1. - 1 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8 Mod. A – International Accounting
Disruptive innovations in the Automotive: Is Tesla a sustainable business?

2. - 2 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8 Mod. A – International Accounting
Conclusion
Tesla’s economic and financial positions appear to be
too fragile for the considering future market
developments.
The analysis performed reaches the conclusion that
currently Tesla’s business model appears not to be
sustainable in the long period

3. - 3 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8 Mod. A – International Accounting
 Executive Summary
 Automotive Industry
 Industry Overview: Shifting Paradigm
 The Companies: Tesla vs Ford
 The Analysis: Disruptive vs Traditional
 Operating activities
 Growth trends
 Sources of financing
 ROE and ROA
 Major findings
 Conclusion
Agenda

4. - 4 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8 Mod. A – International Accounting
 The present financial analysis focuses on Tesla Motors, a battery-car start-up based in California which
promises to set the base for a great paradigm shift in the Automotive Industry
 In order to better appreciate the importance and the scope of what has been defined by many as the next
“Big Thing” the analysis compares Tesla’s economic and financial performances over a 5-year period,
from 2010-2014, to Ford’s ones
 The choice of selecting a company, such as Ford, with a completely different business model, target
market and value chain as a main benchmark for Tesla, serves the purpose of gauging the effects of
two opposite side of a changing industry on the Companies’ Financial figures and ratios
Executive Summary

5. - 5 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8 Mod. A – International Accounting
Agenda
 Executive Summary
 Automotive Industry
 Industry Overview: Shifting Paradigm
 The Companies: Tesla vs Ford
 The Analysis: Disruptive vs Traditional
 Operating activities
 Growth trends
 Sources of financing
 ROE and ROA
 Major findings
 Conclusion

6. - 6 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8 Mod. A – International Accounting
Industry Overview: Shifting Paradigm
15.9%
 Green Energy Movement: concerned about
Environmental sustainability
 Cost Efficiency: Electric Cars have low cost
maintenance when compared with the fuel cars.
 Innovation: High performance cars with user
customization.
The Automotive Industry paradigm
may be shifting along 3 main axis
Comparison between Tesla’s and Ford’s Market share in
the Automotive Industry in US
[2014; % of total market share]
0.01% INNOVATION
GREEN
ENERGY
COST

7. - 7 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8 Mod. A – International Accounting
The Companies: Tesla vs Ford
Technology
Supply Chain
Sales Model
R&D
Environment
 Electric Engine
 User customization
 Internal Combustion Engine
 Vertically Integrated  Tier-based manufacturing model
 Company owned sales distribution model
 Web based selling model
 Franchisee sales distribution model
 Disruptive and breakthrough Innovation  Incremental Innovation
 Environment-Friendly
 Zero-emission target
 Still in the Initial Phase for Green Energy
Development

8. - 8 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8 Mod. A – International Accounting
Agenda
 Executive Summary
 Automotive Industry
 Industry Overview: Shifting Paradigm
 The Companies: Tesla vs Ford
 The Analysis: Disruptive vs Traditional
 Operating activities
 Growth trends
 Sources of financing
 ROE and ROA
 Major findings
 Conclusion

9. - 9 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8 Mod. A – International Accounting
Operating activities
83%
72%
9%
19%
5%
3%
TESLA
3.419
FORD
144.077
100%
R&D
SG&A
COGS
POSITIVE EBIT
Breakdown of Revenues components
[2014; $ Mln; % of total revenues]
NEGATIVE EBIT
16%
7%
 COGS increase primarily because of the amount of Raw materials.
From 2013 to 2014 the increase in cost was from $228.2 million to
$500.2 million
 SG&A Investments are primarily from higher headcount and costs
to support an expanded retail and services
 R&D Investments have been increasing year by year. In 2014 the
increase of almost 50% is primarily to support Model X expenses
and Model S upgrades
 EBIT difference between Gross Income and SG&A and R&D. Gross
Income has been increasing but still below their operation expenses
The analysis on Operating Activities suggests that
Tesla’s current margins do not fit with the current
cost structure of production

