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Tesla Strategic Analysis: Corporate Governance
The document is a strategic analysis presentation for Tesla Motors, detailing the company's mission, external and internal environments, and competitive advantages alongside financial and corporate governance recommendations. Key challenges include poor cash flow, high debt, and significant competition, while suggested improvements focus on enhancing corporate governance and operational management. The analysis also highlights Tesla's strong growth potential despite current financial strains and investor confidence in the company's future.
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Tesla Strategic Analysis: Corporate Governance
- 1. 1 SuperNova Consulting Erinn Marks,Chief Strategy Officer Anil Bondalapati, Head of Industry Analytics James Hawes, Chief Revenue Officer Michael Irausquin, Chief Financial Officer Dustin Sheffield, Chief Marketing Officer Tesla Motors Strategic Analysis Presentation | October 2018
- 2. AGENDA Evolution Mission External Environment Internal Environment StrategicAnalysis Recommendations 1 2 3 4 5 6
- 3. EVOLUTION Elon Musk removedas chairman; SEC fines Tesla $40 million
- 4. Accelerating the world’stransition to sustainable energy Generation | Storage | Transport MISSION
- 5. EXTERNAL ENVIRONMENT Accelerating theworld transition to sustainable energyMarket Position LuxuryEconomy Electric Hybrid Gas $ $$$$
- 6. EXTERNAL ENVIRONMENT Porter’s 5 HighMedium Threat of New Entrants Industry Rivalry Power of Buyers Power of Suppliers Threat of Substitutes Intensity Scale
- 7. 7 EXTERNAL ENVIRONMENT CYCLICAL OIL PRICES GLOBAL MANUFACTURING &SUPPLY CHAIN OPERATIONS DIVERSIFICATION INTO RENEWABLE ENERGY SOURCES PERSONALIZED SOFTWARE DEVELOPMENT FOR THE USER EXPERIENCE EXTENDED INVESTMENT IN ENERGY STORAGE TECHNOLOGIES CUSTOMER ABANDONMENT & SALES DOWNTURN INTENSIFIED COMPETITION CASH SUPPLY CUTOFF FROM INVESTORS ACCESS & PRICE CONTROLS TO ESSENTIAL HIGH RAW MATERIALS (LITHIUM) REDUCTION IN AUTOPILOT DEMAND & SAFETY RISKS WALL STREET EXPECTATIONS
- 8. 8 INTERNAL ENVIRONMENT ABILITY TOMEET PRODUCTION DEMAND INNOVATION & TECHNOLOGY LEADER HIGH CONSISTENT DEMAND FOR PRODUCTS QUALITY PRODUCTION & PROCESS CONTROL ENERGY EFFICIENT ENVIORMENTAL SOLUTIONS INTEGRATED MANUFACTURING (SOLAR, ELECTRIC, BATTERY STORAGE) INDUSTRY DIFFERENTIATOR POOR CASH FLOW FROM OPERATIONS (CFFO) LIMITED MANUFACTURING & SUPPLY CHAIN CONSTRAINTS HIGH DEBT SERVICING OBLIGATIONS LABOR SAFETY STANDARDS EXECUTIVE CHURN & ORGANIZATIONAL LEADERSHIP UNCONTROLABLE CORPORATE GOVERNANCE & FUTURE FEDERAL LAWSUITS PRODUCT LINE EXTENSION CAPABILITIES (COMMERCIAL TRUCKS)
- 9. 9 COMPETITIVE ADVANTAGE SEGMENT SPECIFICINDUSTRYWIDE COMPETITIVE DRIVERS:INNOVATION | PRODUCTION PROCESS CONTROL | RAPID PROBLEM SOLVING | RESILIENCE
- 10. 10 VALUE-CHAIN ANALYSIS VERTICAL INTEGRATION DIGITAL SUPPLY CHAIN ROBOTIC AUTOMATION ADVANCED PRODUCTION PROCESSES BUILTTO ORDER ONLINE RESERVATION 112 US STOREFRONTS & GALLERIES 29 COUNTRY-WIDE DISTRIBUTION SHOWROOMS REFUNDABLE ONLINE DEPOSIT TEST DRIVE EXPERIENCE ONLINE COMMUNITY SUPERCHARGER NETWORK STATIONS 29 COUNTRY-WIDE SERVICE OPERATIONS BATTERY & DRIVE UNIT WARRANTY PRIMARY ACTIVITES INBOUND LOGISTICS OPERATIONS OUTBOUND LOGISTICS SALES & MARKETING SERVICE SUPPORTACTIVITIES PROCUREMENT: SUPPLIER PARTNERSHIPS & ALLIANCES – DAIMLER AG | PANASONIC | TOYOTA MOTOR CORP HUMAN RESOURCE MANAGEMENT: 6 PRINCIPLES TO INNOVATIVE PROBLEM SOLVING | START-UP MENTALITY TECHNOLOGY DEVELOPMENT: LEADING EDGE ENGINEERING | LARGE R&D | RELENTELSS INNOVATION IN ENERGY EFFICIENCIES Margin M argin
