Tesla Cross Border Strategyv2
Download as PPTX, PDF2 likes3,000 views
Tesla Motors is considering expanding its global strategy and is evaluating three strategic options: 1) exit all business and sell to Apple/Google, 2) spin off automotive business and sell factories while focusing on energy products, or 3) continue operating in North America and Europe focusing on luxury cars and a global energy products strategy. The presentation recommends raising additional funds and pursuing Option 2 by spinning off the automotive business while retaining energy storage operations. This would allow Tesla to focus on improving quality issues before the mass market Model 3 launch in 2017.
![Ethanol Adoption in Brazil
The Brazilian car manufacturing industry developed flexible-fuel vehicles that can run on any proportion of
gasoline (E20-E25 blend) and hydrous ethanol (E100).[20] Introduced in the market in 2003, flex vehicles
became a commercial success,[21] reaching a record 92.3% share of all new cars and light vehicle sales for
2009.[22] By December 2009 they represented 39% of Brazil's registered Otto cycle light motor vehicle
fleet,[22] and the cumulative production of flex-fuel cars and light commercial vehicles reached the
milestone of 10 million vehicles in March 2010,[23][24] and 15.3 million units by March 2012.[25] By mid-2010
there were 70 flex models available in the market manufactured from 11 major carmakers.[26] The success
of "flex" vehicles, together with the mandatory E25 blend throughout the country, allowed ethanol fuel
consumption in the country to achieve a 50% market share of the gasoline-powered fleet in February
2008.[27][28] In terms of energy equivalent, sugarcane ethanol represented 17.6% of the country's total
energy consumption by the transport sector in 2008.[29]
https://en.wikipedia.org/wiki/Ethanol_fuel_in_Brazil](https://image.slidesharecdn.com/0c2a2606-9668-46c6-ab3b-bb1abc9ac82c-160414204300/85/Tesla-Cross-Border-Strategyv2-75-320.jpg)
Tesla Cross Border Strategyv2
- 1. Tesla Motors – Cross Border Strategy Disruptive or house-of-cards? Global Strategy presentation by Subu Govindaswamy, Daisuke Itoga and Linglan Zhang 11/12/2015
- 2. Table of Contents • Company - TESLA • Recommendation for TESLA • TESLA in Global Market • TESLA Strategic Analysis • Strategic Partnerships • TESLA Intangible Strategic Considerations • Appendix
- 3. Company: Tesla Motors Mission Statement: We design, develop, manufacture and sell high-performance fully electric vehicles, advanced electric vehicle powertrain components and stationary energy storage systems. We have established our own network of sales and service centers and Supercharger stations globally to accelerate the widespread adoption of electric vehicles. We believe our vehicles, electric vehicle engineering expertise, and business model differentiates us from incumbent automobile manufacturers. Key Facts: Stock: TSLA.O (NASDAQ) Founded: incorporated on July 1, 2003, and 12th year in its operation…yet to turn profit HQ: Palo Alto, CA Celebrity CEO: Elon Musk
- 4. Time Line - PLANNED ROAD MAP
- 5. Marketing 4 P’s Place: : Channel: Direct to Consumer in US; in Europe; in China; in Singapore; in Australia US mainly in California with help of California’s zero emission regulations. California Alternative Energy and Advanced Transportation Financing Authority provided loans and incentives to be based in California. (CAEATFA) California, Factory, HQ, Service Netherlands: Factory Reno, NV: Gigafactory Markets: US, Northern Europe, China Price: Luxury segment: Completes against BMW, Mercedes, Lexus etc. Tesla Model S- MSRP standard around $70,000 – 75,000 w estimate $106,200 (www.truecar.com ) Tesla Model X (SUV cross over)- MSRP Base around $80,000 (Estimate $100k plus) Competes with Porsche Panamera Cadillac ELR BMW i8 Mercedes Benz S class Product: Powertrain Battery Pack (ENERGY PRODUCTS) Cars Tesla Roadster (Lotus Elise fitted with EV Battery Pack and PowerTrain system - discontinued) Tesla Model S Tesla Model X (SUV crossover just released) Tesla Model 3 (to be released in 2017, first mass market car with projected price of $35,000 to $50,000) Promotion: Media coverage, Word of mouth, Show room, own dealerships, Tradeshows
- 6. Place: Channel and Distribution • Direct Sales Model – Deliver to Consumer Directly with Showroom/Gallery in 22 states • Current Distribution of Model S and X from Fremont, USA and Tilburg, Netherlands. • Future Distribution of Model 3 – Possibly from China • Tesla 536 Supercharging locations globally + Hotels and Restaurants
- 7. Price/Product - Marketing 4Ps • Tesla Roadster: Discontinued • Model S 4dr Sports Sedan: from $70k to 100k • Model X Crossover SUV: $90K – 110k w estimate $106,200 • Model 3 Midmarket Sedan: ~$35K (Before government incentive) • Tesla Supercharger: ? • Battery Pack: • the battery in the 60 kWh Model S would cost US$12,000, • while the 85 kWh battery would cost US$17,000 • Power Train: ?
