ACC 345 Module 7 Business Valuation Template-Violet Bass

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Summary Business Valuation Report of Tesla Violet Bass Southern New Hampshire University ACC 345: Financial Statement Analysis/Business Valuation Elliott Chester [February 23, 2024]

Milestone One: Introduction ............................................................................................................ 3 Links ............................................................................................................................................. 3 History and Overview .................................................................................................................. 3 Summary ...................................................................................................................................... 5 Milestone One References ........................................................................................................... 5 Milestone Two: Financial Analysis ................................................................................................. 5 Balance Sheet Analysis ................................................................................................................ 5 Income Statement and Cash Flow Analysis ................................................................................. 6 Normalization Adjustments Analysis .......................................................................................... 7 Summary ...................................................................................................................................... 8 Milestone Two References ........................................................................................................... 8 Milestone Three: Economic Outlook ............................................................................................... 8 Microeconomic Industry Analysis ............................................................................................... 8 General Macroeconomic Analysis ............................................................................................. 10 Summary .................................................................................................................................... 11 Milestone Three References ....................................................................................................... 11 Project ............................................................................................................................................ 11 Assumptions and Rationale ........................................................................................................ 11 Analysis ...................................................................................................................................... 12 Project References ...................................................................................................................... 12 Valuation Team Report .............................................................................................................. 12

Milestone One: Introduction Links 1. Provide the most recent SEC Form 10-K Filing link for the company. https://www.sec.gov/Archives/edgar/data/1318605/000095017023001409/tsla- 20221231.htm 2. Provide the most recent SEC Proxy Filing link for the company. https://www.sec.gov/Archives/edgar/data/1318605/000119312523094075/ d451342ddef14a.htm History and Overview 1. Provide a brief company history overview based on external research of the company. Consider the following questions to guide your response: A. How long has the company been in business? B. Who was the original founder of the company? C. What significant changes to company leadership have occurred? D. How has the company changed since its beginning? Consider expansion of locations or products/services, etc. Tesla, Inc. has been in business since its founding in 2003. Tesla was founded by a group of engineers, with Martin Eberhard and Marc Tarpenning being among the original founders. Elon Musk joined the company shortly after as an investor and later became a key figure in its relationship. Over the years, there have been changes in leadership at Tesla. Elon Musk, while initially joining as an investor, played a crucial role in the company’s development and eventually became the CEO. There have been various executive changes, but Elon Musk has been a consistent and prominent figure in Tesla’s leadership. Tesla initially focused on electric cars, it expanded its product line to include energy storage solutions and solar products. The company has also seen notable growth in its manufacturing capabilities and has expanded its presence globally with manufacturing facilities and sales operations in different countries. Tesla’s advancements in electric

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vehicle technology and its push for sustainable energy have marked significant changes in the automotive and energy industries. 2. Identify all of the company’s major locations for their facilities and/or other properties. Tesla’s Gigafactories do a mix of battery and electric car productions, depending on the location. Manufacturing Facilities in the Bay Area, California We manufacture and test our vehicles at our manufacturing facilities in the Bay Area in California, including the Fremont Factory and other local manufacturing facilities. We also manufacture and develop certain parts and components that are critical to our intellectual property and quality standards, such as Model S and Model X battery packs and our proprietary lithium-ion battery cells, at these locations. Gigafactory Nevada near Reno, Nevada Our battery material, cell, module and battery pack production for Model 3, Model Y and our energy products are manufactured in one location at Gigafactory Nevada. In addition, we manufacture vehicle drive units and energy storage components there. Gigafactory Nevada allows us to access high volumes of lithium-ion battery cells manufactured by our partner Panasonic there while achieving a significant reduction in the cost of our battery packs. We continue to invest in Gigafactory Nevada to achieve additional output there. Gigafactory New York in Buffalo, New York

We use Gigafactory New York for the development and production of our Solar Roof and other solar products and components, energy storage components and Supercharger components and for other functions. Gigafactory Shanghai in China We established Gigafactory Shanghai to increase the affordability of our vehicles for customers in local markets by reducing transportation and manufacturing costs and eliminating the impact of unfavorable tariffs. We continue to increase the degree of localized procurement and manufacturing there. Gigafactory Shanghai is representative of our plan to iteratively improve our manufacturing operations as we establish new factories, as we implemented the learnings from our Model 3 and Model Y ramp at the Fremont Factory to commence and ramp our production at Gigafactory Shanghai quickly and cost-effectively. Other Manufacturing Generally, we continue to expand production capacity at our existing facilities. We also intend to further increase cost-competitiveness in our significant markets by strategically adding local manufacturing, including at Gigafactory Berlin in Germany and Gigafactory Texas in Austin, Texas, which will begin production in 2022. Elon Musk has said he hopes to build 10 to 12 more Tesla Gigafactories to reach his goal of making 20 million cars a year by 2030. 3. Identify all of the customers recognized by the company.

