Financial Analysis of Tesla Motors, Inc

Financial Analysis of Tesla Motors, Inc Gifford 1
Financial Analysis of Tesla Motors, Inc
Michael Gifford
December 6, 2016
Table of Contents
Business Model.............................................................................................................................. 2
Company Overview..................................................................................................................... 2
Future Business Plans.................................................................................................................. 2
Mergers and Acquisitions............................................................................................................ 3
Industry Outlook ......................................................................................................................... 4
Analysis.......................................................................................................................................... 5
Fundamental Analysis................................................................................................................. 5
Fundamental Analysis Summary............................................................................................. 9
Technical Analysis ...................................................................................................................... 9
Technical Analysis Summary................................................................................................ 13
Valuation ................................................................................................................................... 13
Discounted Cash Flow Model ............................................................................................... 13
Relative Valuation Model...................................................................................................... 14
Bankruptcy Analysis ................................................................................................................. 15
Altman Z Score...................................................................................................................... 15
Ohlson O Score...................................................................................................................... 16
Bankruptcy Summary............................................................................................................ 16
Investor Consideration............................................................................................................... 17
Lender Consideration................................................................................................................. 17
Acquisition Consideration.......................................................................................................... 17

Business Model
Company Overview
Tesla Motors (Tesla, TSLA) is an American electric vehicle manufacturer and energy
storage company founded in July of 2003.1
It currently sells a luxury sedan called the Model S
and a luxury SUV called the Model X. Production begins in January of 2017 for the next
iteration of the Tesla brand - the Model 3. Tesla ended quarter 3 with a positive net income of
$21,878,000 - only the second since the firm’s inception 13 years ago. This rare showing of
profitability can be partially attributed to CEO Elon Musk’s August 29 email when he urged
employees that it was Tesla’s “last chance to show investors that Tesla can be at least slightly
positive cash flow and profitable before the Model 3 reaches full production.” 2
This
correspondence indicates Musk’s expectation to incur a loss in the next 2+ quarters while
production for the Model 3 is increasing. Another source of revenue was the increased sales of
the Model S from 5,756 models sold in Q3 2015 to 9,156 in Q3 2016.3
This 59% increase in
Model S unit sales is responsible for Tesla’s 32% market share in the US Large Luxury Sedan
market.4
Despite earning a profit, Tesla’s cash and cash equivalents dropped from Q2 2016
$3,246,301,000 to $3,084,257,000 in Q3 2016 which went towards capital expenditures to be
able to meet production demands.
Future Business Plans
Tesla has accomplished its original business plan which was to sell a sports car to fund
building a more affordable car to fund an even more affordable car while providing zero
emission power generation options.5
However, this was accomplished almost entirely by
financing versus turning a profit. In the future, Tesla intends to “1) Create stunning solar roofs
with seamlessly integrated battery storage. 2) Expand the electric vehicle product line to address
all major segments. 3) Develop a self-driving capability that is 10X safer than manual via
1
https://www.tesla.com/about
2
https://www.bloomberg.com/news/articles/2016-09-06/full-text-of-elon-musk-s-aug-29-e-mail-to-tesla-employees
3
https://www.bloomberg.com/news/articles/2016-10-12/tesla-dominates-u-s-luxury-sedan-sales
4
https://www.bloomberg.com/news/articles/2016-10-12/tesla-dominates-u-s-luxury-sedan-sales
5
https://www.tesla.com/blog/secret-tesla-motors-master-plan-just-between-you-and-me?redirect=no