- 8. Promotion - Marketing 4Ps • Referral Program: $1000 referral credit for both New Owner and Referrer Good until 2015 – Modifying it going forward (Must be a current Tesla owner or confirmed order to make Referrals) $1000 only to New Owner. • Top Referrers By Region — Receive a Ludicrous P90D Model S and an exclusive VIP invitation for two to the Model 3 unveiling event, including travel and accommodations. • First to 10 by Region — The first to make 10 qualifying referrals in each of North America, Europe and Asia/Pacific will receive a Tesla Powerwall Home Battery, installation included. • Free – Super Charging • $100 for any kind of repair • Free Supercharging • Read more at http://www.teslarati.com/tesla-referral-program-adds-invite-model-3-unveiling-event/#HbCxhXU72GOMVFp2.99
- 9. Industry Comparison – Financial Financial Measures TESLA BMW MERCEDES GM FORD TOYOTA Current Market CAP 30.16B 66.38B 88.46B 53.63B 57.62B 189.52B Unit Deliveries in 2014 31655 2.1M 1.7M 9.9M 6.3M 10.23M Revenues (TTM) $ 3.79B 96.67B 155.76B 152.35B 145.1B 230.56B Gross Profit (TTM) $ 881.67M 15.9B 31.01B 13.81B 17.86B 44.97B Net Income (TTM) $ -521M 6.57B 8.3B 5.4B 4.7B 18.72B Current Ratio 1.87 0.94 1.23 1.13 1.79 1.14 Quick Ratio 0.49 0.77 0.84 0.34 1.39 0.85 TOTAL CASH 1.43B 4.73B 9.00B 21.86B 22.18B 45.3B
- 10. Key financial Ratios: Financials strength can expand or limit its available strategic options Ratio Analysis EPS: -4.14 (As of 10/26/2015) Forward P/E (fye Dec 31, 2016)1: 96.95 Enterprise Value (Oct 26, 2015)3: Total Debt + Total Equity (Mkt) 28.22B Price/Book (mrq): 37.12 Revenue (ttm): 3.70B Total Cash (mrq): 1.15B Return on Assets (ttm)(10/26/2015): -4.19% Return on Equity (ttm)(10/26/2015): -62.43% Operating Cash Flow (ttm): -405.71M
- 11. Industry Comparison – Unit Sales 2014
- 12. US - TAM - LUXURY SPORTS CAR • 120 million households • ≈12 million households with income level above 150K* • TAM = 12 million * 100,000 = $1 Trillion and Two Hundred Billion • 5% of this market = 60 Billion • 10% of this market = 120 Billion • 20% of this market = 240 Billion • 25% of this market = 300 Billion • 50% of this market = 600 Billion *Source: U.S. Census Bureau, 2012 Annual Social and Economic Supplement to the Current Population Survey.
- 13. Recommendation for Tesla Tesla still has good options…
- 14. Tesla Strategies (Three Options) We prefer the Option 2 • Raise additional fund via issuing shares in the market by the end of 2016 then… Option 1: Exit All business - Sell Tesla to Apple/Google Option 2: Spin off and sell Automotive business to Apple/Google and sell Freemont auto manufacturing plant as well as operations in Europe (plant in Netherlands) and China. Operate only energy products, auto component and energy storage such as charging station, battery pack and Powertrain mainly through Giga factory byproducts. Option 3: Continue to Operate with North America and European Automotive focusing on luxury market and Global strategy on Energy Products.
- 15. Recommended Strategy to Tesla: Option 1 Raise additional fund and complete Model 3 to PoC Get a line of Giga-factory working properly Sell to Apple or Google before planned 2017 Model 3 release date at a premium and allow Google or Apple to promote Model 3 under their brand
- 16. Tesla Strategy Dilemma • Partner (capital) with old big car manufactures • How Toyota will perceive Tesla? Competitor or partner; If partner, how? • Close relationship with supplier • Panasonic has close relationship with Tesla • In the long run, how Panasonic extract $$ from the relationship? • Building fast charging system • Will Tesla be able to pay the pioneer cost? • Multiple revenue streams -- battery systems and electric powertrain • Will other source of $$ reliable? And how to leverage the brand name? • Top-down • Does Tesla needs the scale to drive battery cost down? Or happily stay at niche luxury car segment? • Cost pressure VS volume conflict • Own manufacture, distribution and service • Who will Tesla compete with? The whole car industry or just EV • Is Tesla just a prove of concept? • Will Tesla become Apple? Make / Model Speed (MPH) 0-60 (sec.) Price Jaguar XJR 174 4.4 $116,000 BMW M6 Grand Coupe 155 4.1 $125,300 Audi S8 155 3.9 $117,000 Merc. AMG63, 4MATIC 155 3.9 $145,175 Tesla P85D 155 3.2 $102,420 High-End Sport Sedans
- 17. Why Google or Apple? (Why not Toyota?) Why not Toyota? Toyota simply can’t or will not outbid Apple or Google. Toyota is unimpressed with Tesla quality Reason Apple Google Enough Cash to buy Tesla yes yes Distribution network Extremely strong Strong Software Technology Strong Extremely Strong Automotive is strategically important Extremely important Extremely Important Place and Promotion Place global, including China, and exceptional Promotion Place global but adoption low in former communist block Synergy Best global brand for Consumer product, with global reach, own stores and global distribution. Self-driving car, Revenue model from advertising in car, location based information resell, Silicon valley Start-up mentality Manufacturing Know-how
- 18. Recommended Strategy for Tesla: Option 2 1. Tesla got away with quality issues by so far selling to Environmental and brand image focused early adaptors, who were willing to look the other way on quality issues, in exchange for “cool-ness and exclusivity”. 2. Mass Market customer segment, for Model 3 (~$35,000) in 2017: less forgiving of quality issue, (leak in sunroof, issue with door nob, or most importantly, issues with battery pack or with Powertrain System) -> unacceptable If quality issue…miss revenue target, and the stock will plummet. 3. Tesla lacks experience in System-integration, making a complex B-to-C product at a mass market (lack of know-how and quality) 4. Tesla lacks experience in Promotion and Place (Global distribution) 5. Model 3 does not meet projected milestones, Panasonic has loan covenants where it is not obligated to release subsequent funds. Completion of Giga Factory counts on Panasonic’s loan and will not be completed, hence the economy of scale will not be achieved, This is a Chicken or the Egg question.
