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

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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

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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

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Toyota SWOT

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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

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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

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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

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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

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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

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- 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

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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

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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

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So…How much is Tesla worth to Toyota?

$24 billionOr

¥1.86 trillion

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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

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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

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Direct Sales

R&D

Service &

Warranty

Leasing

Tesla Organization

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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

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Real Options

Growth Options Exit or Abandonment Options Timing Options Switching Options Liquidity Options

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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

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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

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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

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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

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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

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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

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The End: Drive Home Happy

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