massive fleet learning. 4) Enable your car to make money for you when you aren’t using it.” 6
Following past trends, Tesla will likely finance its future research and developmental costs.
Mergers and Acquisitions
May 7, 2015 marked Tesla’s first acquisition announcement since its founding in 2003.
The company acquired Riviera Tool LLC based out of Michigan for $12,260,000 to aid with
injection molding and die casting.7
Riviera Tool LLC changed its name to Tesla Tool and Die as
a result of the acquisition.
On November 17, 2016, Tesla shareholders voted to finalize the vertically integrated
merger of SolarCity (SCTY) for a $2.6 billion all stock deal. SolarCity is a solar energy
infrastructure provider. SolarCity, like Tesla, struggles with profitability and has Musk seated as
a chairman. SolarCity has never been profitable since its founding on July 4, 2006. It was
merged with Tesla to “operate more efficiently and fully integrate [their] products” because they
were typically sold in tandem.8
SolarCity’s solar roofs will direct energy into Tesla’s batteries
enabling both cars and homes to run on solar power. This deal completed Tesla’s original
business plan and completed the first point of Tesla’s “Master Plan: Part Deux.” Barclays best
described the deal as “a lean mean cash burning machine for TSLA; a life-line for SCTY” in a
June 22, 2016 report.9
On November 8, 2016, Tesla announced plans to acquire Grohmann Engineering to
increase production. Grohmann Engineering provides automated manufacturing solutions and is
based out of Plüm, Germany. With the acquisition of Grohmann, Tesla will have accelerated
production which will be needed for on-time delivery of its Model 3. The acquisition will be
finalized in early 2017.10
6
https://www.tesla.com/blog/master-plan-part-deux
7
https://www.zacks.com/stock/news/174392/tesla-tsla-acquires-michiganbased-riviera-tool
8
https://www.tesla.com/blog/tesla-and-solarcity-combine
9
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2016/06/04/SCTY%20BARC.jpg
10
https://www.tesla.com/blog/formation-of-tesla-advanced-automation-germany

Industry Outlook
Tesla primarily engages in the automotive industry and it currently holds 0.3% market
share of the automobile market.11
The automotive industry is expected to continue to average 3%
annual growth; however, the electric vehicle portion of the market is expected to outpace
vehicles powered by an internal combustion engine.12
Tesla entered the energy storage industry
in April 2015 with its Powerwall. The market for storing solar energy is expected to grow to $19
billion in 2017 from $200 million in 2012.13
SolarCity brings Tesla 34% market share of
residential solar system applications and 22% of commercial installations over 2014 and 2015.14
The solar industry has grown 43% year over year as of Q2 2016.15
Each segment of Tesla’s business provides growth opportunities, but come with the
typical risk inherent with all emerging markets. Therefore, Tesla is engaging in volatile but
growing markets.
11
http://online.wsj.com/mdc/public/page/2_3022-autosales.html
12
http://www.mckinsey.com/industries/automotive-and-assembly/our-insights/a-road-map-to-the-future-for-the-auto-industry
13
http://energystorage.org/energy-storage/facts-figures
14
http://www.investopedia.com/articles/insights/042816/solar-wars-solar-city-vs-verengo-solar-vs-sungevity.asp
15
http://www.seia.org/research-resources/us-solar-market-insight

Analysis
Fundamental Analysis
Tesla Motors has experienced rapidly
growing revenues each year since 2007. The
growth rate of revenue was its lowest at 4%
growth in 2010 and peaked at 20,095% in
2008 when it was $14,742,000 in 2008 and
$73,000 in 2007. In 2015, total revenues
amounted to over $4 billion at a growth rate
of 27%. Over the same period, Tesla has
been unable to achieve a positive annual net
income. Its largest net loss was realized in
2015 at $888,663,000 which is over three
times its 2014 net loss of $294,040,000. See
table to right.
In addition to net income becoming
increasingly negative, net cash flows from
financing are growing at a greater rate. See graph “Net Financing Consistently Outpacing Net
Income” below. Net cash flows from financing activities amounted to more than $1.5 billion in
2015 and are
projected to be
$2.57 billion in
2016. The slope
of the net
financing data
in a linear
regression is
positive $250
million annual
increase
contrasting the linear regression slope of net income at negative $80 million per year. For
Year
Revenue
(thousands of
USD)
Year Over
Year
Growth
2007 $73 N/A
2008 $14,742 20,095%
2009 $111,943 649%
2010 $116,744 4%
2011 $204,242 75%
2012 $413,256 102%
2013 $2,013,496 387%
2014 $3,198,356 59%
2015 $4,046,025 27%
2016
Projected
$5,881,400 45%
Net cash flows
from financing
activities,
$2,568,268.00
Net income (loss),
$(738,102.67)$(1,500,000.00)
$(1,000,000.00)
$(500,000.00)
$-
$500,000.00
$1,000,000.00
$1,500,000.00
$2,000,000.00
$2,500,000.00
$3,000,000.00
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Thousands
NET FINANCING CONSISTENTLY OUTPACING
NET INCOME