- 19. Recommended Strategy for Tesla: Option 3 Option 3 : Possible IFF Tesla can raise large additional funding (potentially over 2B) from the market place. If Tesla fails to meet the milestones with Model 3 sales, as well as schedule, additional loan from Panasonic will not come through. Tesla must raise enough capital so that it can complete Giga factory with our without Panasonic, and still have enough cash left to continue to operate and expand. This option may or may not be available.
- 20. Tesla, past and present Tesla is a technology/engineering company, focused on creating Intellectual Property around Electric Battery, controller, and Operating system business. Tesla is a product company, not a marketing company Issues: Tesla’s very existence threatened oil companies and traditional automotive industry. Thus companies were not willing to adopt just Powertrain and electric battery to ensure Tesla’s success in the space. Therefore Tesla had to create their own vehicles in Roadster and Model S to validate the market, prove their technology, and also create its own demand without incumbents as partners, who were reluctant to help Tesla’s cause. Why Automotive?: To create adoption, Tesla chose automotive industry as a vertical for their proving ground of their technology. Automotive vertical was a low hanging fruit, since: 1. there was a need to cut carbon footprint, 2. Obama was providing Government loan to reduce carbon footprint, which provided alternative capital from VC, and hence less dilution on founder’s ownership position, 3. Proven large Total Aggregate Market as proven mainly by Toyota Prius Luxury to Mass Market: Tesla’s Powertrain, Battery pack and charging technology was proven in the market at the high- end, less price sensitive early adopter market using Roadster and Model S. Model X (SUV) is targeted towards the same segment and is expected to have success in the same high-end segment. However in order to become profitable, Tesla has to achieve economy of scale to make it a viable option to the masses in a much larger segment.
- 21. Current Challenges: Economy of scale, Price point, and Quality Tesla may prefer to sell Powertrain and Battery pack to focus on “Intel Inside” strategy and sell to other automotive OEMS. However the cost structure, IP ownership, and strength of sellers/OEMS are preventing this business model from succeeding. Other OEMS, such as Toyota and Honda would prefer to create and own their own ‘homegrown IP’ and promote adoption from other OEMs and sell their technology as well. Tesla technology adoption was tried with Toyota and Mercedes with limited success. One reason for Tesla’s limited success with Toyota was that Tesla battery and battery pack was still too expensive and unreliable(quality issues), hence by passing the factor cost to consumers, the overall price tag of the vehicles are still too expensive for the mass market. This was attempted in RAV4 EV in 2012 with limited success and was discontinued this year. Tesla S also partnered with Mercedes, which did not fair well for Daimler. Tesla ate into Mercedes vehicles sales, making them a direct competitor, hence Mercedes is gradually pulling out of partnership with Tesla. Tesla is forced to expand its manufacturing capacity to achieve economy of scale, lower marginal cost of production to sell at a lower price point, to make the cars available for the masses. Tesla’s success depends on Model 3 at a lower price point, which would have to compete against Nissan Leaf, Toyota Prius, Chevy Volt, Ford Fusion, and others in 2017. This is exactly the battle that other OEMS want to fight against Tesla, as they drag Tesla into a battle over distribution scale, Sales and marketing, at a Mass Market Segment. Tesla Model S is also having number of Quality issues not only around car body, but also with engine and battery. Tesla may not be ready in time for Mass Market cars production.
- 22. Future Challenges: Demand Generation, Quality and financing in Mass Market Space Risk: If Tesla can generate enough demand in a very crowded and price competitive space against the incumbents with Model 3, Giga factory will continue to be build out. However, if Tesla Model 3 struggles against the Leaf, Prius, Volt, and Fusion to gain enough traction, the financing from the loan covenants built into the term of the loan from Panasonic, will not be released to continue building the Giga Factory. Unless Tesla hits the milestone in terms of revenue targets, Panasonic will not fund the additional expansion, or take a bigger stake in Tesla ownership stake, making it less appealing for Musk. Tesla is an engineering and product company, NOT a Sales and Marketing company. 1. In the mass market space, 4Ps become equally important. Tesla is currently very weak when it comes to Place, Price, and Promotion. Their ability to generate enough demand & revenue with Model 3 is questionable. 2. If Tesla has quality issues with Model 3, they cannot win in the mass market. Tesla is unproven at Mass B-to-C market.
- 23. Tesla in Global MarketHow well can Tesla compete in the global market? Auto Industry and Alternative Energy industry are considered national interest by many industrial countries…Is Tesla a unwelcomed visitor? Or can Tesla disrupt national interests? If only in NATO countries…by brute force? But how much will US exert its interest upon Japan and Germany without losing their support, consequently to New Development Banks/BRICS and dumping Petro Dollar & US treasury?
