2010 Goldman Sachs Case Competition Team 37 Presentation

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

Overview of Tesla is a vertically-integrated new-technology automobile firm Design Engineering Manufacturing Distribution Sales Integrated Automobile Firm Core Competency Sales and Distribution In-house processing from start to finish Powertrain technology Unlike its rivals, Tesla owns its dealerships

Government Backstop Government support is mutually-beneficial Government Political points • • • 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 Auto industry Green Investments • 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 Jobs

Assessment of Forecast Is management’s forecast realistic? Revenue Units Sold (Model S) (in millions) $ 2, 010 $ 2, 416 30 EBITDA Margins (in thousands) 22. 9% 16. 5% 20 15. 3% 12. 2% $ 782 Industry Average 11. 4% 10. 1% 10 5. 8% $ 142 SA IC r D ai m le W BM Po D 2014 E BY 2013 E a 2012 E sl 2014 E Te 2013 E ch 2012 E rs 2011 E e 0 Weighted ARPU Model S Sales Projection EBITDA Margins Optimistic • $84, 716 in 2013 • 20, 000 annual target beginning 2013 plausible • Management forecast puts EBITDA margins at 16. 5% • <1% of global premium sedan market • Median industry margins 11. 4% • Full integration may facilitate 5% additional margin • $84, 801 in 2014 • Comparable to other premium sedans • Mass production at NUMMI

Upside and Downside Risks Opportunities and risks associated with valuation and IPO Opportunities Risks Superior Technology From Niche to Mass Production • Industry leader in EV powertrains, car batteries • Vehicle performance on par with Mercedes • The Model S is expected to be high-volume • Unrealistic production plan with current facilities Public Validation Expansion Uncertainties • Low-interest DOE loan provides financial health • In-line with green jobs agenda • Uncertainty in 2012 debut of Model S • Design specs are still pending final review Seasoned Management Lack of Infrastructure • Veteran executives with rich history of innovation • Experienced in partnering with industry leaders • Lack of ubiquitous charging stations inconvenient • Public policy unable to match Tesla’s ambitions Unrivaled Brand Recognition Unclear Future Competitive Landscape • Long waitlist for cars not available until 2012 • Large down payments secure consumer loyalty • 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 Year-to-Date Monthly IPOs (in millions) European Debt Crisis… Overblown $ 2, 573 • Tesla is largely an American company • Tesla targets the affluent… least affected $ 1, 345 $ 1, 218 • DOE loan unaffected by overseas crisis $ 1, 008 $ 861 Jittery Capital Markets Jan Feb Mar Apr May • S&P 500 has fallen 10% since early April • IPO volume peaked in March; at year lows IPO Pricing Trends • Increases Tesla’s cost of equity 100% 75% But, 50% Tremendous IPO Mis-Pricing 25% • >40% of IPOs are under-priced 0% Jan Below Feb Mar In-Range Apr Above May • IPO amounts should be significantly higher • Strong IPO possible despite economic woes

Strategic Capital Raising Tesla should plan its capital raising strategically Phase 1 Phase 2 Phase 3 Initial Public Offering Secondary Offering • Amount: $175 m • Amount: $85 m • Amount: $50 m • Jun-Aug, 2010 • Jun-Aug, 2012 • Jan-Mar, 2014 DOE Loan Draw DOE Loan Pay-down • Amount: $165 m • Amount: $225 m, $75 m • ($36 m), ($97 m), ($121 m) • Jun, 2010 • 2011, early 2012 • Dec 2012, 2013, 2014 Debt Financing (2010 -2012) Secondary Offering (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) Revenue CFO 2013 2014 2, 000 1, 000 0 2009 2010 2011 2012 -1, 000 DCF 400 We apply a dynamic Re as we believe earnings normalization and large cash flows starting in 2013 will reduce risks to slightly above industry averages Growth Terminal Growth Rate (in millions) 200 0 -200 -400 2010 Key Assumption 2011 2012 2013 2014 5%

Multiples Analysis Comparables analysis EV/EBITDA Multiple EV/Sales Multiple * Weighted average of each company from 2010 -2013 Multiples Valuation (in millions)

Summary Tesla should proceed with an IPO Need Tesla Deserves a Premium • Tesla needs time-sensitive capital • DOE loans, while hefty, are inadequate • Expansion scheduled for 2012 Strategic Capital Raising • Unrivaled technology and designs • Huge potentials with Powertrain • Second-to-none brand recognition Potential Risks • Raise no more than required amount • Compliance with DOE terms necessary • Secondary offerings in 2012, 2014 • Model S rollout is delayed • No experience with mass production • Margins fail to meet expectations Sensitivity Analysis (DCF valuation in millions $) Terminal Growth Cost of equity 2015+ 15% 17. 50% 22. 50% 4% 1251 996 823 710 5% 1509 1152 933 784 6% 1905 1368 1068 877 7% 2585 1684 1251 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 -2012 E ratios for each of our competitor groups, and weighed each of those values by 20%, 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