comparison’s sake, the slope found for income from operations is negative $52 million per year
and the data is closely aligned to net income with a correlation coefficient of 0.92.
On average from
2007, total liabilities have
been growing
$916,240,260 per year,
total assets have been
growing at $1,087,770,810
per year, and stockholder’s
equity has been growing
$191,995,740. See table
above for a minimalist
breakdown of the balance
sheet data. Total liabilities
are growing at almost the same rate as total assets, but growing 4.77 times faster than total
equity. This is not a new trend, but representative of Tesla’s financial statements since first
available in 2007. See graph above “Liabilities Growth on Par with Assets” for a visualization.
2014 2015 2016 Projected
Total Assets $5,849,251,000 $8,092,460,000 $11,217,683,670
Total Liabilities $4,879,345,000 $6,961,471,000 $9,130,287,330
Total Stockholder’s
Equity
$911,710,000 $1,088,944,000 $2,057,049000
$(2,000,000.00)
$-
$2,000,000.00
$4,000,000.00
$6,000,000.00
$8,000,000.00
$10,000,000.00
$12,000,000.00 2007
2009
2011
2013
2015
Thousands
Years
LIABILITIES GROWTH ON PAR WITH
ASSETS GROWTH
Total assets
Total liabilities
Total
stockholders'
equity (deficit)

An inspection of retained earnings versus operating expenses shows a stark division in
trends of the two datasets. See chart to below/right “Accumulated Deficit Increasing, Operating
Expenses Increasing.”
Retained earnings
(accumulated deficit)
have become
increasingly negative
since its first record in
2008 due to a
consistent net loss.
Operating expenses
have only increased
over the same period due to increased production and ambitious growth trajectories.
2016 Statements
So far in 2016, Tesla has been financing itself in preparation for growing costs of
operating, for the bailout of merger with SolarCity, and for the acquisition of Grohmann
Engineering. In Q2 2016, the company financed $1,976,584 net and 96% of it went right to cash.
This may be a preemptive measure to hedge against the risk of not receiving funding when
necessary in the future due to higher default risks (assuming risk increases solely with debt -
ignoring the emerging market that Tesla is pioneering and delays in production/other
expenditures/other issues). See table below for selected data from the quarterly statement of cash
flows.
Cash Flows Q1 2016 Q2 2016 Q3 2016
Net Cash Flows from
Financing Activities
$715,435,000 $2,692,019,000 $2,371,149,000
Cash and Cash Equivalents
Beginning of Period
$1,196,908,000 $1,196,908,000 $1,196,908,000
Cash and Cash Equivalents
End of Period
$1,441,789,000 $3,246,301,000 $3,084,257,000
Retained earnings
(accumulated
deficit),
$(3,064,066.00)
Total operating
expenses,
$2,384,135.82
$(4,000,000.00)
$(3,000,000.00)
$(2,000,000.00)
$(1,000,000.00)
$-
$1,000,000.00
$2,000,000.00
$3,000,000.00
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
THOUSANDS
ACCUMULATED DEFICIT INCREASING,
OPERATING EXPENSES INCREASING

