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Analysis of a Toyota-Tesla merger and its valuation
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The Merger of TOYOTA and TESLA
Team Synergos
Ben Wachtel Bing ChuangBrad Czajkowski Fiona McAvoyGanesh ParanthamanJames Petricciani Ryan Moore
Agenda
T• Background Information and SWOT Analysis
O
• Strategic Alternatives, Market Overview, Due Diligence
Y• Valuation
E • Real Options & Deal Design
S• Organization, Integration & Ancillary Issues
L• Communication Pan & Summary of Actions
A• Back Up Analysis
Team Synergos
Background Information
ToyotaFounded in 1935 by Kiichiro
Toyoda
Headquartered in Toyota City, Japan
322,000 Employees
1972, US Manufacturing
1995, Creation of Toyota Hybrid Technology
TeslaFounded in 2003 by
Martin Eberhard & Elon Musk
Headquartered in Palo Alto, CA
1,000 Employees
18 Dealerships World Wide
Designs Electronic Vehicles and Components
Team Synergos
STRENGTHS WEAKNESSES
Electric Vehicle (EV) technology
Environmentally friendly Modern look, sleek design Loyal fan base
× High cost of battery technology
× High cost of ownership× Questions about battery
disposal× Limited availability
OPPORTUNITIES THREATS
Expand sales locations New models with low cost First mover advantage Economies of scale
× Competitors entering EV market
× Other disruptive technologies× Gasoline-Electric Hybrids× Global economy slowdown
Tesla SWOT
Team Synergos
Toyota SWOT
Team Synergos
STRENGTHS WEAKNESSES
#1 hybrid car company Brand loyalty Strong Reputation Excellent Quality Large selection of models
× Competitor look-a-likes× Recent Recalls× No Electric Vehicle models× Increasing gas prices
OPPORTUNITIES THREATS
Environmental awareness Low priced vehicles Expanding sales and
manufacturing locations Research and Development
× Competitors in new EV market
× Hybrid technology loses steam
× Pushback against gasoline vehicles
× Declining global economy
Team Synergos
Future Cash Flows
Develop Line of Electric Vehicles
Create Shift in Auto
Industry
Pursue new tech
through R&D
Tesla’s Strategy
Toyota’s Strategy
Future Cash Flows
Sustainable Auto R&D
10% Hybrid by
2015 Every Model Hybrid
Option by 2020
Team Synergos
Tesla/Toyota Compatibility
Shared Strategy Environmental Sustainability Creating affordable alternative energy
vehicles
Tesla offers Toyota E.V. Technology Future benefits from Tesla’s R&D
Team Synergos
Strategic AlternativesTeam Synergos
Internal Growth (“Make”):- 40.1% CAGR in EV Market over next 10
years- 2020E sales still only 0.25% total auto
market- Tesla must shift from niche sales to high
volume manufacturing / distribution- Competition as EV market grows
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 20200
20406080
100120140160180
Estimated Tesla Sales Growth
Unit
s S
old
(t-
housands)
2.0% 0.1%
97.9%
Hybrid
Electric
Internal Combustion
Global Auto Market Share (Units)
5.5% 1.8%
92.7%
2010
2020E
Source: J.D. Power & AssociatesSource: Morgan Stanley; Deutsche Bank
275 x
Strategic Alternatives (Cont.)Minority Investment- Tesla negative FCF until 2013-2014- Large capital expenses mass production- Additional capital would allow Tesla to expand more rapidly- Investment from auto giants would create beneficial
relationships
Strategic Alliance / Partnership- Tesla lacks experience in large scale manufacturing
- High capital equipment costs- Weak supply chain / distribution channels- Sales team niche market focus
- Tesla’s core technology is its electric drivetrain - Recent partnerships with Toyota (Rav4) and Daimler
(Mercedes A-class) illustrate interest in Tesla technology- Alternatively focus exclusively on drivetrain
Team Synergos
Market Opportunity
Tesla: “Problem Child”
High growth yet extremely low market share
Requires significant investment to grow the EV business to a competitive level
Long term investment; higher risk
Note: Based off 2 yeargrowth rates due to Tesla’s brief sales history
Team Synergos
- 0.50 1.00 1.50 2.00 2.50 3.00
-10%
0%
10%
20%
30%
40%
Growth-Share Matrix: Major Firms in Auto Industry
2 Year Growth (CAGR)
Ford
GM
Honda
Tesla
Toyota
Tata
Relative Market Share
Real G
row
th R
ate
Due Diligence Team Synergos
Legal Issues Org, Ownership, Litigation, Regulation
Accounting & Tax Issues
IT Issues
Risk & Insurance Issues Limited History, Unproven Sales
Environmental Issues
Operations
Real & Personal Property Issues
Cross Border, HR, Culture
Intellectual & Intangible Issues
Finance Ethics
Liquidation Value
Team Synergos
BOOK VALUE / LIQUIDATION VALUE
2012
Total Current Assets 236,329.58
Net Property, Plant, & Equipment 168,624.56
Total Assets 418,592.14
Valued assets based on their liquidity
DCF Valuation Assumptions:
Terminal Growth Rate: 4%Discount Rate: 9%
YEAR DISCOUNTED FREE CASH FLOWS
2011 (39,907.80)
(46,293.05)
2012 (43,807.06) (58,946.78)
2013 (113,867.05) (177,734.62)
2014 (77,234.11)
(139,843.12)
2015 95,899.53 201,421.77 2016 92,994.79 226,572.17 2017 12,941.92 36,576.71 2018 176,279.34 577,916.82
2019 184,000.21 700,000.54
2020 64,766.55 285,713.45 168,250.32 906,083.88
Terminal Value 5,942,839.80 Valuation 6,111,090.12 Per Share $57.29
Free Cash Flow Valuation
Team Synergos
Synergies
Supply chain access SG&A and procurement cost reduction Large international partner with access to
global market
Tesla’s powertrain, future R&D and design Roadster, Model S, Model X and Gen 3 Tesla brand for EV cars
Team Synergos
So…How much is Tesla worth to Toyota?