- 11. 11 FINANCIAL RATIO ANALYSIS 20% -20% -40% -60+% 248% 40% 60+% GrossMargin Operating Margin (TTM) 27.2% 20.6% 5.4% -16.4% -17.54% 4.62% ROI (TTM) -62.91% 9.83% ROE (TTM) -9.73% 2.57% ROA (TTM) Total Debt to Equity (TTM) 170% Tesla Auto Industry • Above average gross margins compared to industry • Q2 SG&A Expenses ($1.1B) led to OM & EBITD losses • R&D: $386M + $750M in other SG&A • Growth mode as operational costs exceed competition • Negative Profitability Return Ratios • Investors remain steadfast despite negative ROI Key Takeaways
- 12. 12 FINANCIAL RATIO COMPARISONS– Q2 2018 • Tesla continues to project high growth potential • Large cap company with $51B market cap • Investor confidence remains strong in company’s future business growth model • $1.69B cash as of 08/20181 • Excessive cash depletion is evidenced to be recurring as shown by the negative CFGR: -2.4% vs the auto industry of 9.62% • Balance Sheet reveals an increase in inventory purchases ($800M) from Q1 to Q2 - 2018 Key Takeaways
- 13. 1313 COMMITMENT TO CORPORATEGOVERNANCE STRATEGIC ANALYSIS Diminished Corporate Governance Lack of segregation of responsibilities and Board of Directors Independence Misguided Corporate Governance enforcement for Succession Planning and Social Media Policy Lack of Business Unit & Supporting Functions in Leadership Limited Executive Oversight for Business Units Key Strategic Issues
- 14. 1414 STRATEGIC RECOMMENDATIONS COMMITMENT TOCORPORATE GOVERNANCE Objective: Strengthen Corporate Governance based on Corporate Governance Guidelines II & III (see appendix) Actions Criteria/Outcomes • No previous business or personal ties to CEO Elon Musk • Expertise & leadership experience in 2 or more industries; preference in automotive 1. Add Four Independent Board Members 2. Separate duties between acting Chairman and CEO • Strengthens integrity of company’s leadership since the CEO reports to the Chairman • Avoids conflict of interest in the areas of compensation, corporate governance and audit committee independence 3. Updated & enforce a strict social media policy • Compliant with Tesla Code of Business Ethics & Confidentiality • Require training on social media usage for employees at all levels; 80% pass rate 4. Implement Management Succession Planning (MSP) • Biannual exercises for all employees, next level job planning • Oversight from corporate governance committee • Led by Chief Human Resources Officer – MSP Process & Board Reporting
- 15. 1515 Expansion of C-SuitePositions • COO – Chief Operations Officer • Reports to CEO and leads/has: • Supply Chain continuity and contracts • Prior automotive industry leadership • Production capacity, quality and inventory management • Integration of AI and robotics into production • CHRO – Chief Human Resources Officer • Report to CEO and leads: • Bi-annual succession planning exercise with accountability to identified preparation action plans • Executive recruitment and retention • Annual implementation of employee satisfaction survey with management feedback, action plans and accountability to implement changes. • Enforcement of Communication Policy including disciplinary actions STRATEGIC RECOMMENDATIONS COMMITMENT TO CORPORATE GOVERNANCE
- 16. 16 Tim Collins, AmazonSVP, WW Logistics https://www.linkedin.com/in/tim-collins-013962/ Tim is responsible for transportation and delivery operations worldwide. A member of the Amazon executive team for more than 16 years, Tim Collins joined the company as the general manager of fulfillment in 1999. Jeff Williams, Apple COO https://www.apple.com/leadership/jeff-williams/ Since 2010 he has overseen Apple’s entire supply chain, service and support, and the social responsibility initiatives which protect more than one million workers worldwide. Jeff joined Apple in 1998 as head of worldwide procurement and in 2004 he was named vice president of Operations. Kenneth Waggers, XPO COO https://www.linkedin.com/in/kenny-wagers-aa48125/ The company provides services for global logistics (contract logistics, reverse logistics and engineered solutions), brokered freight transportation (truck, intermodal rail, drayage and expedite), truckload and less-than-truck load transportation, last mile logistics, managed transportation and freight forwarding. Elon Musk CEO Chairman TBD STRATEGIC RECOMMENDATIONS COO Recommendations