In Q3, Tesla realized a profit of $21,878,000 reducing its 2016 Q1:Q3 loss to
$553,577,000. It reported Q3 assets of $12,592,397,000, liabilities of $9,900,639,000, and
stockholder’s equity of $2,680,488,000. The company reported growing revenues each quarter.
Q3’s revenue of $2,298,436,000 was 2.004 times the revenue reported in Q1 of $1,147,048,000.
When compared to competitors’ mean fundamental ratios, Tesla seems to be lagging.
Profitability, liquidity, debt management, and asset management ratios have been provided by
Mergent Online, then averaged across the competition and over 2 years to find a mean value.16
Tesla’s competitors were listed as: General Motors Company; Ford Motor Company; WABCO
Holdings, Inc; Gentherm, Inc; Spartan Motors, Inc; ZAP. When the standardized ratios between
Tesla and its competition mean were analyzed, Tesla had the less favorable overall result for
2015 alone and the 2014-2015 mean. For 2015, Tesla had 1 favorable ratio versus 16
unfavorable ratios. For 2014-2015 mean, Tesla had 3 favorable ratios versus 14 unfavorable
ratios. ‘Favorable’ for the context of this analysis is defined as the better ratio between Tesla and
the competition mean and does not necessarily mean the given ratio is favorable in a standalone
setting. This comparison implies that Tesla has arrived at a worse standing in 2015 than it had
been in 2014. See the results in the table below.
16
http://www.mergentonline.com/login.php
Tesla 2015 Competition 2015
Mean
Tesla 2014 & 2015
Mean
Competition 2014 &
2015 Mean
Profitability Ratios
ROA % (Net) -12.75 1.93 -9.93 2.99
ROE % (Net) -88.84 20.91 -63.045 21.02
ROI % (Operating) -20.18 -4.05 -14.135 -0.86
EBITDA Margin % -11.85 1.84 -6.38 2.24
Revenue per Employee $309,850 $353,290 $312,309 $365,561
Liquidity Ratios
Quick Ratio 0.48 1.30 0.745 1.19
Current Ratio 0.99 1.67 1.255 1.60
Net Current Assets % TA -0.31 2.42 9.175 3.68
Debt Management
LT Debt to Equity 1.87 1.03 1.93 0.91
Total Debt to Equity 2.46 1.43 2.565 1.31

Fundamental Analysis Summary
At best, Tesla Motors is in questionable financial standing. It has been financing larger
sums of money annually while its annual net income has never been positive. Its liabilities are
growing at a similar rate to its assets even though 79% of assets are already comprised of
liabilities as of Q3. Operating expenses are a major source of cash outflow and have increased
every year since inception. Return on assets, return on equity, return on investment, and earnings
before interest, taxes, depreciation, and amortization margin were each negative by at least
11.85%. ROE was negative 88.84% for 2015. From a fundamental perspective, Tesla may be in
trouble.
Technical Analysis
In 2016 YTD (12/2/16 close), TSLA has been underperforming the market by 27.68%.
TSLA has lost 18.77% of its share value since January 4 whereas the S&P 500 has gained 8.91%
over the same period. However, Tesla sold 40.75 million shares of common stock this year.17
Accounting for this new share issuing shows a change in market capitalization of positive 6.41%.
This doesn’t help the investors who bought Tesla Motors on January 4 in their 18.7% loss, but
does show that the company had gained value at a positive rate less than the S&P 500’s return
over the same period. This loss is influenced by the high number of newly issued common shares
17
https://ycharts.com/companies/TSLA/shares_outstanding
Asset Management
Total Asset Turnover 0.58 1.11 0.675 1.12
Receivables Turnover 20.46 6.90 21.83 7.38
Inventory Turnover 2.8 8.82 3.19 8.98
Accounts Payable
Turnover
4.78 12.03 5.345 11.99
Accrued Expenses
Turnover
11.7 12.51 14.33 12.66
Property Plant & Equip
Turnover
1.55 6.11 2.02 6.20
Cash & Equivalents
Turnover
2.61 41.11 2.465 22.00

