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10/30/2015

TheAceStudent:ACG6175CMBASummer2015|FinalExam|CompleteSolution

ACG6175CMBASummer2015|FinalExam|CompleteSolution
ACG6175CMBASummer2015|FinalExam|CompleteSolution
FinalExaminationACG6175CMBASummer2015
BysubmittingthisexaminationforgradingIaffirmthatIhavenotdiscussedthisexamination
withanyotherperson,noraccessedoremployedanyinformationnotincludedinthematerials
presentedbelow.
Required:
WriteyouranswersinstandardEnglish.
Includeanycomputationsyoumakeincompletingyouranswers.
Bespecific.
1)DecomposeTeslasROEfortheannualperiods20122014.Noteanytrendsyouobserve.
2)TeslanotesthatQ1automotiverevenueincludes$51millionfromthesaleofZEVcredits.*
Assumingthat20122014annualrevenuesarecomprisedofthesamepercentageofZEVrevenues
aswasthecaseinQ1of2015,recomputeTeslasincomeafterremovingtheeffectoftheZEV
salesanddecomposeROEusingthereviseddata.
3)CompareyournewcalculationstoyourROEdecompositionfromquestion1.
4)CommentonthequalityofTeslasearnings.
5)GiventhatTeslahasconsistentlygeneratedlosses,howhasthecompanymanagedtosurvive?
ReadTeslasStockholderLetterforthefirstquarterof2015.TeslarepeatedlyreferstononGAAP
results.
6)WhatarethespecificdeparturesTeslamakesfromGAAPincomputingthesenumbers?
7)WhydoyouthinkthecompanykeepsreferringtononGAAPmeasures?
*HereshowZEV(zeroemissionvehicle)creditswork:Everymajorautomanufacturerinthe
U.S.isrequiredtosellagivenpercentageofzeroemissionvehicles(by2025itwillreach15%).
Failuretomeetthisstandardresultsinafine.Manufacturersreceivezeroemissionvehiclecredits
foreachZEVsold.ZEVsaleswere,however,only1%ofautomotivesalesin2014.Thismeans
manymanufacturersfallbelowthethreshold.Theycan,however,buycreditsfromother
companiesinordertokeepfrompayingthefines.SinceTeslaonlysellsZEVsithasextracredits
thatitcansell.
In2015,wehavealreadyexpandedourproductportfoliowithexcitingnewproductsandfeatures
whilecontinuingtoexecuteonourlongtermplans.Werampedthemanufacturingandavailabilityof
AllWheelDriveModelS85D,introduced70D,andarebuildingreleasecandidateprototypesof
ModelX.Lastweek,wealsolaunchedournewTeslaEnergybusiness,introducinga
suiteofenergystorageproductswithavisionthatwebelievewillhelptoeventuallytransformthe
globalenergyparadigm.BothourvehicleandTeslaEnergybusinesseswillbenefitfromour
Gigafactoryproject,whichshouldstartproducinginitialquantitiesofbatterypacksin2016.
Wealsosignificantlyimprovedmanufacturingefficiencyandreducedperunitvehiclecostswhile
achievingahigheraverageweeklyproductionrateduringQ1.Theseefforts,combinedwitha
favorableproductmix,helpedusreachourQ1nonGAAPautomotivegrossmargintarget,despite
thesignificantnegativeimpactofastrongdollar.Wewerealsoabletoaccelerateyearoveryear
revenuegrowthinQ1,whileimprovingoperationalefficiencyasreflectedinlowerthanexpected
growthofoperatingexpenses.Overall,theseachievementsrepresentastrongstarttoaverybig
yearatTesla.ExpandingtheMarketforModelSWecontinuetoseegrowingModelSdemand.In
Q1,bothNorthAmericanandEuropeanordersweremuchhigherthanQ1lastyear,despitelimited
availabilityof85Dandbeforetheannouncementof70D.WhilewestillhaveworktodoinChina,we
sawencouragingsignsofareturntogrowthinordersthereaswell.Recently,orderrateshave
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acceleratedevenfurtherwithgreateravailabilityof85Dandthelaunchof70D.Thisisespecially
encouragingaspotentialcustomersinmanymarketshaveyettoexperiencetheseproductsfirst
hand.70DhasonlybeenshowninNorthAmerica,andourallwheeldrivecarswillnotbeavailable
inrighthanddrivemarketsuntilQ3.Weremainconfidentinourabilitytodeliverapproximately
55,000ModelSandModelXvehiclescombinedin2015,asincreasedavailabilityofallourModelS
variantscontinuetodrivedemand.Tosustainablyscaleforincreaseddeliveries,ourinventoryofin
transitcustomerconfiguredcarsmustincrease,andinQ1weadded1,100suchvehiclestothe
pipeline.Ourabilitytocontinuallyinnovateandreducecostsenabledustorecentlylaunchthenew
ModelS70D.Asaverycompellingvalueinthepremiumsedansegment,theAllWheelDrive70D