10. - 10 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8 Mod. A – International Accounting
 Tesla’s profitability over the previous five years has seen some
dramatic changes, though one thing has remained constant:
their losses
 The losses mainly pertain to Tesla’s fast development as a
relative newcomer in the automotive industry
 Ford’s sales continuously have risen, yet the growth of Tesla
is exponential in comparison
 In terms of Tesla’s gross profit ratio, although this ratio
dictate more cost than revenue, they remain higher than the
industry giant Ford
Growth Trends
Trend of Tesla’s Revenues
[2010 – 2014; $ Mln]
413204117
+59%
3.198
2014201220112010 2013
2.013
20122011 2013
40
20
35
30
20142010
25
FORD
TESLA
Gross Profit Ratio trend comparison
[2010 – 2014; %]
On the profitability side historical data confirm that If
they continue on their trajectory, their sales and
operations will start to become profitable

11. - 11 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8 Mod. A – International Accounting
 The automotive sector due to its capital-intensive
structure, relies more than any other sector on heavy
borrowing
 Ford Debt-Equity percentage show a year on year decrease
on the last five years, Tesla, displays a more irregular
pattern. Its reliance on debt has increased in the last years
 The comparison with Ford becomes interesting when
comparing Total Debt and Total Asset. In this case it
appears like, despite of a heavy reliance on debt compared
to other sources of financing, Tesla is well below the average
level of Ford and the main Automotive players
Sources of Financing
2
8
4
6
0
2010 2011 20142012 2013
12
10
FORD
TESLA
Liabilities to Equity trend comparison
[2010 – 2014; Absolute value]
Even though ratio analysis shows that the actual level
of debt is well managed, the strong leverage Tesla is
exploiting now has to be backed up by a
considerable amount of profits in the year to com
201320112010 20142012
10
50
60
40
70
30
20 TESLA
FORD
Total Debt and Total Assets trend comparison
[2010 – 2014; Absolute value]

12. - 12 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8 Mod. A – International Accounting
ROE and ROA
ROE %
ROA %
-37
-118-113
-200
-150
-100
-50
-250
0 -19
-227
-46
0
-10
-30
-50
-60
-20
-40
-4
-7
-43
-60
12
34
282
0
100
150
250
300
50
2010
200
20122011 20142013
37
2
4
12
8
6
10
2
12
4
2012 20132011 20142010
4
3
2010 2011 2012 2013 2014

13. - 13 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8 Mod. A – International Accounting
Agenda
 Executive Summary
 Automotive Industry
 Industry Overview: Shifting Paradigm
 The Companies: Tesla vs Ford
 The Analysis: Disruptive vs Traditional
 Operating activities
 Growth trends
 Sources of financing
 ROE and ROA
 Major findings
 Conclusion

14. - 14 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8 Mod. A – International Accounting
 In performing the analysis on Tesla’s operating activities and cash flows
and comparing with Ford’s, focusing on Tesla’s variability was paramount.
Ford’s stability as an incumbent showed limited variability. These
indications are key to analyzing the entrant of a innovative start-up to a
long time incumbent. The conclusion on operating activity analysis
suggests that Tesla’s current margins do not fit with the cost structure
of production. If the trend continues along its current trajectory, its hard to
imagine that it will be sustainable in the long term.
 Revenues are growing at a promising rate even though there are still
concerns regarding the sustainability of the income statements lines i.e.
gross profit margin net income and EBITDA.
 Looking at the capital and debt structure of Tesla, the company is
currently benefiting from a low rate of debt issuance and high level of
capital injection from the market. Nonetheless, the current method Tesla is
using to manage debt and capital leverage appears to not be sustainable in
the long term.
Major findings
Operating Activities
Growth trends
Sources of Financing

15. - 15 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8 Mod. A – International Accounting
Agenda
 Executive Summary
 Automotive Industry
 Industry Overview: Shifting Paradigm
 The Companies: Tesla vs Ford
 The Analysis: Disruptive vs Traditional
 Operating activities
 Growth trends
 Sources of financing
 ROE and ROA
 Major findings
 Conclusion

16. - 16 -Hult International Business School – MBA Class 2016 – Golden Gate – Team 8 Mod. A – International Accounting
Conclusion
Tesla’s economic and financial positions appear to be
too fragile for the considering future market
developments.
The analysis performed reaches the conclusion that
currently Tesla’s business model appears not to be
sustainable in the long period