diluting the value of holding a share. The security is somewhat more volatile than the S&P 500
and a has a beta of 1.22.18
See the graph below for a visualization of YTD return between the
S&P 500 and TSLA.
Based on Tesla’s competitor security data, TSLA may be overvalued. The data below is
sourced from Yahoo! Finance, then the competitor mean and sample standard deviation values
were found. TSLA showed a trailing PE, PEG, Beta, 52-week return, and ROA that were each
less favorable than the competitor’s respective mean yet has a P/B which is more than 3 times
the mean and 2.87 standard deviations above the mean! However, this result is incredible due to
the limited number of companies – just six – identified as competitors by Mergent Online and
therefore cannot be deemed conclusive evidence of an overvalued security. See the table below
for the data.
18
https://finance.yahoo.com/quote/TSLA/?p=TSLA
S&P YTD Return,
8.91%
TSLA YTD Return,
-18.77%
-40.00%
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
2016YTDRETURN
TSLA Underperforming S&P 500

Company Tesla Competitor Mean Standard Deviation
Symbol TSLA (sample STD)
Market Cap $33,110,000,000 $18,258,418,333 $27,478,665,202
Enterprise Value $27,940,000,000 $21,395,688,333 $44,386,945,848
Book Value (based on 200-day MA) $3,348,906,698 $13,940,546,666 $19,101,206,908
Share Outstanding 172,170,000 1,018,726,500 1,529,299,701
Price/Book 10.75 3.08 2.67
Trailing Price/Earnings (30.41) (18.58) 70.65
Price/Earnings Growth (5yr estimate) (2.53) 1.94 1.73
Beta 1.22 1.11 1.21
52 Week Change -13.97% 23.37% 68.30%
Trailing Annual Dividend Yield 0% 1.64% 2.16%
Return on Assets -4.10% 2.06% 7.69%
200 Day Moving Average $209.10 $31.73 $36.79
52 Week Return Percentage -13.97% 25.34% 68.02%
Price/Enterprise Value 1.29 1.51 13.12
When P/B and ROA are observed in isolation, it becomes apparent that the price to book
value ratio for TSLA does not follow expectations. It is the highest point and left-most point in
the graph below. Note: The competitor “ZAP” was not included due to missing data. See graph
“TSLA P/B in Left Field vs Competitor ROA” below.
Tesla Motors, Inc
General Motors Co
Ford Motor Co
WABCO Holdings, Inc
Gentherm, Inc
Spartan Motors, Inc
-
2.00
4.00
6.00
8.00
10.00
12.00
-6.00% -4.00% -2.00% 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00%
Price/Book
Return on Assets
TSLA P/B in Left Field vs Competitor ROA

The trailing
three month TSLA
chart implies that it
will soon increase
in price, but is
generally headed
to lower values.
The adjusted close
as of December 2nd
is lower than each
of the averages
calculated. The
five-day weighted
moving average gives a value of $185.22, 12-day exponential moving average gives $188.03,
and 26-day exponential moving average gives $190.60. The close on Dec 2 was $181.47. The
averages imply that the closing value should have been closer to $187.95 which is 3.57% higher.
See graph “Averages Call for Short TSLA Rally Before Continued Drop” above.
As of December 2nd
data, it appears that the MACD is experiencing a crossover with the
signal line foreshadowing a potentially bearish turn for TSLA after the short rally that coincided
with the previous crossover. It is possible that this point is a point of inflection and that the drop
is not realized, but unlikely given the trajectory of the signal line. The MACD was created using
a 12-day and 26-
day exponential
weighted average of
TSLA’s adjusted
close and used a 9-
day exponential
moving average of
MACD as the
signal line. See
graph to left.
180.00
185.00
190.00
195.00
200.00
205.00
210.00
215.00
220.00
SharePrice
Trailing 3 Months
Averages Call for Short TSLA Rally Before
Continued Drop
Adjusted Close
5 Day Weighted Moving Average
12 Day Exponential Moving Average
26 Day Exponential Moving Average
(8.00)
(7.00)
(6.00)
(5.00)
(4.00)
(3.00)
(2.00)
(1.00)
-
9/2/2016 10/2/2016 11/2/2016 12/2/2016
Moving Average Convergence Divergence
MACD Signal Line