Find this information in the annual Form 10-K filing, in Part 1, Item 1: Business. Tesla generally sells products directly to customers, including through websites and retail locations. The customers include individuals, business, and government entities purchasing EV, energy products, and services. Tesla’s energy products, such as solar panels, solar roofs, and energy storage solutions, attract customers looking to harness sustainable energy sources. While Tesla highlights high-profile customers or notable orders, the company generally does not disclose detailed information about individual customers for privacy and confidentiality reasons. 4. List all of the names of the executive management team of the company. Name Age Position Elon Musk 51 Technoking of Tesla and Chief Executive Officer Zachary Kirkhorn 38 Master of Coin and Chief Financial Officer Andrew Baglino 42 Senior Vice President, Powertrain and Energy Engineering Tom Zhu 43 Senior Vice President, Automotive 5. Identify all of the competition recognized by the company. Find this information in the annual Form 10-K filing, in Part 1, Item 1: Business. The worldwide automotive market is highly competitive, and Tesla expects it will become more competitive in the future. First is Automotive competitors, traditional automakers such as BMW, Mercedes-Bens, and other luxury car manufacturers. In addition, energy and solar competitors are solar energy companies such as SunPower, and Sunrun. The energy storage competitors such as LG and Panasonic. It’s important to note that the competitive landscape is dynamic, and new entrants or changes in strategies by existing players can impact competition.

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6. Identify all of the major shareholders of the company. Beneficial Owner Name Shares Beneficially Owned Percentage of Shares Beneficially Owned 5% Stockholders Elon Musk(1) 715,022,706 20.6 % The Vanguard Group(2) 217,857,401 6.9 % Blackrock, Inc.(3) 178,428,109 5.6 % Named Executive Officers & Directors Elon Musk(1) 715,022,706 20.6 % Zachary J. Kirkhorn(4) 2,688,930 * Andrew Baglino(5) 1,040,304 * Robyn Denholm(6) 1,677,480 * Ira Ehrenpreis(7) 1,681,005 * Joe Gebbia 111 * Hiromichi Mizuno(8) 351,690 * James Murdoch(9) 1,427,295 * Kimbal Musk(10) 2,050,470 * JB Straubel 12,660 * Kathleen Wilson-Thompson(11) 771,255 * All current executive officers and directors as a group (11 persons)(12) 728,328,172 20.9 % * Represents beneficial ownership of less than 1%. 7. Describe business risks recognized by the company. Tesla faces various business risks, here are some recognized by Tesla. Financial risk, volatility in financial markets affecting Tesla’s stock price. And regulatory risks, changes in government regulations affecting the automotive and energy industries. Compliance with emission standards and other regulatory requirements. Tesla face risks associated with maintaining and expanding their international operations, including unfavorable regulatory, policy, tax, and labor conditions. Tesla are exposed to fluctuations in currency exchange rates. As they transact business globally in multiple currencies and have foreign currency risks related to revenue, cost of revenue, operating expenses and localized subsidiary debt denominated in currencies other than the U.S. dollar.

8. Explain how the company is committed to Environmental, Social and Governance (ESG) efforts and sustainability. Tesla is unwavering in its commitment to ESG efforts, emphasizing sustainability across its operations. At the core of this commitment is Tesla impact on the environment through the production of EVs, contributing significantly to the reduction of greenhouse gas emissions. The company extends its influence on renewable energy solutions, including solar panels and energy storage products, promoting clean energy adoption. Tesla aims to achieve carbon neutrality in its operations, emphasizing transparency through regular reporting on environmental impact, social initiatives, and corporate governance practices. This commitment aligns with the company’s broader goals of minimizing its carbon footprint and promoting responsible business practices. Tesla actively engages in social responsibility by positively impacting the communities it operates in and prioritizing employee well-being with diversity and inclusion initiatives. The company’s continuous innovation in sustainable technologies, such as battery technology, showcases its dedication to environmental stewardship. Tesla’s commitment to ESG principles remains a pivotal aspect of its corporate strategy. 9. Describe the company’s Leadership in Energy and Environmental Design (LEED) status. Consider the following questions to guide your response: A. Is the company currently LEED certified? B. If the company is not currently LEED certificated, is it working towards becoming LEED certified? Tesla has been working towards achieving LEED certification for its facilities in California was expected to achieve gold certification from the U.S. Green Building

Council Leadership in Energy and Environmental Design (LEED). However, Tesla is not currently LEED certificated. Summary 1. Summarize your findings for the valuation team. Include the following details in your response: A. Explain what you learned as you researched the company. B. Identify the key points the valuation team needs to be aware of. In this article, Tesla was established in 2003 and led by Elon Musk, who stands at the forefront of electric vehicles and green energy. The company’s global manufacturing presence expansion plans contribute to its dynamic market position and its commitment to sustainability. Tesla exhibits strong revenue growth and strategic investments. Key considerations for the valuation team encompass assessing financial health, understanding the impact of expansion, recognizing leadership stability, and acknowledging Tesla’s commitment to sustainability. In essence, Tesla’s success is rooted in technological advancement, and global expansion. 2. Create at least one effective visualization that supports key points. Include the following detail in your response: A. Appropriate labels for the visualization(s). Create an effective visualization(s) based on your research to support your summary report. Examples of ideas for your visualization(s) include creating a timeline of the company history, creating a map of the company’s locations, creating a chart of major shareholders showing ownership and broken down by percentages, etc.

