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2010 Goldman Sachs Case CompetitionTeam 37 Presentation

Jack Wei | Jinghao Yan | Arjan Puniani | Roy Liu

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In-house processingfrom start to finish

Design Engineering Manufacturing Distribution Sales

Integrated Automobile Firm

Powertrain

technology

Core Competency

Unlike its rivals, Teslaowns its dealerships

Sales and Distribution

Overview of TeslaTesla is a vertically-integrated new-technology automobile firm

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Political points

Government BackstopGovernment support is mutually-beneficial

Goal: re-ignite, prop up automobile industry

Score political points via green tech and jobs

Cheap loans are an indirect government subsidy

Political suicide to let Tesla fail and default

Goal: to be green leader in auto industry

Government support lends credibility to Tesla

Expensive investments mitigated by cheap debt

Loan guarantees encourage bank lending

Loan guarantees incur zero upfront cost

Government

Tesla

Governments interests are directly aligned with Teslas

Auto industry

GreenInvestments

Jobs

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Assessment of ForecastIs managements forecast realistic?

Revenue Units Sold (Model S) EBITDA Margins

$142

$782

$2,010

$2,416

2011E 2012E 2013E 2014E

(in millions)

0

10

20

30

2012E 2013E 2014E

(in thousands)

Weighted ARPU Model S Sales Projection

20,000 annual target

beginning 2013 plausible $84,716 in 2013

$84,801 in 2014

Comparable to other

premium sedans

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Opportunities Risks

Superior Technology

Industry leader in EV powertrains, car batteries

Vehicle performance on par with Mercedes

Upside and Downside RisksOpportunities and risks associated with valuation and IPO

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

Expansion Uncertainties

Uncertainty in 2012 debut of Model S

Design specs are still pending final review

From Niche to Mass Production

The Model S is expected to be high-volume

Lack of Infrastructure

Lack of ubiquitous charging stations inconvenient

Public policy unable to match Teslas ambitions

Unclear Future Competitive Landscape

Established, well-funded rivals expected to enter

Unrealistic production plan with current facilities

Disruptive technologies may alter landscape

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Assessing IPO NeedAn IPO is crucial to Teslas success

Why an IPO? Why now?

The IPO is necessary because even with DOEs generous loans, Tesla stillneeds critical cushion and financing to successfully launch the Model S by 2012

* Detailed projections included in appendix

In full compliance with DOEterms and company needs

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IPO TimingRecent IPOs have been grossly underpriced

$861

$1,218

$2,573

$1,345

$1,008

Jan Feb Mar Apr May

Year-to-Date Monthly IPOs(in millions)

IPO Pricing Trends

0%

25%

50%

75%

100%

Jan Feb Mar Apr May

Below In-Range Above

Tesla is largely an American company

Tesla targets the affluent least affected

DOE loan unaffected by overseas crisis

S&P 500 has fallen 10% since early April

IPO volume peaked in March; at year lows

Increases Teslas cost of equity

But,

>40% of IPOs are under-priced

IPO amounts should be significantly higher

Strong IPO possible despite economic woes

European Debt Crisis Overblown

Jittery Capital Markets

Tremendous IPO Mis-Pricing

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Strategic Capital RaisingTesla should plan its capital raising strategically

Phase 1 Phase 2 Phase 3

Initial Public Offering

Amount: $175m

DOE Loan Draw

Amount: $165m

Jun-Aug, 2010

Jun, 2010

Secondary Offering

Amount: $85m

DOE Loan Draw

Amount: $225m, $75m

Jun-Aug, 2012

2011, early 2012

Secondary Offering

Amount: $50m

DOE Loan Pay-down

($36m), ($97m), ($121m)

Jan-Mar, 2014

Dec 2012, 2013, 2014

To comply with DOE loan restrictions on

liabilities/shareholders equity ratio starting in 2014Secondary Offering (2014)

Extra financial cushion for the Model S debut in 2012. Imminent Model S

launch increases investor confidence and our valuationSecondary Offering (2012)

No additional debt beyond DOE loans due to low credit rating. Pay down debt

as FCF explodes to improve capital structure, minimize idle cashDebt Financing (2010-2012)

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Discounted Cash FlowComputing the value using DCF

-1,000

0

1,000

2,000

3,000

2009 2010 2011 2012 2013 2014

Revenue and CFO

Revenue CFO

DCF

We apply a dynamic Re as we believe earningsnormalization and large cash flows starting in 2013will reduce risks to slightly above industry averages

(in millions)

(in millions)

-400

-200

0

200

400

2010 2011 2012 2013 2014

Key Assumption

GrowthTerminal Growth Rate 5%

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Multiples AnalysisComparables analysis

EV/EBITDA Multiple

Multiples Valuation

* Weighted average of each company from 2010-2013

EV/Sales Multiple

* Weighted average of each company from 2010-2013

(in millions)

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15% 17.50% 20% 22.50%

4% 1251 996 823 710

5% 1509 1152 933 784

6% 1905 1368 1068 877

7% 2585 1684 1251 996

SummaryTesla should proceed with an IPO

Tesla needs time-sensitive capital

Expansion scheduled for 2012

IPO Need

DOE loans, while hefty, are inadequate

TerminalGrowth

Cost of equity 2015+

Sensitivity Analysis (DCF valuation in millions $)

Unrivaled technology and designs

Second-to-none brand recognition

Tesla Deserves a Premium

Huge potentials with Powertrain

Raise no more than required amount

Secondary offerings in 2012, 2014

Compliance with DOE terms necessary

Strategic Capital Raising

Model S rollout is delayed

Margins fail to meet expectations

No experience with mass production

Potential Risks

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Appendix

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Key AssumptionsKey assumptions and methodologies

Dynamic Equity Cost of Capital (Slide 9) We believe that Teslas 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, Teslas 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 (May2010).

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 years DCF value is incorporated into the DCF value.

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Income StatementTeslas Projected Income Statement

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Statement of Cash FlowTeslas Projected Statement of Cash Flow

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Balance SheetTeslas Projected Balance Sheet

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EV/EBITDA MultiplesComparables

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Prices, ProductionTeslas Projected Units and ARPUs

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Revenue BreakdownDetailed View of Teslas Revenues