Tesla Motors: Evaluating a Growth Company

Background

        Tesla Motors, an American electric vehicle, and energy company that produces and sells electric vehicles and energy storage equipment. The company headquartered in Palo Alto, California and cofounded in 2003 by Martin Eberhard and Marc Tarpenning. Tesla used “niche” strategy to build model Roadster which only face to high income people who want to drive an electric vehicle. In 2004, Elon Musk led the A round of financing and became Tesla’s chairman of board. According to Exhibit 8, most of Tesla’s revenue is from the Automotive sales. Besides, there are three automotive products which are Roadster, Model S, and Model X. Because the delay in Roadster delivery and significant cost overruns, Eberhard was asked to transform the ECO position to Elon Musk in October 2008.

Elon Musk 

        Elon Musk is a successful business man who had earlier founded the companies Zip2, PayPal, and Space X. He believes that oil price will increase very much, so investing in electric vehicle is the best choice. When he became to the CEO of Tesla, he posted a master plan: 1. Build sports car; 2. Use that money to build an affordable car; 3. Use that money to build an even more affordable car; 4. While doing above, also provide zero emission electric power generation options. And then, he developed Tesla’s proprietary electric powertrain technology. Therefore, the company could cluster a portfolio of significant intellectual property which formed the foundation for future vehicles.

Electric Vehicle Market

        Based on the case, the global electric vehicle market grew at a compound annual growth rate of 135%. In addition, according to Exhibit 5, although the electrical vehicle was 0.1% of total global vehicle production in 2012, the prospects of electric vehicle is still optimistic. The electric vehicle will be expected to grow at 0.8% of total global production in 2020. In addition, according to Exhibit 6, the rapid growth of Model S’s reservation in 2012 represents that more and more people would like to have an electric vehicle.

        Tesla’s vision statement is “to create the most compelling car company of the 21st century by driving the world’s transition to electric vehicles.” It emphasizes Tesla’s belief that the company will lead and suit the future vehicle market.

        In addition, Tesla solved an important issue for electric vehicle which was that the electric vehicle had limited drivable miles. To deal with it, the company developed vehicle with exceptional range and fast charging. As a result, the Roadster had a range of 236 miles while the Model S had a range of up to 265 miles on a single charge. Besides, the Supercharger reduced charging time from 7 hours to 0.5 hours.

        What’s more, Tesla’s electric vehicle was not only free pollution to the environment but also saved money for customers. For example, customers were entitled to a federal tax credit up to $7500. In addition, electric vehicle buyers could also pay less electricity bills, have free parking, and use High-Occupancy Vehicle or carpool lanes.

Financial Performance

        According to Exhibit 11, Tesla made $413 million total revenue which included $386 million in automotive sales at the year end of 2012, and $27 million in development services. After subtracting the costs and expenses, Tesla got a $396 million net loss at the year ended of 2012. Moreover, Tesla did net loss in 2010 and 2011 as well. However, the company could still generate positive free cash flow.