2010 Goldman Sachs Case Competition Team 37 Presentation Jack Wei | Jinghao Yan | Arjan Puniani | Roy Liu

Overview of Tesla

Tesla is a vertically-integrated new-technology automobile firm Design Engineering Manufacturing Distribution Sales

Integrated Automobile Firm

In-house processing from start to finish

Core Competency Powertrain technology Sales and Distribution

Unlike its rivals, Tesla owns its dealerships

Government Backstop

Government support is mutually-beneficial

Government

• • • • Goal: re-ignite, prop up automobile industry Cheap loans are an indirect government subsidy • Score political points via “green tech” and “jobs” Political suicide to let Tesla fail and default Loan guarantees incur zero upfront cost

Tesla

• • Goal: to be green leader in auto industry Expensive investments mitigated by cheap debt • Government support lends credibility to Tesla • Loan guarantees encourage bank lending Government’s interests are directly aligned with Tesla’s Political points Auto industry Green Investments

Jobs

Assessment of Forecast

Is management’s forecast realistic?

Revenue

(in millions) $2 010 $2 416 $782 $142 2011E 2012E 2013E 2014E 30

Units Sold (Model S)

(in thousands) 20 10 0 2012E 2013E 2014E

Weighted ARPU

• $84,716 in 2013 • $84,801 in 2014 • Comparable to other premium sedans

Model S Sales Projection

• 20,000 annual target beginning 2013 plausible • <1% of global premium sedan market •

Mass production at NUMMI EBITDA Margins

22,9% 16,5% 15,3% 12,2% 10,1% Industry Average

11.4%

5,8%

EBITDA Margins Optimistic

• Management forecast puts EBITDA margins at 16.5% • • Median industry margins 11.4% Full integration may facilitate 5% additional margin

Upside and Downside Risks

Opportunities and risks associated with valuation and IPO

Opportunities Superior Technology

• • Industry leader in EV powertrains, car batteries Vehicle performance on par with Mercedes

Public Validation

• • Low-interest DOE loan provides financial health In-line with green jobs agenda

Seasoned Management

• • Veteran executives with rich history of innovation Experienced in partnering with industry leaders

Unrivaled Brand Recognition

• • Long waitlist for cars not available until 2012 Large down payments secure consumer loyalty

Risks From Niche to Mass Production

• • The Model S is expected to be high-volume Unrealistic production plan with current facilities

Expansion Uncertainties

• • Uncertainty in 2012 debut of Model S Design specs are still pending final review

Lack of Infrastructure

• • Lack of ubiquitous charging stations inconvenient Public policy unable to match Tesla’s ambitions

Unclear Future Competitive Landscape

• • Established, well-funded rivals expected to enter Disruptive technologies may alter landscape

Assessing IPO Need

An IPO is crucial to Tesla’s success

Why an IPO? Why now?

The IPO is necessary because even with DOE’s generous loans, Tesla still needs critical cushion and financing to successfully launch the Model S by 2012 In full compliance with DOE terms and company needs * Detailed projections included in appendix

IPO Timing

Recent IPOs have been grossly underpriced (in millions)

Year-to-Date Monthly IPOs

$2 573 $861 $1 218 $1 345 $1 008

Jan Feb Mar Apr May IPO Pricing Trends

100% 75% 50% 25% 0%

Jan

Below

Feb Mar

In-Range

Apr

Above

May European Debt Crisis… Overblown

• Tesla is largely an American company • Tesla targets the affluent… least affected • DOE loan unaffected by overseas crisis

Jittery Capital Markets

• S&P 500 has fallen 10% since early April • IPO volume peaked in March; at year lows • Increases Tesla’s cost of equity

But, Tremendous IPO Mis-Pricing

• >40% of IPOs are under-priced • IPO amounts should be significantly higher •

Strong IPO possible despite economic woes

Strategic Capital Raising

Tesla should plan its capital raising strategically

Phase 1 Initial Public Offering

• Amount: $175m • Jun-Aug, 2010

DOE Loan Draw

• Amount: $165m • Jun, 2010

Debt Financing (2010-2012) Secondary Offering (2012) Secondary Offering (2014) Phase 2 Phase 3 Secondary Offering