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[

Milestone One References

Stormwater Solutions. (2013, May 28). Tesla Water UV treatment facility earns LEED Silver Certification . Stormwater Solutions. https://www.stormwater.com/transportation-and- construction/treatment/news/33048810/tesla-water-uv-treatment-facility-earns-leed-silver- certification Wikimedia Foundation. (2024, January 12). Tesla, Inc.. Wikipedia. https://en.wikipedia.org/wiki/Tesla,_Inc. Tesla market cap eclipses that of top 5 rival carmakers combined. (n.d.-d). https://www.reuters.com/business/autos-transportation/tesla-market-cap-eclipses-that-top- 5-rival-carmakers-combined-2021-10-26/ Home . SEC Emblem. (2017a, February 5). https://www.sec.gov/ 10-K. (n.d.). https://www.sec.gov/Archives/edgar/data/1318605/000095017022000796/tsla- 20211231.htm Milestone Two: Financial Analysis Balance Sheet Analysis 1. Explain the findings regarding the company’s asset accounts for the previous five years. Include the following details in your response:

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A. Describe in detail the material changes in the asset accounts, including changes in cash, AR, inventory, property, plant and equipment, and goodwill. B. Explain what these changes might be related to. I will analyze the findings regarding Tesla asset accounts for the previous five years (2018-2022). In cash and cash equivalents. Tesla has a notable increase from $3.686 billion in 2018 to $16.253 billion in 2022. This suggests a significant improvement in liquidity over the years. On the account receivable (AR), AR has increased from $949 million in 2018 to $2.952 billion in 2022. This could indicate higher sales on credit, extended payment terms, or an increase in business volume. On the inventory, it has substantial growth from $3.113 billion in 2018 to 12.839 billion in 2022. This point towards an increase in production or possibly challenges in managing inventory levels efficiently. Tesla’s Property, plant, and equipment (PP$&E) has a decrease from $282 million in 2018 to $215 million in 2022. This could be due to impairment or changes in the company’s valuation of intangible assets. I will also explain that these changes might be related for various reasons. On the cash and cash equivalents, tesla’s focus on profitability and positive cash flow may have contributed to the increase in cash reserves. With the AR, expansion of business operations or changes in credit policies may have led to the increase in account receivable. On inventory, rapid growth in inventory could be attributed to scaling up production to meet increasing demand for Tesla vehicles. The changes in PP&E are related to continuous investment in manufacturing facilities, such as gigafactories and infrastructure to support Tesla’s growth. However, Tesla has decreased its Intangibles (Goodwill). It might be due to a reassessment of the fair value of intangible assets or changes in business conditions. 2. Explain the findings regarding the company’s liability accounts for the previous five years. Include the following details in your response: A. Describe in detail the material changes in both current and long-term liabilities. B. Explain what these changes might be related to.

In current liabilities, Tesla has significant increase from $9.993 billion in 2018 to $26.709 billion in 2022. The major contributors are account payable, accrued expenses and current portion of debt and leases. On the long-term liabilities, it has a notable decrease from $13.99 billion in 2018 to $10.14 billion in 2022. The decrease is primarily due to a significant reduction in long-term debt and lease obligations. Changes in current and long-term liabilities are for several reasons, the increase in accounts payable may be related to higher purchases of raw materials or components, reflecting increased production. Higher accrued expenses could be due to increased operational activities, employee-related costs, or other obligations. The decrease of the current portion of debt and leases can explain an effective management of short-term debt and obligations. On the long-term liability’s side, the significant decrease in long term debt and lease obligation indicates either successful debt reduction, refinancing or maturity of certain debts. 3. Explain the findings regarding the company’s equity accounts for the previous five years. Include the following details in your response: A. Describe in detail the changes to equity accounts, including common stock, treasury stock, or additional payment in capital (i.e., whether the company raised funds or retired stock). B. Explain how the changes compare to the net income or other sections of the balance sheet. C. Identify whether the company is paying out dividends. D. Describe in detail how the company’s dividend payouts have changed over the past five years. E. Describe in detail the changes in “total equity” (representing the current “book value” of the company). Based on the previous 5 years (2018-2022), Minimal changes over the years in common stock, less treasury, indicating a stable capital structure. Treasury stock remains relatively constant. Tesla has a steady increase additional paid-in capital from $10.249 billion in 2018 to $ 32.177 billion in 2022. It suggests the company raised additional capital, potentially through stock issuances. Noteworthy changes in retained earnings from negative values in

2018 and 2019 to positive value in 2020,2021, and 2022. It indicates the company moving from accumulated losses to profitability, with positive retained earnings in the later years. Fluctuations in other equity, indicating changes in comprehensive income, revaluations, or adjustments. Compared to net income or other sections of the balance sheet, the increase in retained earnings aligns with positive net income in the later years, reflecting the company’s profitability. In addition, additional paid-in capital reflects capital raised from investors, which may have contributed to the company’s growth and investment in projects. While dividends are not shown in Tesla 10*-K from 2018 to 2022. From my perspective, Tesla has historically not paid regular dividends, Tesla focuses on reinvesting in the business for future growth. Total equity has increased substantially from $5.757 billion in 2018 to $45.489 billion in 2022. The growth is driven by positive retained earnings, additional paid-in capital and change in other equity. Tesla’s equity accounts reflect a dynamic financial performance during these 5 years. The increase in total equity is mainly attributed to profitability, capital raising through additional paid-in capital, and adjustments in other equity. 4. Explain what the company’s current and prior year liquidity and debt-to-equity ratios say about the company’s financial health. Consider the following questions to guide your response: A. What is an appropriate level of debt? B. How does this year’s performance compare to the previous year? The current ratio measures short-term liquidity, and it has slightly increased from 1.38 in 2021 to 1.53 in 2022. A ratio above 1 indicates that Tesla has more current assets than current liabilities, which is generally considered healthy. The quick ratio has decreased from 0.99 in 2021 to 0.72 in 2022. This decline indicates a reduction in the ability to cover short-term liabilities with the most liquid assets, which may be a concern. The working capital has increased

