BUS-1750-112 - Business EnterpriseTeslas Make-or-Break Moment .docx

BUS-1750-112 - Business Enterprise
"Tesla's Make-or-Break Moment is Fast Approaching", Higgins
and Pulliam, March 15
1. Discuss the amount of cash Tesla burned though each quarter
last year and since it went public. Why is this significant? What
does it mean for the future?
2. Talk about the challenges a company faces when it has to
manufacture a product instead of just creating an app.
"Toy Makers Stare at $1 Billion Hole With Death of Toys R
Us", Ziobro and Rizzo, March 15
3. Discuss the trends affecting toy sales at Toys R Us and the
reasons why they are shutting all stores.
4. Where are sales in the future expected to be concentrated?
Why might it be more difficult for smaller toy manufacturers to
get their products in front of customers?
5. Find any current business article and summarize in 8
sentences or more. Please cite proper information.
4/8/2018 Tesla’s Make-Or-Break Moment Is Fast Approaching -
WSJ
https://www.wsj.com/articles/teslas-make-or-break-moment-is-
fast-approaching-1521111603 1/5
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https://www.wsj.com/articles/teslas-make-or-break-moment-is-f
ast-approaching-1521111603
BUSINESS AUTOS & TRANSPORTATION AUTOS
Tesla’s Make-Or-Break Moment Is Fast
Approaching
The auto maker is racing to meet an ambitious production target
for its Model 3 sedan
| |
The Model 3 is Tesla’s mainstream electric-car o�ering and a
key part of Elon Musk’s strategy to broaden the
company’s business. PHOTO: JOE WHITE�REUTERS
March 15, 2018 7�00 a.m. ET
By Tim Higgins and Susan Pulliam
WSJ

Elon Musk recently told attendees at the South by Southwest
festival that two things
are keeping him up at night: an apocalyptic future created by
artificial intelligence, and
production delays of Tesla Inc.’s Model 3 car.
Mr. Musk has good reason to worry about Tesla. The auto
maker is entering one of the
most critical phases in its history, a make-or-break period in
which Tesla must boost
production of the Model 3 or possibly face severe financial
consequences.
In April, Tesla will reveal whether it is on track to meet an
ambitious second-quarter
target of producing 5,000 Model 3s a week—a goal that it
already twice delayed. The
Model 3 is Tesla’s mainstream electric-car offering, priced
more affordably than Tesla’s
luxury models, and a key part of Mr. Musk’s strategy to broaden
the company’s
business.
Meeting the goal of 5,000 Model 3s a
week by the end of June is critical to
generating enough cash to sustain
operations without having to raise more
capital. Tesla burned through on average
about $1 billion a quarter last year,
largely because of heavy investments to
bring production of the Model 3 online.
That left it with nearly $3.4 billion in
cash at year-end, suggesting that at a
similar pace it would be out of cash later
this year unless it can raise more funds
or substantially boost production.

UBS analyst Colin Langan calculates that
Tesla will continue burning cash until it reaches the 5,000-a-
week inflection point for a
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WSJ
quarter, a milestone that he calculates would generate about $1
billion in working
capital in the short term.
If Tesla can’t meet the goal, it would face greater pressure to
raise money from the debt
or equity markets, which could be challenging if investors lose
confidence. Tesla says it
has $2 billion in unused credit facilities and funds, though some
of the capital is subject
to specific conditions for use. However, it also faces higher
interest payments tied to
$10 billion in debt and increased costs associated with the
production ramp.
Since going public in 2010, Tesla has burned through about $10
billion in cash, an
unusually large sum for a publicly traded U.S. company of its
size, said Bernstein

analyst Toni Sacconaghi. Tesla has a market capitalization of
roughly $57 billion.
Barclays analyst Brian Johnson expects the company to raise
more money in the third
quarter if it proves it can build 5,000 Model 3s a week—a rate
equating to roughly
250,000 vehicles in a single year, about what a typical
automotive factory produces.
Mr. Musk said at SXSW that Tesla is “making good progress”
on Model 3 production.
He is grappling with these challenges after losing a number of
financial executives. In
recent days, Tesla’s chief accounting officer and treasurer both
left, following last
year’s exit of the financial chief and last month’s departure of
the top sales executive.
The company declined to make Deepak Ahuja, who rejoined as
chief financial officer
last year, available to comment.
Mr. Musk has repeatedly defied the odds. At SXSW on Sunday,
he recounted how Tesla
nearly went into bankruptcy in 2008 when money ran tight.
Although many investors
shorted the stock over the years, he proved Tesla could build a
global luxury brand of
electric cars with a devoted following beyond
environmentalists.
But Tesla is no longer a startup. It is a 38,000-person company
that is trying to
compete with the world’s largest auto makers. Mr. Musk has
eschewed operating profit

