Tesla's Financial and Operational Risks: A Comprehensive Analysis

This report examines the financial and operational risks facing Tesla, including issues related to Model 3 production delays, insufficient working capital, and challenges with account payables. It addresses the IT risk associated with autopilot features and the implications of CEO performance incentives. Furthermore, the analysis delves into Tesla's negative cash flow problems, highlighting the company's struggle to generate sufficient cash from operations and the impact of heavy investments in new vehicle development. The report also includes a financial risk rating, assessing factors such as interest expense and market sensitivity. The document concludes by referencing various academic sources to support its findings. Desklib offers a platform for students to access similar solved assignments and past papers for academic assistance.

TESLA

Answer1-
Risk factors for Tesla
In last few years, it had experienced delay of Model 3 in design, launch, and production of
vehicles. The cost and volume for Model 3 could harm the business, poor financial
conditions, and prospects. The problem was caused due to growing production and delivery
plans. The risk was operational and financial as there was insufficient working capital.
Moreover, there is no assurance to replace high-customised products. Further delays in
delivering and expanding can reflect negative productivity. In addition to this, the company is
also facing credit risk, as it do not have enough cash to pay interest on loans. Apart from this
investment and operational problem, tesla has been continuously facing challenges such as
account payable as much higher as tesla owns a good sum of money from suppliers. It
increased from $2.4 billion to 3.6 billion dollars. Tesla has built a reputation of squeezing
suppliers and on the other side; it demands tesla to pay bills. The problems of company has
still not reduced and stopped as it has faced phasing out of electric tax credit in US.
Moreover, The Company rose its customer deposits by 167.8 million dollars to 853.9 million
dollars. Tesla sells its products by directly approaching customers without relying much on
dealership business. Initially, it was assisted by interest free loans as customer deposits made
payment in cash that served it as finance through interest free loan (Christofi et al).
Answer2-
The accident of car crashing was an IT risk but the autopilots claimed that a driver should
keep changes in lanes, self-park and it requires the drivers to keep an eye on roads. It claims
that autopilot were not at guilty but it is less safe that would lead to severity (Tesla Risk
Analysis).

The company seek for stockholder approval for 10 years CEO performance for Elon musk
while vesting the liabilities to achieve market capitalisation. If the shareholder approve the
award, that it would incur additional stock-based compensation expense. It acknowledged
greater accountability for the shareholders while considering the conflicts. To the resolutions
of the company, CEO performance form will be approved if total votes of shares is not
owned. CEO has to consider forward-looking statement that includes the development of
ramp, delivery hub, and increase in number of retail stores of Tesla. He has to consider other
statements such as storage capacity; volume, supercharger, and destination charge location
that has service and repair capability.
Answer-4
Negative cash flow of Tesla
Negative cash flows indicate inefficiency of business to generate maximum cash that can
support its operations. Overall, negative cash flow indicates net negative balance from
operating, financing, and investing activities (Ball, Ray, 40).

Tesla has confronted risk of reporting inefficient cash inflows. It is reported these cash flow
crisis warned the company for its survival. They are very near to face bankruptcy if they do
not find a strong way to accumulate cash. The manufacturing process from a scratch is a
difficult task as car manufacturing is both technical and challenging both. As it is very easy to
raise funds from the public without discussing anything very clearly because there is
particular record that can direct them directly to successful car manufacturing. While tracking
the issues related to negative cash flow, tesla kept using the same revenue from only one
generation to provide finance for developing next car (Andrén, Niclas, and Jankensgård,
210).
Moreover, it is important for tesla to understand that building investor confidence that allow
arranging funds for manufacturing next vehicle. When looking at the cause of negative cash
flow that could even lead to madness. Every time tesla have started working on new vehicle
that led to negative cash flows as tesla has spent heavily on designing vehicles and increased
the manufacturing capacity without considering the amount of working capital for operations.

Each time assembly line, a new vehicle was coming to fix and ultimately led to
overutilization of resources and it reflects negative frees cash flow. After a quarter, until that
time it kept operating its assembly line for new vehicle. Since in 2013, 2014, 2015, it
experienced a positive cash flow but it had already undertaken the manufacturing of X-
model. It was also able to raise more money to start pacing up the production that helped in
fast manufacturing of X model with accessing more capital (Mun, Gyun, and Shawn Jang, 9).
If tesla fall into bad debts and insolvent then all the deposit holders were liable to realise from
all the wiping material of Tesla. It is trying to strengthen itself by holding customer deposits
for two main vehicles, which are not even in production this time. The products are electric
semi that cost for 20,000 dollars and another next generation Roadster for an amount that is
between the retail price or below than it. Customers are interested in installing an array of
solar roof panel or company`s powerwall home that was ordered by customers to Tesla in
form of order. Moreover, majority of cash inflows were from 1000 dollars by reserving the
Model-3. The company introduced low priced sedan in 2016 for which customers stood in
line at stores. Although, running out of cash even having no money and still manufacturing
the cars is drastic built it has taught a lesson to all MNCs (Multi-national companies). Tesla
will grow its portfolio of products without any single product accountable for lion`s share
because depending only on one product revenue cannot help to produce to diversify the
production in new products (Rodrigues, Sandy, et al, 40).
Answer-5
Financial risk rating
Rating signifies the intensity of risk at three levels such as low, moderate, and high. For high
risk, the rating is one. For moderate, the rating is two and for low, the rating is three.
Risk Rating

the risk factor of interest expense has been
increasing from 2012 to 2018. It was below
1 million ion 2012but it is more than 130.8
million.
1
Tesla market sensitivity- tesla returns are
very sensitive. As market fluctuates the
company is expected to follow Tesla`s
market demand.
1
Tesla`s operational risk 1
IT risk 2
.

References
Andrén, Niclas, and Håkan Jankensgård. "Wall of cash: The investment-cash flow sensitivity
when capital becomes abundant." Journal of Banking & Finance 50 (2015): 204-213.
Ball, Ray, et al. "Accruals, cash flows, and operating profitability in the cross section of stock
returns." Journal of Financial Economics 121.1 (2016): 28-45.
Christofi, Andreas, Barrie Bailey, and Marc Carroll. "IPO Pricing Using the Implied Growth
Rate in Cash Flow Valuation." Journal of Business & Economic Studies 21 (2015).
Edwards, Alexander, Casey Schwab, and Terry Shevlin. "Financial constraints and cash tax
savings." The Accounting Review 91.3 (2015): 859-881.
Mun, Sung Gyun, and SooCheong Shawn Jang. "Working capital, cash holding, and
profitability of restaurant firms." International Journal of Hospitality Management 48 (2015):
1-11.
Rodrigues, Sandy, et al. "Tesla powerwall: analysis of its use in Portugal and United
States." International Journal of Power and Energy Systems 36.1 (2016): 37-43.
Macroaxis, (2018)
Tesla Risk Analysis and Volatility Evaluation. Viewed on 12 December
2018<https://www.macroaxis.com/invest/market/TSLA--volatility--Tesla-Motors-Inc>