Tesla Motors Marketing

MSTM: Accy 500 GRD, fall 2015

Additional exam details—Tesla Motors

1. You should be able to estimate the loss to Tesla of repurchasing a Tesla Model S from a customer under the buyback guarantee. Tesla’s offer is to repurchase any vehicle that qualifies for a buyback anytime between month 36 and month 39 after the initial purchase price. The guaranteed price is the greater of: (1) 50% of the original purchase price of the vehicle, plus 43% of the price of all options, or (2) the highest average resale percentage of any standard model vehicle (excludes special models) produced by Audi, BMW, Lexus, or Mercedes.

To do that, prior to the exam, you should calculate the expected loss from repurchasing one Model S. That will require that you calculate or estimate the following:

1. The highest resale value percentage after three years of any vehicle produced by Audi, BMW, Lexus, or Mercedes. 56%
2. An assumption about which Model S you will assume is the average vehicle Tesla will repurchase, such as a Model S 85. Sedan: 79,570$
3. The Cost to refurbish a used vehicle.10K
4. The price at which Tesla could sell the refurbished Model S from b., above. You should look at prices an auto resale site, such as cars.com. Do not look for the highest price—those are prices someone hopes to receive. Instead, look toward the lower end of prices—those tend to be more realistic. $70,000
5. The cost to Tesla will be the original purchase price, multiplied by 50% (plus 43% for options) or the resale % for a competitive vehicle, plus the cost to refurbish a vehicle. The amount Tesla will receive when it sells the vehicle will be from d. above, minus some selling commission. That difference will be Tesla’s loss per vehicle.

1. Inventory: prior to the exam, prepare a table showing inventory by category (See not 3 in Tesla’s 10Q: raw material, Work in process, Finished goods, and Service parts) for each of the last 4-6 quarters. Also show Cost of goods sold for each quarter. Typically, inventory is purchased or produced about one quarter prior to the period in which that inventory is sold.

1. Does Tesla’s inventory as a % of next quarter sales seem to be increasing, decreasing, or remaining about the same?
2. Does Tesla’s Finished Goods Inventory as a % of next quarter sales seem to be increasing, decreasing, or remaining about the same?
3. Calculate day’s sales in inventory.
4. Calculate day’s sales in Finished Goods Inventory.
5. Be prepared to discuss.

1. Warranty costs: prior to the exam, prepare a table of Warranty costs from Tesla’s 10Qs for the last 6-8 quarters. Tesla offers a 4-year warranty on its vehicles, plus an 8-year warranty on its powertrain, including the battery, electric engine, and transmission.

1. Your table should show warranty costs incurred for each quarter so that you can estimate warranty costs for a 4-year period.
2. You should consider the fact that warranty costs are lower in the first year after a vehicle has been sold. You should also consider that Tesla has only been selling Model S vehicles in volume since about January 2013, so warranty costs should be very low in 2013.
3. You should be able to discuss whether the $164.595 million warranty liability as of June 30, 2015, is too low, too high, or about reasonable.