Tesla Motors, Inc.

University of Oregon Investment Group
April 18, 2013
COGS as they move down the cost curve of production with Model X. In 2017
we increase margins slightly because we project that the firm will introduce the
cheaper version of the Model S. In 2018 we set the gross margin at 25.5% which
we believe is a conservative and reasonable margin for the firm to maintain into
perpetuity given managements guidance.
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Selling General and Administrative Expense (SG&A)
SG&A consist primarily of personnel and facilities cost related to Tesla stores,
employment of corporate and retail personnel, and litigation settlements and fees
for professional contract services. Going forward we projected that SG&A
would increase nominally but decrease as a percentage of revenue. In the
coming year the firm plans to open up 10 new stores, which will bring higher
SG&A costs. We projected that the firms SG&A cost would increase by roughly
30% from the prior year because the firm is opening up approximately 30%
more stores. The nominal value and percentage of revenue seemed reasonable to
both Cecilia and I so began to trend down the SG&A as a percentage of revenue.
We believe that as sales grow this line item will continue to increase nominally
but decrease marginally as a percentage of revenue.
Depreciation and Amortization (D&A)
In order to project D&A we used a depreciation table that depreciated historical
Property, Plant, and Equipment and accumulated acquisitions and capital
expenditures. We used straight-line depreciation over 20 years. Although the
group normally depreciates assets over 10 years, we believe our applied length
to be a more accurate assessment of the firms operations. Our belief is rooted in
the fact that the majority of capital expenditures that will be made in 2013 and
going forward are for machinery, factory, and stores. All three of the
aforementioned assets typically have longer depreciation schedules than 10
years. According to the US Treasury, machinery has an average durability 39
years and should therefore be depreciated over 20 years. Furthermore, buildings
such as stores or factories are also included in the 20-year category.
Research and Development (R&D)
Research and development consists of primarily payroll, benefits, stock based
compensation as well as costs related to development services. R&D was
predicted to increase according to Tesla management. After following guidance,
we decreased the projected R&D expense as a percentage of revenue while
recognizing nominal increase until 2016. At this point we believe the firms
R&D costs will decrease nominally due to the large expenditures in the prior
years.
UOIG 17