- 24. Sales By Geography 2014* North America, 62.33% Europe, 17.46% Asia, 20.21% SALES BY GEOGRAPHY 2014 *http://csimarket.com/stocks/segments_geo.php?code=TSLA
- 25. Integration-Responsiveness Matrix: Tesla High Need for Operational efficiency Low Need for Local Market Differentiation HighLow Global Strategy Transnational Strategy International Strategy Multi-Domestic
- 26. Auto Industry & Alternative Energy Technology is a National Interest for some countries. What would Tesla mean to other countries? • For Countries like Japan, Germany and South Korea, Auto industry is of a national interest. Significant amount of Japanese GDP, German GDP, and South Korean GDP comes from Auto Industry and auto suppliers. • Alternative energy like Ethno-fuel is a national interest of Brazil, as Solar is to China and India, as Hydrogen is becoming for Japan. Each country has its own technology and domestically developed IP that is aligned with national strategic roadmap. • Tesla was backed by Obama loan to create IP, manufacturing capability, carbon reduction, and new era of industry in America. Green initiatives and creation of IP is National interest to US. Proliferation of US made technology to be adopted to other markets using US Intellectual Property is a US agenda. • Mature foreign markets like Japan and Germany does not like US IP pushed down their throat with threat. • Countries will do what ever is necessary to prevent adoption from working in the favor of domestic players. • Typically political influence, such as lobbying power is used to block threats out. • New Development Bank can be used as a leverage by China, Japan, and Germany to resist US interest, if forced into a corner to dump IMF/FED backed petro dollar printing mechanism using Treasury.
- 27. Global Market Expansion challenges Below are challenges that Tesla currently faces or continues to face in the future in the key largest global markets. • China is also providing protection for domestic EV makers in China as they see EV as their future, while Tesla is excluded from this protection. Tesla seems to be doing okay with Model S and possibly with Model X, as China is in a SUV boom. However, China may prove to be a difficult market to grow as government has a vested interest in growing domestic producers of EV automobiles. • Brazil has its own Ethanol Fuel which is a vested strategic national interest, plus import tariff is enormous, making it too expensive for most of the population. Musk may opt out of entry there. • Japan has strong EV of their own. Musk has currently decided not to actively enter Japanese market. • Northern European major markets, especially Germany and France has Volkswagen, Daimler and Reno-Nissan with political influence and lobbying power. Although Tesla has some sales in Northern Europe, Tesla may expect pressure from European governments that are influenced by big European automakers. • EV tends to perform poorly in the below freezing temperature, as battery drain prediction becomes less reliable, eliminating some of the global areas like Alaska, Canada, and Russia as potential current market. • Tesla currently does not have a presence in India. Charging station infrastructure build up may prove to be difficult in India. • Tesla’s biggest opportunities may lie and the success may be limited to countries like US, Australia, Netherlands, and other small European markets.
- 28. Strategic Shift in Technology roadmap s Risk Potential Upside Hydrogen EV Hybrid Combustion Engine Toyota and Apple?? Toyota Nissan Tesla Daimler GM Ford Volkswagen Toyota GM Ford Honda All auto makers 2017 China? Google? Apple? High High Low Low Ethanol
- 29. Tesla in China - Problem Child • Government will not use Tesla. Not like Audi • Sales was bad in China in 2014 • low demand in China - 2301 inventory cars in 2014; ~50% of total sales; Limited charging station; network • Long charging time (elite who can afford does not have time to wait) • Cannot go long distance, heavy traffic • Local competition • China's largest hybrid car producer, BYD, • Potential future competition from Chinese tech billionaire Jia Yueting. • High cost with less value adder in a $7500 per captia GDP country • Two phase deposit • Charging infrastructure is not available (pioneering cost)
- 30. Tesla Strategic Analysis Analysis of Tesla in the market place
- 31. Porter’s five forces Supplier (Strong) Mostly single sourced Partnership w Panasonic for Giga factory Potential Entrants (Many and strong) - Traditional Automakers such as Hyundai/KIA BMW Audi Substitute (Mid-low) 1. Plug in Hybrid: Prius Hybrid 2. Other EV such as Nissan Leaf and Chevy Volt 3. No Luxury full EV, made in US helps 4. Other alternative technology, such as: - Hydrogen - Ethanol Buyers(Weak): 1. Direct to retail 2. Technology provided to partners: Daimler and Toyota 3. In Luxury EV segment, Tesla is the only serious player Rivals(Mid): Audi, BMW, Lexus, Mercedes Luxury EV is not saturate market small TAM, but will be competitive for Model 3 at Mass Market from Chevy Volt, Prius Hybrid, Honda Leaf etc.,
- 32. SWOT Strength: Powertrain Operating System Battery Pack Manufacturing automation/efficiency Government backing Design (Coolness) Performance & Functionality Weakness: Quality Unproven in Mass Market Small size Weak distribution (Place) Lack of experience in Promotion Opportunities: Improve Promotion Giga-factory to lower price point Mass Market with Model 3 Strategic partnership with Apple or Google Threats Regulations backed by big auto lobbyists Strong competitors in EV and Hybrid Delay in Model 3 or Giga Factory Alternative technologies: Hydrogen and EV and combustion hybrid
- 33. PESTEL Analysis • Political (Upside) • Green, zero emission is a trend; Many countries passed laws to limit; Many governments provides Tax incentive an subsidies. • Economics (Upside) • Fossil fuel is depleting. Increasing gas cost drove demand for EV increase; Whole economy is recovering after 2009; EV enjoys big cost advantage as CO2 emission cost goes up anytime soon; • Social (Upside) • Personal social status, ECO friendly. • Technology (Upside) • Battery and computer engineering enables Smart, Safety, Save energy Vehicle • Environmental (Upside) • Global warming, fuel-efficient and zero emission call for fully electrical car • Legal (Downside) • Franchise laws in US that protect car dealers and creates challenge to Tesla selling its car directly to customers; • Integrating with e-commerce and digital marketing eliminated franchise dealership, saving money and increasing sale efficiency. (save 10% dealership commission)
- 34. BCG matrix-Tesla Star Problem Child Cash Cow Dog Business Growth Rate Relative Position
- 35. Interpretation of Key financials: If conventional wisdom applies to this darling of silicon valley Burn Rate based on negative operating cash flow is -405.71M: Tesla has only 1.15B left in cash, meaning within next 2 years, Tesla needs to raise more money Negative earnings: conventional wisdom says that negative EPS of 4.14 after 12 years in business is a bad thing. However, Amazon took until 2009 to make profit and was keeping the earnings close to zero. Amazon was founded in 1994. http://www.investopedia.com/stock-analysis/031414/amazon-never-makes-money-no-one-cares-amzn-aapl-wag-azo.aspx Forward PE is whopping 96.95 and EV is $28.22B: Who would acquire them at such a crazy valuation multiple? At the current valuation, exit via acquisition is limited. There was a rumor this year that Apple had looked into acquisition of Tesla and the price tag was rumored to be $75B by 2017. http://chicagoinno.streetwise.co/2015/05/06/apple-buying-tesla-rumors-of-apple-tesla-acquisition-continue/
- 36. Strategic Partnerships Tesla’s motive is, and has always been about getting money from its strategic partners in exchange for technology component. Can Tesla delivering enough strategic value to its partners to continue leveraging partnerships for future growth?