- 17. 17 Denise Young Smith,VP Worldwide Human Resources, Apple https://www.linkedin.com/in/soprano/ Denise is a seasoned Human Resources professional with two decades of experience. She excels in talent acquisition and retention and employee relations. Prior to Apple she worked for Byers portfolio companies & Kleiner Perkins Caufield. Andreas Neumann – Board Responsible for HR. Boehringer Ingelheim GmbH https://www.linkedin.com/in/andreas-neumann-3498b3122/ Responsible for Human Resources and member of the Board. Served as a leader at General Electric Karen Magee - EVP & CHRO, Time Warner Inc. https://www.linkedin.com/in/karen-magee-4771679/ Karen oversees HCM directions at the company on a global scale including compensation, leadership development, recruitment, and diversity. She is the CHROs who has been a CEO for three years. Prior to Time Warner, Karen served in a variety of roles at within the company. Elon Musk CEO Chairman TBD STRATEGIC RECOMMENDATIONS CHRO Recommendations
- 18. We now welcome your questions,and thank you for this opportunity. 18 SuperNova Consulting
- 19.
- 20. 20 REFERENCES Mackintosh, James. “IsTesla or Exxon More Sustainable? It Depends Whom You Ask.” The Wall Street Journal, Dow Jones & Company, 17 Sept. 2018, www.wsj.com/articles/is-tesla-or-exxon-more-sustainable-it-depends-whom-you- ask-1537199931. Team, Trefis. “Tesla's Unique Position In The Car Market Is One Of Its Biggest Strengths.” Forbes, Forbes Magazine, 2 July 2015, www.forbes.com/sites/greatspeculations/2015/07/02/teslas-unique-position-in-the-car-market-is-one-of- its-biggest-strengths/#792e5673ad7f. Linnane, Ciara. “Tesla Will Face First True Test of Its Position in Electric Vehicle Market in 2019, Analyst Says.” MarketWatch, MarketWatch, 21 June 2018, www.marketwatch.com/story/tesla-will-face-first-true-test-of-its- position-in-electric-vehicle-market-in-2019-analyst-says-2018-06-20. DeBord, Matthew. “Tesla's Newest Rival Has Highlighted a Big Problem That No One Is Talking About.” Business Insider, Business Insider, 29 Mar. 2018, www.businessinsider.com/tesla-faces-a-problem-with-market-segmentation- 2018-3. “Tesla Inc.” Growth, Profitability, and Financial Ratios for LINE Corp ADR (LN) from Morningstar.com, financials.morningstar.com/ratios/r.html?t=TSLA.
- 21. 21 REFERENCES CONTINUED… Team, Trefis.“How Tesla's Battery Strategy Could Drive Strong Margins On Model 3.” Forbes, Forbes Magazine, 18 Aug. 2017, www.forbes.com/sites/greatspeculations/2017/08/18/how-teslas-battery-strategy-could-drive-strong- margins-on-model-3/#6930a3585cc9. “Master Plan, Part Deux.” Tesla, Inc, 21 July 2016, www.tesla.com/blog/master-plan-part-deux. Hoang, Ha, and Frank T. Rothaermel. “How to Manage Alliances Strategically.” MIT Sloan Management Review, MIT Sloan Management Review, sloanreview.mit.edu/article/how-to-manage-alliances-strategically/. O'Marah, Kevin. “Tesla And The 21st Century Supply Chain.” Forbes, Forbes Magazine, 8 Apr. 2016, www.forbes.com/sites/kevinomarah/2016/04/07/tesla-and-the-21st-century-supply-chain/#abb43d2584d1. Colias, Mike, and Rolfe Winkler. “Tesla's Big Question: Better or Worse Off as Private Company.” The Wall Street Journal, Dow Jones & Company, 8 Aug. 2018, www.wsj.com/articles/teslas-big-question-better-or-worse-off-as- private-company-1533751228. Bloomberg.com, Bloomberg, 2018, www.bloomberg.com/graphics/2018-tesla-tracker/.
