Tesla Motors, Inc.

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Cost of Debt Market Risk Premium Adjusted Beta University of Oregon Investment Group April 18, 2013 Intermediate Growth 2019E 2020E 2021E 2022E 2023E 490,286.26 524,606.30 556,082.68 583,886.81 607,242.28 253,332.49 246,665.90 237,930.12 227,338.60 215,149.81 Acquisitions Historically, Tesla has made only one acquisition, which was the purchase of the Tesla factory in Fremont, California from New United Motor Manufacturing Inc. (NUMMI). This acquisition was completed in October of 2010. Going forward we do not believe Tesla will make any acquisitions and our projections model this assumption. Intermediate Growth Rate Free Cash Flow Growth Rate in Year 2018E is 9% so we decided to use an intermediate growth rate to create a smooth transition into the 3% terminal growth rate used by the University of Oregon Investment Group. Accordingly, we stepped down the growth rate from 9.0% to 4% by equal increments of 1.0% per year until it reached 4.0% in year 2023E. Undervalued/(Overvalued) Terminal Growth Rate 0 2.0% 2.5% 3.0% 3.5% 4.0% 1.29 27.02% 31.64% 36.96% 43.13% 50.39% 1.39 20.08% 23.92% 28.30% 33.33% 39.17% 1.54 11.47% 14.43% 17.77% 21.54% 25.86% 1.64 6.69% 9.20% 12.01% 15.17% 18.75% 1.74 2.52% 4.67% 7.06% 9.72% 12.72% Undervalued/(Overvalued) Terminal Growth Rate 0 2.0% 2.5% 3.0% 3.5% 4.0% 3.79% 54.2% 62.5% 72.4% 84.3% 99.1% 4.79% 28.2% 33.0% 38.5% 44.9% 52.4% 5.79% 11.5% 14.4% 17.8% 21.5% 25.9% 6.79% 0.1% 2.0% 4.2% 6.5% 9.2% 7.79% -8.0% -6.7% -5.2% -3.6% -1.9% DCF Assumptions Beta Beta was calculated using regressions against the S&P 500 over time lengths 1- year weekly, 3-year daily, and 5-year monthly. We also calculated Vasicek and Hamada betas based on our two comparable groups, Industry and Growth. We decided to weigh the Growth Beta 75% and the Industry Beta 25% because we believe our risks going forward are most similar to that of the growth companies. Based on our multiple regression tests we came up with an implied Beta of 1.54. We believe that this implied Beta captures all of the relevant risks of Tesla going into the future. Market Risk Premium We decided to apply a market risk premium of 5.79% based on Aswath Damadoran’s, a professor of Finance at NYU’s Stern School of Business, most recent estimation. We believe that this fairly represents the difference between the market portfolio and the risk free rate now and going into perpetuity. Cost of Debt Undervalued/(Overvalued) Terminal Growth Rate 0 2.0% 2.5% 3.0% 3.5% 4.0% 1.26% 12.2% 15.2% 18.6% 22.4% 26.8% 2.26% 11.8% 14.8% 18.2% 22.0% 26.3% 3.26% 11.5% 14.4% 17.8% 21.5% 25.9% 4.26% 11.1% 14.1% 17.4% 21.1% 25.4% 5.26% 10.8% 13.7% 17.0% 20.7% 25.0% Current debt held by Tesla comes from a loan from the Department of Energy from the Federal Financing Bank as a result of the Advanced Technology Vehicles Manufacturing Incentive Program. Given that this incentive program is backed by the Federal Government to induce advanced clean tech vehicle manufacturing, the effective interest rate is approximately 1%. However, it is a floating interest rate that has ranged from 0.9% to 3.4%. Given that we are unable to accurately estimate where interest rates will move in the future we used an incremental step up of 0.45% per year starting in 2014. The cost of debt goes from 1% in 2014 to 3.26%, the industry average, in 2018 and into perpetuity. The effective cost of debt for each year was used in calculating the corresponding years Weighted Average Cost of Capital. UOIG 20
WACC University of Oregon Investment Group April 18, 2013 Weighted Average Cost of Capital (WACC) Undervalued/(Overvalued) Terminal Growth Rate 0 2.0% 2.5% 3.0% 3.5% 4.0% 8.75% 23.26% 26.98% 31.16% 35.90% 41.31% 9.75% 17.69% 21.05% 24.83% 29.12% 34.01% 11.01% 11.47% 14.43% 17.77% 21.54% 25.86% 11.75% 8.22% 10.97% 14.07% 17.59% 21.60% 12.75% 4.20% 6.69% 9.50% 12.69% 16.33% Since we used varying Cost of Debt and Tax Rates year to year, we applied various WACC’s to each year’s free cash flow. The corresponding WACC’s for each year free cash flow, as well as the components included the calculation, can be seen in WACC Exhibit. Terminal Growth Rate We assumed a 3.0% terminal growth rate, which is consistent with University of Oregon Investment Group practice, because this is the rate at which we believe the economy will grow into perpetuity. Recommendation Implied Price Weighting Comparable Analysis 49.38 30.00% DCF Analysis 51.52 70.00% Final Implied Price 50.88 Current Price 43.75 Undervaluation 16.30% Based on our valuation and implied price of $50.88 we believe that Tesla is a buy for the DADCO portfolio. The company will do frequent announcements that will create buzz about the company in the markets. In such a news driven market, announcements that are seen in a positive light will have correlated price movements in the stock. Tesla is beginning to become profitable and increase margins while expanding globally. Tesla’s management team has a proven history of success and will help bring Tesla to the top of the electric vehicle industry. The Tesla Model S is already in high demand and has been received extremely well in the automobile market. As Tesla begins to innovate and produce new vehicles the company will prosper. UOIG 21
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