Technical Analysis Summary
In 2016 thus far, TSLA has significantly underperformed the S&P 500 and issued nearly
41 million shares of common stock. TSLA’s P/B is more than three times the mean of its
competition despite a ROA of negative 4.10% versus competition 2.06%. Any recent average of
TSLA stock performance has been trending down. Short term MACD implies that TSLA will
soon experience another bearish period. From a technical perspective, TSLA may be overpriced.
Valuation
Discounted Cash Flow Model
The discounted cash flow model was built using
data from both TSLA and SCTY to accurately reflect any
changes due to the merger.
The growth rates for TSLA were modeled using
the 2016 45.36% growth projected using data from the
quarterly statements and an annualized growth rate of
18.45% from 2016 through 2021. This is the “mean
conservative estimate” named in the table to the right. It
was created from projecting past annual revenue growth
forward using various methods, then taking the 32.30%
mean of the methods and cutting by 40% to 18.45% AGR.
Future operating cost, taxes, net investment, and working
capital were each calculated by using the conservative mean growth rate for the given year.
Using this method, free cash flow growth was calculated to 2.88% in 2016 and 11.82% 2016-
2021 annually. Growth rates for SCTY were found using simple linear regressions only due to
concerns over temporal inaccuracies in financial statements.19 20
The linear regression method
gives a more holistic estimation when growth may be inaccurate. SCTY’s AGR is estimated to
be 13.31% for revenue resulting in the free cash flow estimation of 11.16% over 2016-2021.
The weighted average cost of capital was calculated using the five-year treasury bill rate
of 1.84% on December 5, 2016 as the risk-free rate. The market rate was 10% based on the S&P
19
http://securities.stanford.edu/filings-documents/1058/SC00_04/2016815_f01c_16CV04686.pdf
20
http://www.valuewalk.com/2014/04/solarcity-sued-providing-information/
Estimation Methods AGR
Linear Regression 13.09%
Average with Decay 55.51%
Low Growth Relative to Past 5.99%
High Growth Settles 55.39%
Model T Trajectory 54.89%
Variable Growth 49.04%
10% growth 13.96%
20% growth 22.53%
30% growth 30.98%
10 --> 5% growth 13.08%
20 --> 10% growth 20.76%
30 --> 15% growth 28.33%
5% growth 9.62%
5 --> 10% growth 10.48%
10 --> 20% growth 15.62%
15 --> 30% growth 20.70%
Mean Estimate 32.30%
Conservative Mean Estimate 18.45%

500 typical annual return. TSLA’s beta was found on Yahoo! Finance to be 1.22. These values
yield a cost of equity of 11.80% and a cost of debt of 4.40%. The weighting for each was
calculated using the total equity and total liability proportions of .14 and .86, respectively, in the
2015 annual report. Together, these values give a WACC of 5.39% for TSLA. SCTY’s WACC
was found using similar methods. The security had a beta of 2.08, cost of equity was 18.81%
weighted by .12, cost of debt was 4.4% weighted at .88. These values give a WACC for SCTY
of 6.14%.
The resultant fair value of equity for TSLA is $30,480,203,058.41 and $9,132,672.89 for
SCTY. When the free cash flow of SCTY is absorbed by TSLA, the resulting fair value of equity
for the resulting entity is $36,353,781,762.88 when calculated as one entity, or
$30,489,335,731.30 when end results combined were combined. This gives an average fair value
of equity of $33,421,558,747.09. With 172,170,000 TSLA shares outstanding, the target price of
a single TSLA share is $194.12 using the discounted cash flow model.
Relative Valuation Model
A value for TSLA was also found by using its competition as comparable companies,
then forecasting TSLA’s value as a ratio between other ratios with P/B acting as the multiplier
for much of the data. For example, based on TSLA’s trailing price to earnings ratio of -30.41
versus its competition’s 4.16, 7.20, 24.45, 15.51, -161.61, it’s P/B was forecasted using the
corresponding P/B for each competitor of 1.22, 1.64, 7.75, 2.75, 2.02 to estimate that TSLA’s
P/B should be 2.99. The price for a single share was found by taking this estimated ratio of 2.99
and multiplying by book value, then diving by shares outstanding. This estimate resulted in an
expected value of $58.10 per TSLA share. The same method was applied to each metric
excluding P/B and P/EV. The data from TSLA competitor “ZAP” was omitted due to a missing
value for book value. Additionally,
the predictions for price to book value
and price to enterprise value (first two
rows of table) were created using the
competitor average and applying them
to TSLA. The mean value per share
was found to be $76.73 by relative
value. See table to left.
Method Share Price Estimated
Price/Book Value $ 59.83
Price/Enterprise Value $ 245.17
Trailing Price/Earnings $ 58.10
Price/Earnings Growth (5yr estimate) $ 34.19
Return on Assets $ (1.27)
52 Week Return Percentage $ 64.35
Revenue (2015) $ 79.94
Gross Profit (2015) $ 78.30
Gross Margin (2015) $ 69.98
Mean Value per Share $ 76.73