• Amount: $85m • Jun-Aug, 2012

DOE Loan Draw

• Amount: $225m, $75m • 2011, early 2012

Secondary Offering

• Amount: $50m • Jan-Mar, 2014

DOE Loan Pay-down

• ($36m), ($97m), ($121m) • Dec 2012, 2013, 2014 No additional debt beyond DOE loans due to low credit rating. Pay down debt as FCF explodes to improve capital structure, minimize idle cash Extra financial cushion for the Model S debut in 2012. Imminent Model S launch increases investor confidence and our valuation To comply with DOE loan restrictions on liabilities/shareholder’s equity ratio starting in 2014

Discounted Cash Flow

Computing the value using DCF

Revenue and CFO

3 000 (in millions) 2 000 1 000 0 -1 000

2009 2010 2011 2012

Revenue CFO

2013 2014 DCF

400 (in millions) 200 0 -200 -400

2010 2011 2012 2013 2014 Key Assumption

We apply a dynamic R e as we believe earnings normalization and large cash flows starting in 2013 will reduce risks to slightly above industry averages

Growth Terminal Growth Rate 5%

Multiples Analysis

Comparables analysis

EV/EBITDA Multiple EV/Sales Multiple

* Weighted average of each company from 2010-2013 * Weighted average of each company from 2010-2013

Multiples Valuation

(in millions)

Summary

Tesla should proceed with an IPO

IPO Need

• Tesla needs time-sensitive capital • • DOE loans, while hefty, are inadequate Expansion scheduled for 2012

Tesla Deserves a Premium

• • • Unrivaled technology and designs Huge potentials with Powertrain Second-to-none brand recognition

Strategic Capital Raising

• • • Raise no more than required amount Compliance with DOE terms necessary

Secondary offerings in 2012, 2014 Potential Risks

• • • Model S rollout is delayed No experience with mass production Margins fail to meet expectations

Sensitivity Analysis (DCF valuation in millions $) Cost of equity 2015+

4% 5% 6% 7%

15%

1251 1509 1905 2585

17.50%

996

1152 1368

1684

20%

823

933 1068

1251

22.50%

710 784 877 996

Appendix

Key Assumptions

Key assumptions and methodologies • • • • • • •

Dynamic Equity Cost of Capital (Slide 9)

We believe that Tesla’s high cost of capital (25%) is only applicable until it begins generating sustainable FCFs, starting in 2013. If Tesla reaches that point, its risks are significantly reduced Therefore, Tesla’s cost of capital should only be a little above industry averages as its risk level is not necessarily higher, and it has a much more inexpensive source of debt financing than its peers. •

Lack of Additional Capex Investment Opportunities

Tesla will have large free cash flows starting 2013 and cheap debt financing, so if a good investment opportunity arises, it is able to leverage its source of cheap debt and free cash flows to take advantage of such an opportunity.

•

Relative Weighting of Different Competitor-groups

We weighted the 2010-2012E ratios for each of our competitor groups, and weighed each of those values by 20%, 40%, 40% because we believe that is the most comparable to Tesla in terms of market and industry correlation.

•

Computing Market Value Using Comparables

We chose 2014 (the first “normal” year for Tesla) to compare, and discounted that value to the present day (May 2010).

•

Discounting Starting Mid-Year

Our DCF models assume a valuation mid-year (June) of 2010. Therefore, the discounting periods are half-year shifted, and only half of the first year’s DCF value is incorporated into the DCF value.

Income Statement

Tesla’s Projected Income Statement

Statement of Cash Flow

Tesla’s Projected Statement of Cash Flow

Balance Sheet

Tesla’s Projected Balance Sheet

EV/EBITDA Multiples

Comparables

Prices, Production

Tesla’s Projected Units and ARPUs

Revenue Breakdown

Detailed View of Tesla’s Revenues