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