Introduction
Tesla Motors Company is an American company that designs, manufactures, and sells electric cars as well as components of electric vehicle powertrains. Tesla Motors is also a public company that trades on the NASDAQ stock exchange using the symbol TSLA. The stock exchange of the company has been recently rising tremendously. In the year 2014 the stock of the motor company rose up to nearly 70% and in the last 12 months, the figure incredibly rose up to 618%.
Tesla Motor Company was founded in California's Silicon Valley and was incorporated in July 2003 by two individuals, namely Eberhard and Marc Tarpenning. The company went public in 2010 which consequently raise $226 million and became the first American motor company to go public after Ford motor company in 1956.
The current chief executive officer of the company, Elon musk who conducted a round of funding in 2014 joined the board of directors of the company as the chairman and later managed to take a lead in the series B funding which raised an amount of $13 million. By the year 2008 in the month of February, Tesla had managed to raise a total value of $105 through undertaking rounds of financing led by the chairperson of the board of directors. It had also received a huge amount of government loans from the United States department of energy that amounted to $465 million. The loans from the government were backed by other funding from the equity investment by Daimler-Benz AG, which is responsible for manufacturing of Mercedes model of motor vehicle.
A strategic partnership between tesla and Toyota companies was formed in 2010 as tesla was the first to create the first electric sports car called the Tesla Roadster in 2008. The roadster model of vehicles obtained sales of approximately 2500 vehicles within 31 countries and by June 2013, Tesla had had selling the four door, Model S luxury sedan. In addition to manufacturing and designing their models of vehicles, tesla as well does the marketing of powertrain systems which include battery packs and lithium ion.
Tesla's electric powertrain systems were purchased by Daimler-Benz for the Smart EV and Mercedes A. Toyota also purchased the power train systems for the electric RAV4. Plans to commercialize the electric vehicles are underway through reduction of their prices so as to make them affordable to the consumers at the average levels. The coordinator advocates for the sale of electric vehicles powertrain components to other motor companies so that they manufacture electric vehicles at affordable prices without having to undertake in-house solutions for the development of batteries.
Financial analysis.
Tesla financial position is quite complicated because of its capital structure as well as the methods the company uses to raise its funds. In 2013 May, the company issued $660 million 1.5% convertible senior notes, which were primarily used to retire its %451 million debt which was still outstanding from the department of energy. The price of conversion was approximated to be $124 per share.
The company also into a spread call transaction so as to get rid of the problem of the potential dilutive effect of convertible notes. Tesla bought options with $124 strike price and sold with stock warrants with a strike price of $184. In doing this, Tesla company increased the overall conversion rate effectively from $124 to $185 per share in which at the end of the year 2013 the stock price of Tesla was valued at $150 in December 2013, a figure that was below the effective cost of conversion.
In the recent times, Tesla issued convertible notes that were worth $2 billion in total at the market rate of 1.25% and 0.5%. However, the company still targets to use the cash mainly for the building and construction of the $5 billion mega factories whose plans are underway.
The economies of scale in production, however, lead to a drop in the company's percentage of the cost of goods sold. In 2012, the cost of goods sold were 86% while in 2013 it had dropped to 72%. Tesla then made strategies of countering the problem to start making the company profitable by reducing its net loss to $74 million only (Carlson and Robertson, 2014). Over the recent past five years, there was an achievement of 78% annual compound growth rate in the revenue and that of gross profit was 117%. Tesla Motor Company is still expected to continue in the expansion of its growth and size as it is ramping up its production b construction of its mega factory and locking up more suppliers for their electric vehicles and powertrains.
Tesla Motor Vehicle Company started offering a resale value guarantee to all of its customers who bought a Model S in the United States and financed their vehicle through one of its specified partners in the commercial banking sector. Under the company's program, customers of model S vehicles have the choice of selling their vehicle back to the company for between 36 to 39 months after delivery of the vehicle for a pre-determined value of resale.
Tesla then received the full amount of cash for the price of sales at the time of delivery but only gives a recognition and defers the revenue using the straight-line basis over the term of the contract of the guarantee program (Van & Automotive Career Development Center, 2013). Tesla also capitalizes and depreciates the cost of electric vehicles that were sold under the program of guarantee resale value over a particular period that is specified.
Regarding the balance sheet of the company, Tesla has managed to double its assets over the past one year. Overall, it has achieved 44% cost of goods resold in assets, 57% in long-term debt and 19% in the books of equities. The quick ratio of Tesla showed a definite increase from 2012 to 2013 as well as the current ration. This shows that the company had a strengthened liquidity in the short term. The debt to equity ratio historically to as low as 3% because of the outstanding performance of Tesla motor company in the stock market.
In 2013, tesla's growth was valued at $151.1 at the end of the financial year, making the company a top performer as well as a rising star before the eyes of managers of the hedge fund. The ratio analysis from the balance sheet of Tesla Company do not provide enough value because the company is not profitable by most measurements.
Industry competition
The Tesla motor industry if very competitive in its automobiles industry having long established households like Honda, Ford, Daimler-Benz and Toyota. Tesla does not face much of direct competition because of its market niche for high performance in pure electric vehicles. The rival companies might be competing in devoting more resources to research and development of the electric pure vehicle which ends up posing a very high competition in the automobiles industry.