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from $7.395 billion in 2021 to $14.208 billion in 2022. This indicates an improvement in the company’s short-term financial health and its ability to cover current liabilities. The debt-to- equity ratio measures the proportion of debt relative to shareholders’ equity. It has decreased from 50.31% in 2021 to 44.75% in 2022. A decreasing ratio implies reduced reliance on debt financing, which can be positive for financial health. In addition, the appropriate level of debt of tesla, generally, a debt-to-equity ratio below 1 is considered conservative, indicating lower financial risk. However, industries with stable cash flows might tolerate higher ratios. Income Statement and Cash Flow Analysis 1. Explain the profitability ratios that are included in the company’s financial statements. Include the following detail in your response: A. Explain any trends and relate any changes back to the balance sheet and income statement accounts used in the ratio calculation. The net profit margin is a key of profitability ratio and perform a vertical analysis to understand the trends and related changes back to the balance sheet and income statement accounts for Tesla from 2018 to 2022. The formula is Net Income / Total Revenue = net profit margin. A higher net profit margin indicates better profitability. in 2018 it has -18.79%, 2019: - 4.68%, 2020 -2.71%, 2021:3.66%, 2022:11.78%. There is a clear positive trend in the net profit margin. This improvement signifies the company’s ability to generate profits as a percentage of total revenue. Based on the formula, an increase in net profit margin could be attributed to more efficient cost management or increased revenue. Increased profitability might be reflected positively on the balance sheet by contributing to an increase in retained earnings or reducing accumulated losses. 2. Explain the profitability of the company for the prior and current years. Consider the following questions to guide your response: A. What does a vertical analysis of the company’s gross revenue show you? What is the percentage (%) of change year over year for these past five years? B. How are the company’s COGS and gross profit margin being managed?

C. How are the company’s sales, general, and administrative expenses being managed as a percentage of sales? What does this tell you about the company’s current business cycle? Remember, it is normal for this percentage to rise when sales are dropping and fall when sales are rising. If this is not happening, what might be the reason? Vertical analysis of Tesla’s gross revenue shows that each line item as a percentage of the total revenue. This helps in understanding the proportional contribution of each component to the overall revenue. The percentage of change year over year for these past five years are: Based on the data above, YoY helps identify trends and patterns over the past five years. On the Gross Profit Margin side, evaluate the trend in gross profit margin to understand how efficiently the company is converting revenue into gross profit. The following is the Gross Profit Margin of Tesla in 5 years, which are 18.83%, 16.56%,21.02%.,25.28%and 25.6%

The SG&A ratio represents the percentage of sales consumed by SG&A expenses. In the normal business cycle, if the sales are dropping, this will occur as fixed SG&A expenses become a larger proportion of decreasing revenue. Tesla’s SG&A margin is from 20.64 in 2018 to 8.83% in 2022, it means SG&A Margin is decreasing as sales rise, it suggests effective management of selling, general, and administrative expenses relative to sales growth. 3. Describe what free cash flow is and how it is calculated. 4. Explain the free cash flow history for the company. Search the company’s most recent 10-K filing first for a discussion from management on their free cash flow. If there isn’t anything in the filing, do an internet search for the company’s free cash flow history. Free Cash flow (FCF) is the cash a company generates after taking into consideration cash outflows that support its operations and maintain its capital assets. In other words, free cash flow is the cash left over after a company pays for its operating expenses or capital expenditures. Tesla free cash flow for 2022 was $8 billion, a 124% increase from 2021, for 2021 was $3 billion, a 36% increase from 2020. And for 2020 was $2.7 billion 158% increase from 2019.

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5. Explain the data reported in the cash flow statement for all five years reported. Include the following details in your response: A. Identify the amount of cash flow reported from operations. B. Identify the amount of cash flow reported from investments. C. Identify the amount of cash flow reported from financing. D. Explain the correlation between each of these categories of cash flow for the past five years. The cash flow reported from operation from 2018 to 2022 were $2,098, $2,045, $5,943 $11,497 and $14724. The cash flow reported from investments from 2018 to 2022 were $(3,132), $ $(7,868), $(11,973), $(7,868), and $ (11,973). The amount of cash flow reported from financing from 2018 to 2022 was $ 574 million. $1,529 million, $9,973 million, $ (5,203) and $ (3,527). Tesla’s cash flow from operation has shown a consistent upward trend over the past five years, indicating improved cash generation from core business activities. The cash flow from investments has been negative each year, reflecting substantial capital expenditures, likely related to the expansion of manufacturing facilities, technology development, and other investments. There is variability in cash flow from financing with significant positive inflows in 2020 and substantial outflows in 2021 and 2022. This indicates active financing activities, including debt issuance, equity offerings, and potential repayment of debt. In 2020, there is a notable increase in both cash flow from operations and financing. This could be related to successful business operations and capital raised for expansion or other strategic initiatives. Throughout the five years, there is a consistent negative correlation between cash flow from operations and cash flow from investments. Increased operational cash flow often corresponds with increased investment in the business. Normalization Adjustments Analysis 1. Define the term normalization adjustment.