- 37. Failed Partnerships and outcome Tesla & Toyota: Expected level of quality from a mature company Vs. Startup Mixed results: In 2012 ‘Toyota Motor (TM) agreed to buy a $50 million stake in Tesla and sell its shuttered auto factory in California to its new partner for the bargain price of $42 million. They also agreed to jointly develop a new electric version of Toyota’s RAV4 sport-utility vehicle and considered extending the collaboration to an electric Lexus RX SUV’ However, (in 2015)they have announced recently that: ‘Tesla agreed with Toyota to “put things on hold and circle back maybe in a year or two,” Musk said on June 3. For now, though, their partnership has stalled.’ Bloomberg business: http://www.bloomberg.com/bw/articles/2014-08- 07/tesla-toyota-deal-to-develop-electric-suv-fizzles One of our team member worked on the tail end of this project with Toyota, and spoke with a lot of Toyota engineers, who had mentioned that Tesla would use things like connectors that are not meeting minimum performance and safety standard, and shooting at the hip of their pants. The main issue was that level of quality expectation of Toyota was considerably higher than Tesla for a commercial level product. I would characterize this RAV 4 project to be a very troubled project.
- 38. Partnerships and outcome Daimler & Tesla: Ran its course? and now competitors in the Luxury segment http://www.cheatsheet.com/automobiles/why-did-daimler-sell-its-stake-in-tesla.html/?a=viewall EV project completed with moderate success for Daimler: ‘Mercedes B-Class Electric Drive cars, the company’s first fully electric vehicles, use technology provided by Tesla. Now that the cars have been released to limited markets in the U.S., Mercedes may be taking a step back from the segment.’ Daimler sells Tesla Stake: Tesla’s ambition as a car company expands beyond the EV industry, and Mercedes parent Daimler AG (OTC:DDAIF) brought the company’s relationship as constructed to a close with the sale its 3.9% stake in Tesla, Bloomberg reports. Daimler’s decision to divest its stake in Tesla signifies a shift in priorities in the electric vehicle division, as well as opportunity to cash in on the EV company’s robust stock price. The other side of Daimler’s divestment is its healthy take from the sale of Tesla stock. According to the company’s announcement, the sale will bring in $780 million. Daimler’s original investment amounted to $50 million, for which it received 9.1% of Tesla stock during its startup phase. Besides making most electric cars seem inadequate, the Model S has managed to pull in consumers who might otherwise be shopping for Mercedes E-Class or S-Class sedans.
- 39. Partnership between Tesla/Panasonic 1 http://www.teslamotors.com/blog/panasonic-and-tesla-sign-agreement- gigafactory OSAKA, Japan / PALO ALTO, USA, July 31, 2014 – Panasonic Corporation and Tesla Motors, Inc. have signed an agreement that lays out their cooperation on the construction of a large-scale battery manufacturing plant in the United States, known as the Giga factory. According to the agreement, Tesla will prepare, provide and manage the land, buildings and utilities. Panasonic will manufacture and supply cylindrical lithium-ion cells and invest in the associated equipment, machinery, and other manufacturing tools based on their mutual approval. A network of supplier partners is planned to produce the required precursor materials. Tesla will take the cells and other components to assemble battery modules and packs. To meet the projected demand for cells, Tesla will continue to purchase battery cells produced in Panasonic's factories in Japan. Tesla and Panasonic will continue to discuss the details of implementation including sales, operations and investment.
- 40. Partnership between Tesla/Panasonic 2 http://www.autoblog.com/2014/10/10/panasonic-ready-to-start-big-investment- in-tesla-gigafactory/#slide-2452684 Yes, Panasonic will invest "tens of billions of yen" into the Gigafactory slated for the great state of Nevada, Reuters says, citing comments from Panasonic Chief Executive Kazuhiro Tsuga. That's not exactly specific, but 10 billion yen is equal to about $92 million. We've heard Panasonic's share of the new factory could be as high as $2-3 billion, but at least now we have a starting point. Whatever Panasonic's kicking in, Nevada is also ponying up a pretty penny. Last month, Tesla said it would build the factory near Reno after reaching an agreement that calls for about $1.2 billion in incentives from the state over a 20-year period. …All told, the plant is expected to cost about $5 billion to build and is considered necessary for Tesla to reach the scale to build its planned $35,000
- 41. Partnership between Tesla/Panasonic 3 http://www.sankei.com/west/news/141128/wst1411280001-n2.html ところが、関係者によると、マスクＣＥＯはこの来日中に気になる発言をしていたとい う。 「パナソニックには大規模工場への投資の３～４割程度を負担してもらう」 Musk wants Panasonic to fund 30-40% of funds necessary to build Gigafactory… 最終的には最大２千億円程度まで引き上げられそうな雲行きだ。 In the end, the total amount funded by Panasonic may go up to $2 Billion USD. かつて世界シェア１位だったパナソニックのリチウムイオン電池は、パソコンなど民生 用はサムスン電子など韓国勢に逆転を許し、車載用が生命線になっている。テスラに パナソニックの弱みを見透かされているとの見方だ。 Panasonic used to be #1 in lithium battery however Samsung beat Panasonic in that business and now their battery business solely relies on the success of auto battery, and Musk knows this.