However, Tesla is still far much ahead of its competitors in the area of electric vehicles. The reason for this is that it carries more focus on production, manufacturing and designing of electric vehicles as the other competitors concentrate on the bridging of technological gap with much greater resources which is quite costly to handle. Tesla intends to become the dominant player in the automobiles industry through its long term strategy of building the Giga factory signal of production of lithium ion battery.
SWOT ANALYSIS
Strengths.
Management.
Tesla is an automobiles company that offers the customer a unique experience. The administration of the company differentiates itself from the management of other cars companies as it accelerates the world's transition to electric vehicles. It also focuses on making electric vehicles for their esteemed customers as well as produce a technology that will reduce the price of electric cars to be made available to potential clients. The management also dwells on the strong back up from the shareholders of the company.
Reputation and awards.
Being a technologically advanced electric vehicle in the current world, Tesla had had most awards of their products which have consequently built up its company reputation. It has become a symbol of status throughout the city of California, and its prestigious status is spread across the country and individuals who are up to the prestigious vehicles have no substitute for Tesla Motor Company.
First mover advantage
The industry producing electric vehicles has a greater opportunity for more significant growth. Tesla has 250 patents that cover the model S with more pending, and the success of the model will be hard to duplicate and therefore it gives the company a competitive advantage. The strategic partnerships with other automobile companies provide Tesla an assurance that its products in vehicles will be more. Another advantage of the enterprise is of the strategic construction of the Giga factory.
Direct sales
Tesla Company won the people's thoughts on electric vehicles and after doing so, they devised a new way of selling and delivering the vehicles to the customers. In normal circumstances, vehicles from car manufacturers are provided through a third party dealer but for the case of Tesla, it provides its vehicles to the customers through a more unconventional way of selling directly to the consumers without having a third party dealer.
Weaknesses.
The greatest weakness that faces Tesla motor company is the potential downfall of not being in a position to produce enough electric vehicles for the more significant rising number of potential customers. Despite the strategies laid down to increase manufacturing and designing of new electric vehicles, Tesla might not be able to handle the increasing demand for the cars that they produce every year. It can be challenging to continue ramping up production of electric vehicles as manufacturing is always an extensively first extensive process that requires huge amounts of costs to cater for the infrastructure. This is a hazardous undertaking for a company that has a new product in the nascent industry.
Another weakness that challenges the Tesla Company is the difficulty in the making of targeted profits of the enterprise. However, the company had made its quarterly profits in 2013, but it is still a current pressure to cope up with the pace of maintaining profits at a significant level as well as register new benefits shortly.
Factors affecting the industry.
The threat of complements and substitutes.
The company if being affected by the potential customer's choice of being able to replace the products they buy from the enterprise with other products most likely from other automobile companies from the same industry. For instance, some customers would wish not to go for the Nissan Leaf and the Ford focus, which are commercialized fully electric cars but do not exhibit the performance capabilities of the Model S. Other performance vehicle producers like the Daimler-Benz and BMW have not yet produced fully electric sport vehicles which other manufacturers like the German producers are able to design and develop.
The intensity of the already existing competition.
Another factor that has greatly affected the performance of the Tesla motor company is the intensity of the competition that existed before the upcoming of the manufacturing company. This is because individuals who had already liked a particular model from a manufacturer who existed before the formation of Tesla company will find it hard to switch to the new products of the newly established motor vehicle company.
Regulation
Rules of the motor industry may also affect the performance of the Tesla Company because in some instance, the regulations of the automobile industry might not favor the operations of the companies. For example, it can limit the amount of sales they are making in the external countries as well as the models they design for the potential customers.
Economic cycles
Some economic times become so harsh for many companies in developing their products as well as expanding their growth through the sales they make to their customers. Weak economic times have negatively affected the profitability of the Tesla company through the low sales they make during the poor economic times.
In conclusion, the Tesla motor company is quite a profitable business from the financial analysis made on the financial statements of the enterprise. It is therefore recommended that individuals willing to invest in the companies in either the bonds or securities to do so comfortably. The company also is analyzed to be well performing in trading on the NASDAQ stock exchange.
The company as well is not subject to extreme competition or pressure of prices because it is a company that is strategically planned throughout its stages of production. It therefore does not suffer from the economic extremities like the downfalls. The company is also a leader in the industry where it sets a certain level of output and in which other related industries will follow. It bears a distinct advantage over other industry participants because it has a rich history of producing quality electric vehicles. The prices they also charge their customers on their customers is also reasonably low and thus, they gain a more competitive advantage over their fellow industry participants.
References.
Carlson, W. B., & Robertson, A. (2014). Tesla: Inventor of the electrical age.
United States. (2009). Sec. Chu Announces the First Auto Loans for Advanced Technologies.
Oak Ridge, Tenn: distributed by the Office of Scientific and Technical Information, U.S.
Dept. of Energy.
Van, B. C., & Automotive Career Development Center. (2013). Understanding hybrid and
electric vehicle service and technology