Normalization adjustment refers to the process of adjusting financial statements to account for non-recurring or extraordinary items that may distort the true financial performance or position of Tesla. These adjustments aim to provide a more accurate representation of Tesla’s ongoing operational performance by removing one-time events or accounting irregularities. 2. Identify three examples of balance sheet normalization adjustments that might appear. The first example of balance sheet normalization adjustments that might appear is Goodwill impairment. If a company records a goodwill impairment charge in a specific year, it might distort the balance sheet. Normalization adjustment involves excluding this impairment charge to provide a clearer picture of Tesla’s underlying assets. The second one is revaluation of assets. If there is a one-time revaluation of assets, such as a write-up or write-down of PP&E, normalization adjustment may be applied to adjust the carrying values of these assets to reflect their ongoing fair market values. Last, repayment, If Tesla issues or repay a significant amount of debt, it can impact the balance sheet. Normalization adjustments may involve excluding the effects of these extraordinary debt transitions to assess Tesla’s normal debt structure. 3. Identify three examples of income statement normalization adjustments that might appear. Normalization adjustments are essential for financial analysts, investors, and other stakeholders to make meaningful comparison of Tesla’s performance. Especially when certain events can artificially inflate or deflate financial status. The first example of income statement Normalization adjustment is restructuring costs, Tesla may incur one-time restructuring cost, such as employee severance. Normalization adjustments involve excluding these costs from the income statement to show tesla’s core operating performance. Second, legal settlement expenses

can distort net income in a specific period. Normalization adjustments may involve excluding this one-time legal cost to provide a more accurate representation of ongoing profitability. The last one is changes in accounting methods. If tesla changes its accounting methods, such as adopting a new revenue recognition standard, normalization adjustments may be applied to adjust historical financial statement to conform to the new accounting principles. This ensures consistency in financial reporting/ Summary 1. Summarize your findings for the valuation team. Include the following details in your response: A. Explain what you learned as you researched the company. B. Identify the key points the valuation team needs to be aware of. In researching Tesla Ltd., notable trends emerge through common-size analysis. Operational cash flow consists of rises, reflecting improved core business performance. Investments, particularly in manufacturing and technology, are substantial but have led to negative cash flow from investment. Notably, Tesla’s gross profit margin has shown a remarkable increase from -1.81% to 16.76%. From my perspective, the key points the valuation team needs to be aware of is that we need to consider the substantial investments in manufacturing and technology, weighing the impact on future cash flows. 2. Create at least one effective visualization that supports key points. Include the following detail in your response: A. Appropriate labels for the visualization(s). Examples of ideas for your visualization(s) include a line chart showing sales growth and gross profit margin and other expenses or a graph of the ratio analysis data.

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2018 2019 2020 2021 2022 $- $10,000.00 $20,000.00 $30,000.00 $40,000.00 $50,000.00 $60,000.00 $70,000.00 $80,000.00 $90,000.00 Total Revenue (or Sales) 2018 2019 2020 2021 2022 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% Gross Profit Margin Gross profit margin Series2

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2018 2019 2020 2021 2022 0 1000 2000 3000 4000 5000 6000 7000 8000 Sales, General, and Administrative Expenses Milestone Two References Wikimedia Foundation. (2024, January 12). Tesla, Inc. Wikipedia. https://en.wikipedia.org/wiki/Tesla,_Inc.

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Tesla market cap eclipses that of top 5 rival carmakers combined. (n.d.-d). https://www.reuters.com/business/autos-transportation/tesla-market-cap-eclipses-that-top- 5-rival-carmakers-combined-2021-10-26/ Home . SEC Emblem. (2017a, February 5). https://www.sec.gov/ 10-K. (n.d.). https://www.sec.gov/Archives/edgar/data/1318605/000095017022000796/tsla- 20211231.htm Tesla Free Cash Flow 2010-2023: TSLA . Macrotrends. (n.d.). https://www.macrotrends.net/stocks/charts/TSLA/tesla/free-cash-flow Murphy, C. B. (n.d.). What is the formula for calculating free cash flow? . Investopedia. https://www.investopedia.com/ask/answers/033015/what-formula-calculating-free-cash- flow.asp#:~:text=Free%20cash%20flow%20(FCF)%20is%20the%20cash%20a %20company%20generates,and%20capital%20expenditures%20(CapEx) Milestone Three: Economic Outlook Microeconomic Industry Analysis 1. Explain the industry outlook for the company. Include the following details in your response:

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A. Identify the primary industry the company operates in. B. Provide a general overview of the size of the industry both domestically and internationally. C. Explain current industry trends and emerging technologies that might impact the company's industry in the future. Tesla primarily operates in the electric vehicle (EV) and renewable energy industries. The EV industry has been experiencing significant growth, both domestically and internationally. The global EV market has been expanding rapidly due to increasing environmental concerns, government incentives, and advancements in battery technology. In recent years, various countries have been implementing policies to promote the adoption of EV, contributing to the industry’s growth. Domestically in the United States, Tesla played a crucial role in popularizing electric cars, and its market share continues to grow. Internationally, the demand for electric vehicles is also on the rise, with many European and Asian countries pushing for a transition to sustainable transportation. The current industry trends might impact Tesla’s in the future, such as competitive landscape and government policies and incentives. For example, China's significant rise in electric vehicle (EV) exports, with a reported 64% increase, has substantial implications for both the country's economy and the global electric vehicle industry. China's performance has a direct impact on the dynamics of the international electric vehicle industry. 2. Explain how the supply and demand for the company’s industry may affect consumer behavior. Include the following details in your response: A. Explain major events have impacted supply and demand for the company’s industry. B. Identify if there have been any supply chain issues. If so, explain how these issues have affected overall supply and demand. The major event has impacted supply and demand for Tesla’s Inc. is that government policies and incentive. Changes in government policies and incentives, such as tax credits,

