Tesla Article Case Study

TESLA ARTICLE - ARTICLE CASE ANALYSIS

Summary Tesla Article:

1. Tesla Motors Inc. reported a surprise 1st quarter profits of $22m after 12 quarterly losses.
2. This reported profit is the only 2nd time ever.  It is driven higher by improve sales of the Model 3 S Sedan and Model X-Sport utilities vehicle.  Also driven by the reduction in spending and a boost from pollution tax credit to other automakers.
3. The gross profit increased to $139m from $39m a year ago.
4. The company pledged to increase annual production to 500,000 cars in 2018 from out 50,000 last year.
5. Revenues gone up to $2.3b from $936.8m a year earlier.
6. Double sales: Tesla delivered 24,821 of its Model S Sedan and XSport-Utilities, more than double a year ago figure.
7. Shares were up 5% to $212.05
8. Tesla generated a FCF, repaid $600 in debt and finished September with $3.1B cash, a declined of $162m from the end of June.
9. Tesla need about $2.5B through the end of 2017 for Model 3 rollout and completion of a battery factory in Nevada.
10. This good result help Mr. Musk, the Tesla CEO to make the case that he can handle merging Tesla with SolarCityCorp which required additional cash.
11. The combined company need to raise $12.5B for spending through 2018.  The merge scheduled to vote on November 2017.  
12. The selling price of new Model S is $66,000 which would start from September quarter.
13. Tesla lower its forecast on capital spending to this year to $1.8B from $2.25B.

How Tesla’s Share React to this good new News?

As mentioned on the above summary, Tesla’s shares were up by 5% to $212.05 after the report of a surprise 1st quarter profit of $22m and after 12 quarterly losses. The following reasons would probably lead the Tesla’s share were up:

1. Profit Report better than expectation: the report of Tesla a surprise profit due to the increase sales of the Model 3 S Sedan and Model X Sport-utilities vehicles and the reduction in spending and boost from pollution tax credit. This is one of the factor that drive Tesla’s shares were up.
2. Change in Demand and Supply: Due to the report of its first profit, there would be more demand, more people buys Tesla’s shares which is lead to increase demand and lead to price increase.
3. Future Plan: The following optimist future plans are also help to increase Tesla’s stock price:

1. Double sales: Tesla delivered 24,821 of its Model S Sedan and XSport-Utilities, more than double a year ago figure.
2. The optimist plan to complete a huge battery factory in Nevada, plan to increase annual production to 500,000 cars in 2018 from 50,000 last year.
3. The optimist plan to merge Tesla and SolarCityCorp.

1. Consumer’s Confident: The report of profit, the Tesla ability to repay debt $600m, the report of having enough cash to complete batter factory in Nevada, the increase production in the next year and the optimist plan to merge Tesla and SolarCityCorp are help building consumer’s confident on Tesla and are driven to Tesla’s shares rises.

Tesla said it generated free cash flow.  How does free cash flow differ from profit and how Tesla ‘s cash fall by $162m when its free cash flow was positive?

1. Free Cash Flow differ from Profit:

1. Free Cash Flow: is a measure of businesses’ financial performance.  It is calculating as the difference between cash flow and capital expenditure. FCF shows how much cash a company generates after accounting for capital expenditures, such as buildings and equipment. It is a representation of cash that a business is able to generate after laying out the money needed for expansion of its asset base. The importance of FCF is that it allows the business to take advantage of opportunities that increase shareholder value. It is impractical to create new products, pay dividends, make acquisitions or reduce cost when there is no cash.  FCF = Operating cash flow – capital expenditures.

Tesla’s Free Cash Flow is cash finished September with $3.1B in cash and it is declined $162M after significantly repaid $600M debts.