- 42. Partnership between Tesla/Panasonic 3 https://asset-alive.net/article.php?mode=show&seq=4245 一方で同幹部は「パナソニックは段階的に投資することでリスクをとっている。過去 と同じ失敗にはならないだろう」と分析。その上で「すべてはＥＶの普及率にかかって いる」と強調する。 The investment according to Panasonic is phased. Panasonic thinks it is less risky than the mistake Panasonic made in years past. Initially it is $200 to $300M USD. The additional release of investment is based on adoption rate of the EV. パナソニックは米テスラと連携して設置する大規模電池工場ギガファクトリー内でテス ラの大衆向け電気自動車(EV)用リチウムイオン電池の生産を行う。初期投資額は200 億円から300億円。その後、テスラのEV販売状況に応じて追加投資。総投資額は 1500億円から2000億円となる見通し。総投資額は現在の年間純利益を超える大型投 資。 …The additional investment will be released based on Tesla’s EV sales. The total investment could reach $1.5 to 2 B.
- 43. Partnership between Tesla/Panasonic 3 http://www.wsj.com/articles/tesla-gets-boost-from-korean-battery-maker-lg-chem- 1446007554 Tesla with LG?? Bad news for Panasonic (WSJ Oct. 28, 2015 12:45 a.m. ET) Tesla Gets Boost From Korean Battery Maker LG Chem Tesla confirmed the contract with the battery maker after Japanese news agency Nihon Keisai Shimbun reported that Tesla officials were negotiating with LG on a battery contract. LG Chem is a battery-making affiliate of LG Electronics Inc. 066570 2.95 % Tesla declined to comment on any current negotiation with the company. Until this announcement, the only known supplier to Tesla for batteries was Japan’s Panasonic Corp. PCRFY 0.26 % , which is codeveloping a $5 billion battery factory outside of Reno, Nev. Panasonic supplies the cells to the Model S sedan and Model X sport-utility vehicle, which just launched production.
- 45. Culture Company Culture - Toyota/Tesla: • Toyota learned a lot about agility of development. • Toyota’s focus on reliability is not a good fit with Tesla’s Proof-of- concept Lab mentality. China Market: • Range Anxiety is very high. • Target Segment uses Chauffeur Mostly – Need Bigger back seats. • This may not show prestige currently as Mercedes and BMW (more popular) – Chairman/President is not driving TESLA; They are on Red Flag Limousine owned by China FAW Group.
- 46. China Reality/Culture • Car industry was considered as a total failure. • When the pollution becomes a political question that may cause instability. • Reconstruction of the industry is called for many years; less push back from incumbents; Government is powerful. • What China needs is global presence and revenue expanse. • General public awareness is growing on the pollution and environmental issues, but price is dominant (number one) in the minds of the consumers.
- 47. THANK YOU!!!
- 48. Appendix: Deeper dive Understanding Tesla
- 49. Funding capability: Entrenched and backed by Institutional Interest Following the money trail: Who is FMR?: FMR LLC, Fidelity’s parent company Fidelity Investment: Closed Fund owned by Johnson’s Family owning 49% of FMR Sources: http://www.nasdaq.com/symbol/tsla/ownership- summary http://www.bloomberg.com/news/articles/2012-09-19/hidden- johnson-billionaires-found-in-fidelity-fund-empire https://finance.yahoo.com/q/mh?s=TSLA+Major+Holders
- 50. Past and Current state of Tesla Current: Tesla is in its 12th year in its operation and yet to turn profit. In fact Tesla is not even close to profitability and seems content to continue on its path. Their business is very CAPEX heavy and also requires enormous R&D investments each year. It appears that when it comes to a big idea which is in line with New World initiatives, institutional investors are willing to look the other way on fundamental performance measure benchmark which should apply to every business; and that is for business to create positive cash flow and positive return on equity. As far as traditional valuation methods and evaluation of a performance of a for-profit company from financial or revenue standpoint, we have ignored Tesla under the same scrutiny.
- 51. Tesla as a Vested Western Interest Vested Western Interest: America is a mature economy where it can not complete on its low factor cost, but rather on value-add which creates innovation and future growth through new technology, its commercial implementation, backed by its Intellectual Property legitimacy and protection, and its ability to enforce rights through military might. To do so requires enormous investment, and DoD and DARPA is not always enough to keep US and its vested interest as the supreme power on its leading edge, at least on the commercial and economic end. US economy must draw its high productivity from Capital rather than labor, and outperform competitors, mainly China, in sustaining world dominance, both economically and militarily. Tesla is in line with a much larger initiative by the western governments to cut carbon footprint and lead its way in owning the critical basic patents around alternative power space. Whether Tesla succeeds as a company or becomes acquired by Apple, Google, or any other large company is of no consequence to the western governments, as long as it stays in the hands of the west while these EV patents are viable. Western leaders will continue to fund reduction of carbon footprint at the tax payer’s expense, by using funds like Fidelity and other mutual funds by the way of 401k and other retirement accounts, to aggregate and lock the funding into selective initiative that is in line with the vested interest of the western led world order. Until now, Tesla has enjoyed favorable treatments from various constituents, as it was a nice social experiments and a proof of concept in the alternative energy space.