Bankruptcy Analysis
When compared against major companies which have filed for bankruptcy, Tesla fit into
the data well. The table below is color coded by column to show the most (green) and least (red)
favorable values for each ratio. Tesla is generally nearby the median value.
Total
Liabilities/Total
Assets
Total
Liabilities/Total
Equity
Net Cash Flow
from
Operations/Total
Revenue
Net Cash Flow
from
Operations/Total
Liabilities
Current
Ratio
Tesla 2015 0.86 6.16 (0.13) (0.08) 0.99
Tesla 2016
Projected 0.78 3.61 (0.13) (0.04) 1.41
Lehman 0.97 29.73 (0.77) (0.07) 1.24
Enron 0.82 4.71 0.05 0.09 1.07
WorldCom 1.38 (3.60) (0.30) (0.25) 1.13
Blockbuster 1.20 (5.89) 0.01 0.02 0.57
General
Motors 1.93 (2.07) 0.07 0.07 0.59
Pacific gas
and Energy 0.30 0.43 6.12 0.51 0.73
Altman Z Score
To quantify the potential of bankruptcy, the Altman Z score was calculated for Tesla. The
Altman Z score is a test of credit rating that asserts the potential of bankruptcy for a given
company based on its result.21
A value of 1.8 or less indicates a high risk of bankruptcy and a
value of 3.0 or above indicates a healthy operation. Between 1.8 and 3.0 does not give any
recommendation. It has an accuracy of 72%22
and is calculated as follows: 𝐴𝑙𝑡𝑚𝑎𝑛 𝑍 𝑆𝑐𝑜𝑟𝑒 =
1.2 ∗
𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
+ 1.4 ∗
𝑅𝑒𝑡𝑎𝑖𝑛𝑒𝑑 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠
+ 3.3 ∗
𝐸𝐵𝐼𝑇
+ 0.6 ∗
𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐸𝑞𝑢𝑖𝑡𝑦
𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
+
0.999 ∗
𝑆𝑎𝑙𝑒𝑠
. Using Market value on December 5th
, the Altman Z score is 2.27. Using the
fair equity value estimated in the discounted cash flow model, the Altman Z score is 2.30. Using
the predicted value in the valuation by comparable, the Altman Z score is 0.90. The Altman Z
score found using the mean of the valuation methods is 1.59. These results are not conclusive
because the original Altman Z score was between the estimates and the next scores are each
based on the premise that TSLA is incorrectly priced.
21
http://www.investopedia.com/terms/a/altman.asp
22
http://www.readyratios.com/reference/analysis/altman_z_score.html