$24 billionOr
¥1.86 trillion
Team Synergos
Synergy ValuationTeam Synergos
Note!Tesla earnings assumed to be tax free until 2016Terminal growth rate calculated by adding 1% to Toyota average growth rate
(in $ millions) FY 2012EFY
2013EFY
2014EFY
2015EFY
2016EFY
2017EFY
2018EFY
2019EFY 2020E
Tesla EBITDA (285.00) 33.43 57.15 95.06 69.11 96.54 165.09 224.7
3 284.79
Cost savingsTesla COGS + SG&A + Supply chain
46.00 63.51 108.59 126.29 153.03 213.7
6 247.64
337.10
427.19
Toyota future R&D development
75.00
97.50
126.75
164.78
181.25
199.3
8
219.32
241.2
5
265.37
RAV4 powertrain savings
2.95
5.60 4.70 7.35
11.25
22.60
34.20
41.40
62.75
TOTAL (161.05)
200.03
297.19
393.48
414.65
532.2
8
666.24
844.4
7
1,040.10
Terminal Growth rate
4%
Discount Rate 9%
DCF
(147.75)
168.3
6
229.48
278.75
269.49
317.3
8
364.46
423.8
1
478.89
Terminal Value21,634.
01
NPV
2,382.87
Valuation24,016
.88
Alternative Valuation Method
Team Synergos
FY 2
009
FY 2
011
FY 2
013E
FY 2
015E
FY 2
017E
FY 2
019E0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
Sales growth
Roadster Model S Model XGen 3 Powertrain
Year
Un
it V
olu
me
FY 2
009
FY 2
010
FY 2
011
FY 2
012E
FY 2
013E
FY 2
014E
FY 2
015E
FY 2
016E
FY 2
017E
FY 2
018E
FY 2
019E
FY 2
020E
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
Revenue per vehicle
Year
Revenue p
er
unit
($)
Operating Model
Team Synergos
Direct Sales
R&D
Service &
Warranty
Leasing
Tesla Organization
Team Synergos
Department Employees
Manufacturing 213
Powertrain R&D 212
Sales & Marketing 121
Vehicle Design & Engineering 170
Service 79
General & Admin 104
Location Primary Use Lease / Own
Fremont, CAManufacturing of Model S and future vehicles
Own
Palo Alto, CA
Admin, Engineering services and manufacturing services (Powertrain)
Lease
Hawthorne, CA Vehicle engineering and design services Lease
Maidenhead, UK Admin, Sales, Service and Marketing Lease
17 Retail stores around the world Sales & Service Lease
FacilitiesTeam Synergos
Key Integration Issues
Retaining Key Employees Expertise in low power vehicle design with
high voltage power source Expertise in lightweight materials Expertise in battery, electric motor,
gearbox technologies
Keeping NUMMI for California Tax Incentives
Team Synergos
Real Options
Growth Options Exit or Abandonment Options Timing Options Switching Options Liquidity Options
Team Synergos
Deal DesignElement Design
Form of Payment Stock
Shareholder Vote Majority Approval
Financing None
Control Toyota
Reorganization Structure Remove Sales and Admin, keep R&D
Tax Consideration NUMMI depreciation
Risk Management Blackstar (Daimler) & other disruptions
Subsidiary HQ Palo Alto, CA, USA
Management Toyota manages all aspects outside of Tesla E.V. R&D
Tesla Brand Kept and Continued
Team Synergos
Term SheetConsideration
Exchange Ratio 4.35 TM shares: 1 Tesla share
Side Payments Executive Stock Options & Key Talent Retention Costs
Board, Management, Executives
Company Name Toyota
President and CEO Akio Toyoda
Board 2 out of 10 seats
Reporting Structure R&D under Denso Global under Toyota Group
Subsidiary Name Tesla
Team Synergos
Communications • Good communication internally and externally can
help to make the deal proceed more smoothly• Board of Directors• Employees• Stock Holders and Market
• Important to keep information contained until later stages of deal• Non-disclosure Agreements• Code names in documents
• Franklin (Tesla)• Fuji (Toyota)
• Information leaks can lead to complications due to competition in the market
Team Synergos
Comm: Board of Directors
Good fit technologically and financially Toyota has larger research budgets Economies of scale Less pressure on Tesla products Tesla technology is a valuable asset to
Toyota in the EV car race All current joint venture contracts with
Tesla will be honored by Toyota
Team Synergos
Comm: Employees
NUMMI will not be closing Tesla brand will continue Jobs will be preserved but there will be
few layoffs in Sales & General Administration
Continue plans to produce the Model S
Team Synergos
Comm: External
Tesla will continue to operate as a brand under Toyota similar to Lexus & Scion
The Model S production will continue as planned and on schedule
Tesla will integrate its technology into future Toyota products like it already has with the Toyota Rav 4.
Tesla headquarters and auto plant will not be closed
All current joint venture contracts between Tesla and third party companies will be honored by Toyota
Team Synergos
The End: Drive Home Happy
Team Synergos
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