- 52. Challenges and Risks for Tesla in the near future Challenges and Risks moving forward: Even with all of this preferential treatment such as Obama EV loan or California Alternative Energy and Advanced Transportation Financing Authority from the past, outlook for Tesla is not as rosy as people suspect in the future. There are competing technological implementation backed by the largest companies in Automotive industry, such as Hybrid (EV and combustion) as well as Hydrogen, Ethanol Fuel and EV/Hydrogen. China, one of primary target market for Tesla expansion along with Northern Europe, is giving tax break for domestic manufacturers of EV in China, which conveniently excludes Tesla from benefiting. It is China’s national interest to 1. reduce carbon footprint/pollution problem in China, 2. reduce overall dependency to oil, 3. find new economic driver to fuel growth through high-value-add manufacturing and domestic demands using home grown goods in the new economy. Tesla’s initial strategic partners in Daimler and Toyota are cashing out of its investment positions in Tesla and pursuing other strategic partnership opportunities. Giga factory, which is co-funded by Tesla and Panasonic has contingencies that are build into the terms of the loan. This implies that unless Tesla hits certain milestones in its financial measures, the subsequent loans needed for expansion of Giga factory could be halted by Panasonic. Northern European Market has sleeping giants like Daimler and Volkswagen Group that are letting Tesla play for now. Volkswagen group has been penalized for cheating on emission, and may look to retaliate against foreign automotive in the European market using its political leverage.
- 53. Strategy recommendation for Tesla: Sell the company by 2017 for the highest Valuation it can Tesla in our valuation is highly overvalued, at Forward P/E (fye Dec 31, 2016)1. Tesla moves ahead with next challenges with Giga Factory coming live and first mass market vehicle, Model 3 expected to be released in 2017. Meanwhile, Tesla’s competitions in the mass market automotive segments are hunkering down, and embracing Tesla to meet them at the battle ground in the mass market segment in 2017. 2017 is when “rubber meets the road” for Tesla, where Tesla can: 1. create economically viable product at affordable prices for mass adoption, 2. beat the competition to create enough adoption, hence creating enough revenue and positive cash flow. In the past Tesla had to scale up to create its own manufacturing capacity, and to release the debt financing needed from Panasonic, in the future, it must meet its revenue goals. Competitors are aware of this loan covenants and capital constraints, and are determined to prevent Model 3’s wide success. If Tesla can not meet the milestone, Panasonic will effectively control the manufacturing capacity moving forward, at which point Panasonic will control enough leverage to make Tesla into a supplier. Panasonic, a well-know long time supplier of components to Toyota, will effectively become a value chain to Toyota.
- 54. Why Google or Apple? Drill down… In our assessment, Tesla at this rate can not achieve the revenue targets with Model 3 to create positive net cash flow, while competing in the Mass Market segment. Tesla needs a strong partner who can promote the product with its existing distribution network and its strong brand, cash position and marketing dollars, large existing customer base, and subsidy and loss leader mentality (enough financial strength to sustain loss or make revenue from other means, such as Ad revenue or Big Data resell) to gain market share until it can achieve economy of scale. Google or Apple is a likely buyer of Tesla, but at $75B asking price(3x of the current share price, which is already overpriced), Google or Apple would rather play the timing game until market realizes that Tesla can not sell enough Model 3 on their own. Google and Apple will likely to let the P/E fall and soften Musk’s strong bargaining position before making the offer. It is up to Musk to negotiate the right price point!
- 55. Income Statement from 10k Income Statement Dec.31 2014 Gross Profit Margin up almost 5% from 2013 to 2014 to 27.57% Industry average Gross margin: 20% Operating Expenses up!! expense: 1. R&D expense up to 14.53% of sales in 2014 as opposed to 11.52% in 2013 2. SG&A expense up from 18.87% of sales in 2014 as opposed to 14.18% of sales in 2013 3. Total Operating Expense up almost 8% from 25.70% in 2013 to 33.40% in 2014
- 56. Competitive advantage over other brands
- 57. Disappointing China sales Year or Quarter Sales in China Total Cars Sold % China Sales 2014 2,499 31,655 7.9% 2015 Total through Q3 3,025 33,157 9.1% Total 5,524 64,812 8.5%
- 59. Tesla Quality Issues: Performance Vs. Quality http://www.consumerreports.org/cars/tesla-reliability-doesnt-match-its-high- performance As part of our Annual Auto Reliability Survey, we received about 1,400 survey responses from Model S owners who chronicled an array of detailed and complicated maladies. From that data we forecast that owning that Tesla is likely to involve a worse-than-average overall problem rate. That’s a step down from last year’s “average” prediction for the Model S. It also means the Model S does not receive Consumer Reports’ recommended designation. (To be recommended, a vehicle has to meet stringent testing, reliability, and safety standards, including having average or better predicted reliability.) The main problem areas involved the drivetrain, power equipment, charging equipment, giant iPad-like center console, and body and sunroof squeaks, rattles, and leaks. Specific areas that scored worse on the 2015 model, compared with the 2014 model in last year’s survey, were the climate control, steering, and suspension systems. Complaints about the drive system have also increased as the cars have aged—specifically for the 2013 model, which was the car’s first full model year. (See more details on the Tesla Model S model page.)