- 22. 22 REFERENCES CONTINUED… DeCambre, Mark.“'The Corporate-Governance Disaster That Is Tesla Continues,' Says One of the Fiercest Critics of Musk and Company.” MarketWatch, MarketWatch, 27 Aug. 2018, www.marketwatch.com/story/the-corporate- governance-disaster-that-is-tesla-continues-says-one-of-teslas-fiercest-critics-2018-08-25. Lucid is planning a new high-performance electric car. It said the investment from Saudi Arabia's sovereign wealth fund announced Monday will allow it to finish engineering on its first car. “Saudi Arabia Invests $1 Billion in Lucid, a Potential Tesla Rival.” CNNMoney, Cable News Network, money.cnn.com/2018/09/17/news/companies/saudi-arabia- tesla-competitor/index.html. “Tesla Model S Achieves Best Safety Rating of Any Car Ever Tested.” Tesla, Inc, 22 Apr. 2015, www.tesla.com/blog/tesla-model-s-achieves-best-safety-rating-any-car-ever-tested. Salzman, Avi. “Tesla's Key Advantages Over the Big Automakers.” Barron's, Barrons, 14 Aug. 2017, www.barrons.com/articles/teslas-key-advantages-over-the-big-automakers-1502733760. “Corporate Governance.” Tesla, Inc., ir.tesla.com/corporate-governance/highlights.
- 23. 23 TESLA CORPORATE GOVERNANCEGUIDELINES (EXCERPTS)
- 24. 24 TESLA CORPORATE GOVERNANCEGUIDELINES (EXCERPTS)
- 25. 25 TESLA CORPORATE GOVERNANCEGUIDELINES (EXCERPTS)
- 26. 26 TESLA CORPORATE GOVERNANCEGUIDELINES (EXCERPTS)
- 27. 27 BATTERY COST FORECASTEDPROJECTIONS
- 28. 28 TESLA PRODUCTION TARGETS Source: Bloomberg.com,Bloomberg, 2018, www.bloomberg.com/graphics/2018-tesla- tracker/.
- 29. 29 TESLA MARKET POSITION– ELECTRIC VEHICLES
- 30. Porter’s 5 Forces- Explained Bargaining power of Tesla Customers (Medium) Low Switching costs Low volume of purchases Moderate Availability of substitute No Dealers of EV (couple states restrictions) No Comparable technology available Threat of New Entrants (High) High Cost of brand development High economies of scale Large Capital Investments Threat of Substitutes (High) Low switching costs Hybrids and Plugin Hybrids Numerous alternatives to EV Many substitutes among gasoline cars Medium Performance of Substitutes Bargaining power of Suppliers (Medium) High costs of switching suppliers Low Forward Integration Limited No of Suppliers Medium Supply Level Rivalry among competitors (High) High competitors increase bargaining power Few EV cars available in market Strong competitive brands Tesla sector is Niche
- 32. 32 TESLA Q2 REVENUES& PROFITS COMPETITOR COMPARISON Source: Colias, Mike, and Rolfe Winkler. “Tesla's Big Question: Better or Worse Off as Private Company.” The Wall Street Journal, Dow Jones & Company, 8 Aug. 2018, www.wsj.com/articles/teslas-big-question-better-or-worse-off-as-private-company- 1533751228.
- 33. Tesla delivers respectableGross margins compared to the industry Q2-18 SGA expenses ($1.1B) causing OM and EBITD losses R&D: $386M + $750M other SG&A (facilities, operations, CEO bonus, etc) Company on growth mode as operations cost continue to be high compared to competitors Every Return Ratio is negative ROI is largely lower than competitors and negative. However investors stay around Aggressive financing to fuel growth. Double that its competitors Assets have been funded largely by equity thus a strong D/A ratio (<1) Debt / Equity (SH) provides another strong idea on high leverage Tesla’s liabilities are greater than their assets, thus weak position to pay its debts w/ assets FINANCIAL RATIOS EXPANDED (Q2-2018)