WSJ
and racked up debt as he chases his dream of making a
mainstream electric sedan. He
had earlier pledged to deliver 500,000 vehicles this year, about
five times last year’s
total.
These hurdles have weighed on Tesla’s stock. Its share price has
stalled since surging in
early 2017 to give it a market value rivaling General Motors Co.
The stock has fallen
about 14% since around the time it began production of the
Model 3 nine months ago.
“Some big investors are losing patience,” said Nathan Weiss of
Unit Economics, a
research arm of investment firm Weiss, Harrington &
Associates LLC, which has a
bearish bet on Tesla but doesn’t own shares. “They are less
excited about it than they
were a year ago.”
Some investors are watching indicators of credit strength that
are generally regarded
as a gauge of a company’s likelihood of bankruptcy, such as the
“Altman Z-Score,”
which was developed by a New York University professor,

Edward Altman in the late
1960s.
Based on the Z-Score formula—which takes into account a
number of variables,
including share price, working capital, retained earnings and
other items—Tesla had a
score of 1.26, its lowest score for any quarter since 2014. Any
company with a score
below 1.8 is considered distressed by many investors. A score
of 1.0 or lower suggests
bankruptcy is likely within two years.
Three of Tesla’s 10 largest shareholders have recently sold
shares of the auto maker,
according to the shareholders’ latest quarterly filings. Fidelity
Investments, the
second-largest Tesla shareholder behind Mr. Musk with a nearly
10% stake, sold close
to one-third of its shares in the final three quarters of 2017,
filings show. A Fidelity
spokesman declined to comment.
Other shareholders have piled in. T. Rowe Price Group Inc.
more than doubled its stake
in the fourth quarter, making it the fourth-largest owner of
Tesla shares.
WSJ

Write to Tim Higgins at [email protected] and Susan Pulliam at
[email protected]
Appeared in the March 16, 2018,
print edition as 'Tesla Faces Crunch
As Cash Hoard Thins.'
Copyright &copy;2017 Dow Jones &amp; Company, Inc. All Ri
ghts Reserved
RELATED COVERAGE
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CURRENT EVENT EXAMPLE (first article is assigned, second
article is also assigned, last article you find on your own to
summarize – do NOT use first or second article to summarize)
1. What is different about new iPhone? Apple is offering many
upgrades in the new phone, such as battery life, better camera,
more storage, and brighter screens. I believe that these

enhancements are incremental versus revolutionary. This is one
of the first times in recent history that the iPhone has not under
gone a major design change.
2. How are pricing strategies of wireless carriers affecting
sales? Pricing strategies of wireless carriers have resulted in
declining iPhone sales recently. The strategy that affected this
is that it is more expensive to upgrade your phone and people
are keeping their old iPhones longer because they do not see big
improvements in newer versions. This could have long lasting
consequences on the industry.
3. What is WAZE? Google acquired WAZE in 2013. WAZE
provides real time driving conditions from other drivers. Google
is planning on having different drivers from the same companies
communicate with each other regarding morning and after work
commutes. They are able to share information relatively easily
through WAZE.
4. Talk about role of driverless cars. The role of driverless cars
at Google and Uber are attempting to revolutionize the way we
use transportation. One of the main goals of driverless cars is
safety. There still is much testing to be done until driverless
cars are in the marketplace on a regular basis. Other companies
who are pursuing this technology include GM, Ford, and Tesla.
5. Article summary – Wall Street Journal, “Global Air Travel
Continues to Grow”, Cowan, Sept. 18, 2015.
According to many industry experts, air travel has grown
tremendously in the last ten years. This makes sense as the
economic times have been relatively good in most parts of the
world. There are many new airlines in Asia which have increase
the supply of flights. There are some areas of uncertainty in
terms of growth of air travel. One such area is Europe where
Britain’s vote to exit the European Union could decrease air
travel between countries. Also, the rise of terrorist attacks

around the world may keep more people closer to home. While
this could cause some in the airline business to lower
expectations, there are still plenty of growth opportunities in
China where the number of people now able to afford air travel
has increased. Oil prices also affect air travel, which has helped
with keeping costs lower.
4/8/2018 Toy Makers Stare at $11 Billion Hole With Death of
Toys ‘R’ Us - WSJ
https://www.wsj.com/articles/with-death-of-toys-r-us-toy-
makers-brace-for-major-hit-1521116575 1/5
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https://www.wsj.com/articles/with-death-of-toys-r-us-toy-maker
s-brace-for-major-hit-1521116575
BUSINESS
Toy Makers Stare at $11 Billion Hole With