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subsidies, or regulatory requirements promoting electric vehicles, can significantly impact both supply and demand. For example, increased government support can boost demand by making EVs more affordable for consumers. If there have been any supply chains is semiconductor shortages. The global semiconductor shortage has affected various industries, including automotive manufacturing. Electric vehicles rely heavily on semiconductor chips for various functions, including those related to electric drivetrains, autonomous features, and in-car electronics. Shortages in semiconductor supply can lead to production delays and impact overall supply and demand. 3. Evaluate the competitive landscape for the company. Include the following details in your response: A. List the company’s current percentage of the market share in this industry. B. List the company’s top three competitors and what percentage of the market share each competitor holds. C. Explain how the percentage of market share changed over the last three years for the company and its competitors. D. Explain the new competitors entering this industry. Tesla has held a substantial market share in the electric vehicle industry. As of 2022, Tesla's global market share was estimated to be around 16-17%, making it one of the leading players in the electric vehicle market. There are the top three competitors and market share. NIO is a Chinese electric vehicle manufacturer and one of Tesla's prominent competitors. As of 2022, NIO had a significant market share in the Chinese electric vehicle market. However, its global market share was lower compared to Tesla.

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BYD, another Chinese automaker, is known for its electric vehicles and batteries. BYD has been a key player in the electric vehicle market, especially in the Chinese market. Its market share globally is substantial, making it one of Tesla's major competitors. Volkswagen, a traditional automaker, has been making significant strides in the electric vehicle space. The Volkswagen Group includes various brands like Volkswagen, Audi, and Porsche, all contributing to its electric vehicle market share. The company has been investing heavily in electrification to compete with Tesla. Over the past few years, Tesla has experienced both challenges and successes. Competitors like NIO and BYD have also seen growth, particularly in the Chinese market. The expansion of the electric vehicle market has allowed multiple players to increase their market share, although Tesla has maintained a strong position global. Traditional automakers, including General Motors, Ford, and others, are accelerating their electric vehicle efforts, introducing new models to compete with Tesla. The entry of established automotive giants adds to the competitive landscape, potentially impacting market dynamic. 4. Identify key data from the SWOT analysis for the company and its primary competitor. Include the following details to your response: A. Provide the citation for SWOT analysis from a reputable source for the company. B. Provide the citation for SWOT analysis from a reputable source for the company’s primary competitor. C. Identify the company’s major strengths and weaknesses compared to the company’s primary competitor.

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Pereira, D. (2023, March 3). Tesla SWOT analysis . Business Model Analyst. https://businessmodelanalyst.com/tesla-swot-analysis/ StrategyPunk. (2024, January 3). BYD SWOT analysis: Free PPT template and in-depth insights 2024 . https://www.strategypunk.com/byd-swot-analysis-free-ppt-template-and-in-depth- insights-2024/?expand_article=1 BYD Ltd. (2023.). Mergent Online. Retrieved September 20, 2021, from http://www.mergentonline.com.ezproxy.library.berkeley.org/companydetail.php? Tesla is a hugely successful car company, valued at over $1 trillion, making it the most valuable in the automotive industry. In 2021, they achieved a remarkable $53.8 billion in sales, delivering 936,172 cars and earning a profit of $5.6 billion. Despite these achievements, Tesla faces challenges related to innovation, leading to mechanical issues and production risks. They often experience delays in launching new products, creating hurdles in their manufacturing processes. On the other hand, BYD, in its 2024 SWOT analysis, showcases strengths in rapid innovation in electric vehicles, rail, and battery technology, supported by local governments. However, BYD's weaknesses include limited international presence and a smaller brand prestige compared to well-known German and Japanese automakers. Despite their technological advancements, BYD is working on expanding its global reach and enhancing its brand recognition to compete more effectively on the international stage. 5. Evaluate the impact of new or recently changed regulations specific to the company’s industry. Include the following details in your response: A. Provide a citation to the specific new regulation.

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B. Explain the advantages and/or disadvantages of the new regulation(s) for the company’s industry. California Air Resources Board . Zero-Emission Vehicle Program | California Air Resources Board. (n.d.). https://ww2.arb.ca.gov/our-work/programs/zero-emission-vehicle-program Stricter emission standards create a favorable market for Tesla as a leading electric vehicle manufacturer. With a strong presence in California, Tesla is well-positioned to meet the demand for zero-emission vehicles. However, A sudden increase in demand for electric vehicles due to stricter regulations might strain the supply chain, impacting Tesla's ability to meet production targets in the short term. 6. Identify potential international issues with the company expanding into global markets. Consider the following questions to guide your response: A. What historical data may affect the company as it expands? B. What potential future issues may arise based on current economic conditions? Tesla's historical data reveals mixed outcomes in different international markets. While the company has seen success in certain regions, it has faced challenges in others. For instance, earlier ventures in China demonstrated remarkable growth, with the construction of the Gigafactory in Shanghai. However, there have been instances of production delays and quality concerns that impacted Tesla's reputation. Analyzing these historical experiences will be crucial in shaping strategies for the new international expansion. Economic uncertainties could influence consumer purchasing power and affect the adoption of electric vehicles. Additionally, evolving regulations and policies related to environmental standards and incentives for electric vehicles may vary across different countries, requiring Tesla to adapt its business model accordingly. 7. Describe labor market trends in the company’s industry.