- 60. Global PEV Sales
- 61. Intro from TESLA press release Jul16, 2015 • About Model S Model S is the world's first premium sedan built from the ground up as an electric vehicle. It has been engineered to deliver unprecedented range and a thrilling drive experience. Model S is the world's fastest-accelerating four-door vehicle ever built and travels 270 miles on a single charge. With a rigid body structure, nearly 50/50 weight distribution and a remarkably low center of gravity, Model S offers the responsiveness and agility expected from the world's best sports cars while providing the ride quality of a luxury performance sedan. • Model S has received many awards and accolades, including Motor Trend 2013 Car of the Year©, Car and Driver 10 Best 2015, AUTOMOBILE Magazine 2013 Automobile of the Year, the 2013 Yahoo! AUTOS Car of the Year, TIME's Best Invention of the Year 2012, Consumer Reports' highest score ever given to a car, and a NHTSA 5-star safety rating. • ABOUT TESLA Tesla Motors' (NASDAQ: TSLA) goal is to accelerate the world's transition to sustainable transport with a full range of increasingly affordable electric cars. California-based Tesla designs and manufactures electric vehicles as well as renewable energy storage. Tesla has delivered more than 80,000 electric vehicles to customers worldwide.
- 62. Production and Shipment • 50K-52K for 2015 • Expect half of the worldwide revenue outside North America • Continue to expand stores and service infrastructure • China could be one of our largest vehicle market –within few years • Expect continue difficulties in Asia (we have limited experience in China and Asian markets)
- 63. Supercharger Network • 536 locations globally • 5% of Capex in the next 12 months • Partner with Hotels and Restaurants
- 64. Warranty
- 65. Tesla Vehicle Deliveries Versus Guidance* *http://www.fool.com/investing/general/2015/10/05/tesla-motors-inc-announces-record-sales-yet-focus.aspx
- 66. TESLA’s New Factory in Tilburg, Netherlands • Opened a factory in Tilburg (750meter test track) • 450 cars per week – capacity 1000 cars per week • First Full fledged factory outside • Goal is to produce 500K cars worldwide per year by 2020 (approximately delivery capacity every year for the next 4 years?) now 40k (2015) – 500K in 2020
- 67. PEV Sales Country Breakdown* * http://cleantechnica.com/2015/08/08/1-million-electric-cars-will-be-on-the-road-in-september/
- 68. PEV Market Share Over 1%* * Reference: Cleantechnica.com
- 69. Sales in China * Reference: Cleantechnica.com
- 70. Electric Car Sales in China 2014
- 73. TESLA Model 3 vs. BMW i3 and 320 Tesla Model 3 (Estimated) BMW i3 BMW 320 Passengers 5 5 5 Range ~200 miles on electric 80-100 miles on electric, 185 miles with gas range extender(Total hack!) 380-576 miles on gas Base Price ~$40,000 $41,350 $32,750 0-60 N/A 7.2 seconds 7.1 seconds Dimensions ~182” long x ~71” wide (Matching BMW 3 series) 157” long x 70” wide (Not even close to a 3 series!) 182” long x 71” wide Availability 2017 2014 2014
- 74. TESLA Advertising Strategy • These soaring sales required no advertising spending (except for customer referral incentives). Tesla has spent very little on advertising compared to other automakers to drive its growth. Test drives and word-of-mouth marketing have been enough to boost demand faster than the company can boost supply. • "As more people see our car on the road, take a test drive or talk with another Model S owner, more demand is created for our product. Demand exceeds supply, despite no advertising, no discounts and no paid endorsements."
- 75. Ethanol Adoption in Brazil The Brazilian car manufacturing industry developed flexible-fuel vehicles that can run on any proportion of gasoline (E20-E25 blend) and hydrous ethanol (E100).[20] Introduced in the market in 2003, flex vehicles became a commercial success,[21] reaching a record 92.3% share of all new cars and light vehicle sales for 2009.[22] By December 2009 they represented 39% of Brazil's registered Otto cycle light motor vehicle fleet,[22] and the cumulative production of flex-fuel cars and light commercial vehicles reached the milestone of 10 million vehicles in March 2010,[23][24] and 15.3 million units by March 2012.[25] By mid-2010 there were 70 flex models available in the market manufactured from 11 major carmakers.[26] The success of "flex" vehicles, together with the mandatory E25 blend throughout the country, allowed ethanol fuel consumption in the country to achieve a 50% market share of the gasoline-powered fleet in February 2008.[27][28] In terms of energy equivalent, sugarcane ethanol represented 17.6% of the country's total energy consumption by the transport sector in 2008.[29] https://en.wikipedia.org/wiki/Ethanol_fuel_in_Brazil
- 76. Alternatives • Key factors • Battery cost will go down when production scale (like Hard Disk) • New energy development will not stop • Software advantage may not be sustainable • Global drop in oil price may slow down EV • Safety issue might be a nightmare for a new market entrants • Alternative Strategy • Horizontal integration to be a component provider lead (feasibility is a concern) • Leverage battery technology and expand in other energy storage market • Scale in developing countries to get capacity advantage and further lower the cost • Create Battery-charger platform for car manufactures to compete • Build up relationship with Chinese Government and joint venture as technology provider (battery and fast charge station), and further get into energy storage market in China.
Editor's Notes
- #17: Tesla's partnerships with big automakers - Toyota and Daimler specifically - and their impact. Tesla is developing the powertrain for both companies' EV's, and both have invested heavily in Tesla.