Death of Toys ‘R’ Us
Retailer, which �iled plans to liquidate U.S. operations, was a
major testing ground for new products
A Toys “R” Us store in Coventry, U.K., on Tuesday. The
company plans to shut down its U.S. operation and its business
in Canada, Central Europe and Asia. PHOTO: HANNAH
MCKAY�REUTERS
Updated March 15, 2018 1�25 p.m. ET
By Paul Ziobro and Lillian Rizzo
The liquidation of Toys “R” Us Inc. has sent the toy industry
reeling, leaving Mattel
Inc., Hasbro Inc. and other manufacturers without a large
chain devoted to selling games and dolls and forcing them to
scramble to secure other
outlets to carry their items.
Toys “R” Us, which had more than $11 billion in revenue in its
last fiscal year, is one of
the retail chains that were once seen by vendors as “category
killers” and have
emerged as crucial checks on the power of Amazon.com Inc.
Stores like
Best Buy Co. and Barnes & Noble Co. provide electronics
manufacturers

and book publishers with vast networks of physical showrooms.
The likely death of Toys “R” Us, which early Thursday filed
plans to liquidate its U.S.
operations and other businesses, means the $27 billion U.S. toy
industry will no longer
have a national partner to showcase its wares year-round, test
experimental products
and find the next Shopkins or ZhuZhu Pet.
It was a quick unraveling for Toys “R” Us since its September
chapter 11
bankruptcy filing. In a call with employees Wednesday, Toys
“R” Us Chief
Executive David Brandon described a cascading series of
events, starting with what he
described as a “devastating” holiday season that led to plans to
close more stores and
then to exit from the baby-products business to focus on toys.
“The hole that we dug in the holiday season put us in a position
where our lender
became justifiably nervous as the company was continuing to
consume cash,” Mr.
Brandon said.
Ultimately, the company is expected to liquidate its entire U.S.
operation, a decision
that would affect 33,000 jobs. The company also is liquidating
operations in other
countries, and plans to sell its business in Canada, Central
Europe and Asia.
Now, 70 years after Charles Lazarus opened what would become
America’s main toy

destination, its stores may disappear from U.S. soil.
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“This industry has been devastated,” said Tom Murdough,
founder of Simplay3 Co. ,
which makes plastic play sets and ridable vehicles. “This is a
major, major hit to the
industry.”
In five decades of selling toys, Mr. Murdough hasn’t known a
day without Toys “R” Us.
He founded and sold both Little Tikes Co. and Step2 Co. in the
past and he now is the
CEO of Simplay3, which he said gets between 20% and 30% of
its sales through Toys “R”
Us.
Toy makers don’t anticipate recouping all of their sales this
year, or ever, if Toys “R” Us
goes away permanently without a replacement. UBS estimates
that Hasbro would lose
close to 3% of its sales for the year if Toys “R” Us liquidates,
while Mattel stands to lose

slightly more.
Hasbro CEO Brian Goldner said the maker of Nerf blasters and
My Little Pony dolls is
looking for new places to take its inventory. But that is more
challenging earlier in the
A shelf of Hasbro Inc. Nerf Nitro foam cars at a Target store in
Emeryville, Calif. PHOTO: DAVID PAUL
MORRIS�BLOOMBERG NEWS
year compared with the end, when retailers are trying to fill
shelves with holiday toys.
“There will be some disruption, more short term than long term,
and then we move
forward with growth,” Mr. Goldner said at an investor
conference this month.
The toy-industry growth
rate could slump going
forward, too. Toys “R” Us
was primarily
responsible for
uncovering what would
become the next big thing, since it took chances that other
retailers avoided.

“There aren’t going to be as many breakout hits, not as many
new items that can
blossom,” said BMO Capital Markets analyst Gerrick Johnson.
“Toys ‘R’ Us was a
testing ground for a lot of things.”
Toy maker shares, including those of Mattel, Hasbro, Spin
Master Corp. and Jakks
Pacific Inc. were trading down slightly at midday Thursday.
Toy sales may be concentrated in the other two large retailers,
Target Corp. and
Walmart Inc., in the near term. Those mass retailers primarily
sell the top-selling items
instead of taking risks, Mr. Johnson said. That means market
shares could also build
among the larger toy companies, too. “Small companies won’t
have an opportunity to
shine,” he said.
Some toy companies have expanded their presence in
unexpected places in recent
years, so the blow isn’t as bad as it might have been when Toys
“R” Us held a larger
share of the market. Jeremy Padawer, co-president of Wicked
Cool Toys, the maker of
Cabbage Patch dolls and Pokémon toys, says that not only has
Amazon.com become a
bigger part of its business, but sites like Zulily.com, retailers
like Hallmark and even
grocers and drugstores have become options to sell its toys.
MORE
Toys ‘R’ Us Tells Workers It Will Likely Close All U.S. Stores

Once a Category Killer, Toys ‘R’ Us Forced Into Bankruptcy(Se
ptember 2017)
Mr. Padawer said Wicked Cool is redoubling efforts to find new
retail outlets, even
though he doesn’t expect to be able to replace all of its Toys
“R” Us sales, which he
estimates at 15% of the business, over the next year.
“While painful, we recognize there is an immediate opportunity
to replace some of the
business,” Mr. Padawer said. “It will be a mutual dance between
buyers seeking market
share and opportunistic merchants.”
Corrections & Amplifications
Tom Murdough previously founded and sold a company called
Little Tikes Co. An
earlier version of this article incorrectly stated the name of the
company was Little
Tykes. (March 15, 2018)
Write to Paul Ziobro at [email protected] and Lillian Rizzo at
[email protected]
Appeared in the March 16, 2018, print edition as 'Toy Makers
Rattled by Loss of Toys ‘R’
Us.'

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