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In the electric car industry, there's a need for people with special skills. These skills include knowing about electricity, batteries, computer programs, and making things in a way that's good for the environment. The companies that make electric cars are looking for talented people from all around the world because they want to be the best at creating new and cool technology. But there's a little problem – there aren't enough skilled people for all the jobs available. So, the government and schools are trying to help by creating programs to teach people the skills needed for these jobs. They want to make sure there are enough smart and talented people to keep making better and more sustainable electric cars in the future. It's like a big race to see who can make the best and most advanced electric cars, and everyone is working hard to find and train the right people for the job. 8. Explain how labor market trends might impact the company’s operations. The way people work and the jobs they do can affect how a company, like one making electric cars, does its stuff. Imagine the company needs really smart and skilled people to create new car technology. If not enough of these clever folks are around, it can slow down the company's plans. They might struggle to find the right workers to design cool electric cars, make powerful batteries, and use computer programs. This could mean delays in making and selling their products. On the bright side, if lots of skilled people are available, the company can speed up its work and come up with even better ideas. It's like having a team of superheroes who know exactly

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how to make the coolest and most advanced electric cars. So, the company's success depends a lot on how easy or hard it is to find the right workers with the skills they need. General Macroeconomic Analysis 1. Explain macroeconomic trends that might impact the company and/or its industry now or in the future. Consider the following questions to guide your response: A. How could economic output and consumption trends impact the company and/or its industry? B. How have interest rate changes impacted the company? C. How might the current Gross Domestic Product (GDP) and its projected future movement impact the company’s future operations? Economic output and consumption trends play a significant role in influencing Tesla’s business. If the overall economy is doing well, people are more likely to have the financial means to purchase expensive items like EV. On the other hand. During economic downturns, consumers may be more hesitant to make big purchases. Additionally, as EV becomes more mainstream, their affordability compared to traditional cars is crucial. Economic conditions affecting consumers’ purchasing power can impact Tesla’s market penetration. Interest rate changes can influence both consumers and Tesla as a company. Higher interest rates can lead to increased borrowing costs for consumers looking to finance a Tesla purchase, potentially reducing demand. For Tesla as a business, higher interest rates might impact the cost of financing for expansion and operations. On the other hand, lower interest rates can stimulate consumer spending, making it more attractive for people to invest in EV. However,

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companies like tesla need to be cautious about potential inflationary pressures that can accompany low-interest rate environments. GDP is a crucial factor for Tesla, A growing GDP often indicates a robust economy, which can positively impact consumer confidence and purchasing power. This can lead to increased demand for Tesla’s products, Conversely, a shrinking GDP or economic contraction can lead to decreased consumer spending, potentially affecting Tesla’s sales. Additionally, the GDP’s future movement can impact regulatory policies, government incentives, and infrastructure investments, all of which can influence the electric vehicle industry. 2. Identify changes in monetary policy trends that impacted the domestic and/or global economy the company’s operates in. Monetary policy refers to the actions taken by a country’s central bank. The Central bank aims to maintain price stability. If there are concerns about inflation, the central bank may tighten monetary policy. If there are concerns about deflation, the central bank may use expansionary monetary policy. Inflation can impact production costs for Tesla, while deflation can influence consumer spending patterns. 3. Explain how monetary policy changes have affected the company and/or its industry. If there are concerns about inflation, the central bank might raise interest rates to cool down the economy. Inflation can impact production cost for Tesla. On the other hand, expansionary monetary policies designed to combat deflation or stimulate economic growth can influence consumer spending patterns, potentially impacting demand for EV.

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4. Identify changes in trade policy trends that impacted the domestic and/or global economy the company operates in. Changes in trade policies, such as imposition of tariffs or changes in import taxes, can directly affect the cost of importing and exporting goods. For Tesla, which operates globally, tariffs on imported components of finished vehicles can impact production costs and potentially affect pricing profitability. 5. Explain how trade policy changes have affected the company and/or its industry. Trade policy changes, such as imposition of tariffs or changes in import/export regulations, can impact production costs for Tesla. If tariffs are levied on imported components or finished vehicles, it can increase the overall cost structure. This, in turn, can influence pricing strategies, potentially affecting the affordability of Tesla's electric vehicles for consumers. Summary 1. Summarize your findings for the valuation team. Include the following details in your response: A. Explain what you learned as you researched the external factors for the company. B. Identify the key points the valuation team needs to be aware of. In researching external factors for Tesla, I focused on macroeconomic trends, trade policy changes, and monetary policy shifts. I explored how economic output, consumption patterns, interest rates and GDP movement could impact Tesla’s operations. Additionally, I examined how changes in trade policies might affect the company’s global market positioning and supply chain.

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2. Create at least one effective visualization that supports key points. Include the following detail in your response: A. Appropriate labels for the visualization(s). Top 10 EV market share 1. BYD - 2. Tesla - 3. SAIC-GM-Wuling - 4. Volkswagen - 5. BMW - 6. GAC Aion - 7. Li Auto - 8. Changan - 9. Geely - 10. Mercedes-Benz - 2018 2019 2020 2021 2022 0 1 2 3 4 5 6 7 8 INFLATION RATE