expandsthemarketforModelS.70Dhas240milesofEPAratedrange,superiorallweather
performance,anda060mphtimeof5.2seconds.Italsoincludesacomprehensivelistof
standardfeaturessuchasAutopilotsafetytechnology,accesstoourSuperchargernetwork,and
turnbyturnnavigationfor$75,000,beforetaxcreditsandfuelcostsavings.Sofarwearepleased
withtheincreaseddemandthathasbeencreatedbythe70Dandthelittleeffectithashadonthe
demandforourotherModelSvariants.
AllWheelDriveModelS85D
ModelScustomersbenefitfromourfreedataconnectivityanduniqueovertheairsoftwareupdates,
whichallowustoimprovecustomercarsovertime.InMarch,weintroducedoursecondsignificant
softwareupdateofQ1,enablingnewactivesafetycapabilities,addingintelligentrangeandcharge
managementfeatures,andboostingperformancebyincreasingaccelerationandtopspeed.
AdditionalsoftwareupdatesarescheduledinQ2thatwillincludemoreAutopilotsafetyand
conveniencefeaturesforappropriatelyequippedcars.Theexpansionofourcustomersupport
networkcontinuesatarapidpace.With425Superchargerlocationsand100servicelocations
globally,drivingaModelSisbecomingmorecompellingeveryday.Sofar,ourcustomershave
Supercharged111
millionmilesglobally.ImprovingProductionCapabilitiesInQ1,wemanufactured11,160vehicles,
10%betterthanguidance,asweaveragedmorethan1,000carsperproductionweek.We
successfullyincreasedproductiononournewsmalldriveunitline,whichwascriticaltomeetingthe
demandforourallwheeldrivecars.Ourproductionlaunchesof85Dand70Dproceededmore
smoothlythanourpriorlaunches,highlightingtheflexibilityandincreasingmaturityofour
manufacturingcapabilities.WithamorestableproductioncadenceinQ1,weimplemented
efficiencyimprovementsandreducedlaborhoursbymorethan20%percarbytheendofthe
quarter.Duringthequarter,wealsomadesignificantprogressontheinstallationofanewbody
shop,paintshopandstampingpressesthatwillestablishextracapacityforbothModelXand
ModelS.WearenowbuildingandtestingreleasecandidateModelXprototypeswithincreasing
designmaturity,andarepleasedwiththeprogressofthisprogram.Thesedevelopments,alongwith
ourmaturingproductioncapabilities,boostourconfidenceinthelaunchandproductionrampof
ModelX,whichisontrackforstartofdeliveriesinlateQ3.Inaddition,steadyconstructionprogress
continuesattheGigafactory,andtogetherwithPanasonic,wenowexpecttostartcompletebattery
manufacturing,fromcellstomodulestobatterypacks,in2016.TeslaEnergy
InQ1,wemadesubstantialprogressonour2ndgenerationTeslaEnergygridbatteryproducts.This
ledtoourApril30thlaunchofthe$250/kWhindustrialPowerpackandthe$350/kWhresidential
Powerwall,andtheseattractivepricesincludecontrols,coolingandDC/DCpowerelectronics.The
customerresponsetotheseproductsandtheTeslaEnergyvisionbroadlyhasbeenextremely
positive.Wearenowpreparingoursupplychainandproductionteamstostartvolumebuildson
thesenewproductsinQ3.ProductionwillbeginattheTeslaFactoryinFremont,andinQ12016will
expandintotheGigafactoryandacceleratesignificantly.
ThetotaladdressablemarketsizeforTeslaEnergyproductsisenormousandmucheasiertoscale
globallythanvehiclesales.Wearepursuingproductcertificationinmultiplemarketssimultaneously
andplantorampdeliveriesintheUS,EUandAustraliainQ4.Whencombinedwithlowcost
renewableenergy,TeslaEnergybatteriesprovideanachievablepathwaytoa100%zerocarbon
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energysystem.TeslaPowerwall
Q1ResultsStartingthisquarter,ourincomestatementreflectsthenewclassificationsofrevenues
andcostsofrevenuestosegregateournewvehiclebusinessfromourotherbusinessactivities.
Automotiverevenueandrelatedcostsnowreflectactivitiesrelatedtothesaleorleaseofnew
vehiclesincludingregulatorycredits,dataconnectivityandSupercharging.Servicesandother
revenuesandrelatedcostsincludeactivitiessuchaspowertrainsales,servicerevenue,Tesla
EnergyandpreownedTeslavehiclesales.Asusual,wehavepresentedbothGAAPandnon
GAAPfinancialinformationinthisletter.AfullexplanationofournonGAAPinformationand
reconciliationtoGAAPareincludedinthetablesandaccompanyingfootnotes.
ACG6175CMBASummer2015|FinalExam|CompleteSolution

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