Ohlson O Score
A second method of predicting bankruptcy is the Ohlson O score. The Ohlson O score is
viewed by some to be more accurate and is more complex.23
It is calculated as follows:
Ohlson O score = −0.407 ∗ log (
𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃
𝑅𝑒𝑎𝑙 𝐺𝐷𝑃
∗100
) + 6.03 ∗
− 1.43 ∗
𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙
+ 0.0757 ∗
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝐶𝑢𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
− 1.72 ∗ 𝐿 − 2.37 ∗
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
− 1.83 ∗
𝐸𝐵𝐼𝑇𝐷𝐴
+ 0.285 ∗ 𝐼 − 0.521 ∗
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 𝑡−𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 𝑡−1
|𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 𝑡|+|𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 𝑡−1|
− 1.32 where L is 1 if total
liabilities exceed total assets and 0 otherwise, and I is 1 if net income was negative for each of
the past two years and 0 otherwise. The 2015 Ohlson O score fore Tesla was 2.03 and is 1.42 for
2016 projected values. These results imply a respective 88.34% and 80.53% expectancy of
bankruptcy using probability equal to 𝑃 =
𝑒 𝑂ℎ𝑙𝑠𝑜𝑛 𝑂 𝑆𝑐𝑜𝑟𝑒
1+𝑒 𝑂ℎ𝑙𝑠𝑜𝑛 𝑂 𝑆𝑐𝑜𝑟𝑒 and expressed as a percentage.
Generally accepted accuracy in prediction varies from 96% found by Marquette University24
while Virginia Tech found little correlation.25
Bankruptcy Summary
Tesla Motors fits in well with other major companies which have filed for bankruptcy. Its
Altman Z score is in a grey area between a bankruptcy indication and a healthy indication, but is
in bankruptcy area when market value is adjusted to lower estimates. Its Ohlson O score suggests
that the firm will go bankrupt within two years. Tesla has been operating with a poor Ohlson O
score intermittently for years and may be able to continue operations.26
However, bankruptcy is
an increasing risk as the company becomes more expensive to operate and continues to realize a
net loss.
23
http://www.stockopedia.com/content/improving-on-the-altman-z-score-part-2-the-ohlson-o-score-70800/
24
http://epublications.marquette.edu/cgi/viewcontent.cgi?article=1025&context=account_fac
25
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1622407
26
https://ycharts.com/companies/TSLA/ohlson_score

Investor Consideration
To make a well-informed recommendation regarding an investment in Tesla Motors, the
firm has been studied via fundamental analysis, technical analysis, and analyzed for bankruptcy
risk. Fundamentally, Tesla motors is in poor standing. Technically, it is trending down and
overpriced. The bankruptcy tests imply a chance a default. TSLA is a high-risk investment
standalone due to its industry and due to the emerging market it is helping to develop. It is not
recommended to purchase TSLA stock at this point in time. Conversely, it may be wise to sell.
With that said, DCF valuation for TSLA is $194.12 per share. Valuation by comparable
companies gives a target of $74.73 per share. Bankruptcy potential suggest a price of $0. TSLA
appears to be overpriced. Perform independent due diligence prior to any investment you decide
to make.
Lender Consideration
At this point in time, it is not advised
to lend Tesla Motors funds due to bankruptcy
risks. The Debt to equity ratio for 2015 is
high at 2.46, cash coverage ratio was poor at
-9.50, and times interest earned was also
poor at -5.63. Tesla is struggling to afford its
current debt and is expected to continue to struggle to pay its lenders. See below graph for a
visual of Tesla’s debt to equity ratio. Tesla currently has a high risk of default.
Acquisition Consideration
It is not currently advised to acquire Tesla Motors. Despite its poor standing, it has been
paving the way to a new era of transportation and energy collection/storage. Tesla has already
achieved the status of becoming a household name and is implementing major developmental
efforts. It is generally considered to be an exciting new company, but it cannot currently be
accepted as a financially sound company. It will become more appealing once it reduces its debts
and can net a profit. Until that point, it is a potentially toxic investment in any light.
0.02
0.35
1.25
3.74
0.91
2.67
2.46
2009 2010 2011 2012 2013 2014 2015
DEBT/EQUITY BY YEAR

Financial Analysis of Tesla Motors, Inc

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