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Milestone Three References Pereira, D. (2023, March 3). Tesla SWOT analysis . Business Model Analyst. https://businessmodelanalyst.com/tesla-swot-analysis/ Kane, M. (2023, December 9). Global EV sales maintain record pace of 1.3 million in October 2023 . InsideEVs. https://insideevs.com/news/700033/global-ev-sales-october2023/ Tesla Inc., 10-K. (2022). https://www.sec.gov/Archives/edgar/data/1318605/000095017023001409/tsla- 20221231.htm California Air Resources Board . Zero-Emission Vehicle Program | California Air Resources Board. (n.d.). https://ww2.arb.ca.gov/our-work/programs/zero-emission-vehicle-program StrategyPunk. (2024, January 3). BYD SWOT analysis: Free PPT template and in-depth insights 2024 . https://www.strategypunk.com/byd-swot-analysis-free-ppt-template-and-in-depth- insights-2024/?expand_article=1

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BYD Ltd. (2023.). Mergent Online. Retrieved September 20, 2021, from http://www.mergentonline.com.ezproxy.library.berkeley.org/companydetail.php? Project Assumptions and Rationale In the 2023 column, the current revenue growth for Tesla in 2023 is displayed, additionally, the percentage of revenue attributed to both gross profit and operating expenses are provided. The calculations for these percentages are based on observed trends in Tesla’s financial performance from previous years. The depreciation values, cash used for investment and financing were provided by SEC in 10-k in 2023 , The calculations for 2024 are based on observed trends in Tesla’s financial performance from previous years.

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Discount for Lack of Control The lack of control discount is calculated by comparing the value of a controlling interest in the company with the value of a minority interest in the same company. With Elon Musk holding a 20.5% stake in Tesla, the discount for lack of control remains at 15%. Elon’s ownership, combined with support from key insiders, gives them significant influence over decisions like dividends, pay, sales, and investment, ensuring stability. This control is crucial, as conflicts among owners without majority control could potentially lower the overall value of Tesla. Discount for Lack of Marketability The Discount for Lack of Marketability (DLOM) is a calculation used to determine the value of shares that are closely held or restricted. The Discount for Lack of Marketability (DLOM) remains at the standard rate of 25%. This discount limits the ease of selling shares, encouraging a more restricted ownership structure. Such restriction could be advantageous if Tesla decides to issue dividends to investors. It also provides flexibility for the company to sell shares at a discounted rate in case additional revenue is needed, especially when liquidation is not a viable option.

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Microeconomic and Macroeconomic factor for Tesla Tesla's success is influenced by both internal and external factors. Internally, they focus on meeting demand, setting prices, and efficiently managing production and operations. Paying attention to customer preferences is crucial, given the competition in the market. Externally, Tesla's performance depends on the overall economy, consumer spending, interest rates, global trade policies, and government regulations promoting clean energy. Technological advancements also impact Tesla's strategy. Striking a balance between internal decisions and adapting to broader economic conditions is key for Tesla's growth and success. Customers Behaviors The COVID-19 pandemic changed how people think about buying things, including cars from Tesla. When the virus spread, many people were worried about money and jobs, so they thought twice before spending a lot on things like fancy cars. This made it challenging for Tesla's projections because some folks delayed buying electric cars. However, with more people working from home and thinking about the environment, there was also a boost in interest in

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electric vehicles, which could have helped Tesla in some ways. The virus also affected how Tesla could make and sell cars because of lockdowns and disruptions in how things were usually done. Understanding these changes helped Tesla figure out how to adapt their plans during a challenging time. Analysis Discounted Cash Flow (DCF) valuation of Tesla at $191.15 USD indicates the estimated intrinsic value of the company based on its expected future cash flows. With the latest stock price trading at $195.05 USD the calculated upside or the difference between the DCF valuation and the current market price is -3.3%/ the negative percentage suggests that the stock is trading slightly higher than its estimated intrinsic value. Project References

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TSLA-20231231. (2023). https://www.sec.gov/Archives/edgar/data/1318605/000162828024002390/tsla- 20231231.htm Templatemo. (n.d.). Tesla DCF valuation: Tesla Inc (TSLA) . Tesla DCF Valuation | Tesla Inc (TSLA). https://valueinvesting.io/TSLA/valuation/dcf-growth-exit-5y Dikov, D. (2020, December 8). Terminal value of the business . Magnimetrics. https://magnimetrics.com/terminal-value-of-the-business/ Fernando, J. (n.d.-a). Discounted cash flow (DCF) explained with formula and examples . Investopedia. https://www.investopedia.com/terms/d/dcf.asp Fox, M. (n.d.). Elon Musk’s Tesla ownership is 20.5% with a value of more than $120 billion, new filing shows . Business Insider. https://markets.businessinsider.com/news/stocks/elon- musk-tesla-tsla-stock-shares-net-worth-ownership-stake-2024-2#:~:text=The %2020.5%25%20stake%20is%20slightly%20below%20the%2022%25,are%20exercisable %20within%2060%20days%20of%20December%2031. Kenton, W. (n.d.-b). Discounts for lack of marketability (DLOM): Role in valuation . Investopedia. https://www.investopedia.com/terms/d/dlom.asp#:~:text=The%20consensus %20of%20many%20studies,between%2030%25%20to%2050%25. Tamplin, T. (2023a, July 13). Lack of control discount: Meaning, factors, estimation, impact . Finance Strategists. https://www.financestrategists.com/wealth-management/valuation/lack-of-control- discount/#:~:text=The%20lack%20of%20control%20discount%20is%20calculated%20by %20comparing%20the,applied%20to%20the%20minority%20interest. Valuation Team Report This Valuation Team Report will be submitted separately. Refer to the Project Guidelines and Rubric for submission guidelines.

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ACC 345 Module 7 Business Valuation Template-Violet Bass

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