M.

ZEESHAN ASLAM MBH-12-30

Alfalah institute of Banking & finance BZU Multan

TESLA MOTORS INC.

Inventory Management System
[Operations Management Assignment]

Tesla Motors has a good inventory management with more raw materials
than finished goods, as well as very low inventory write-offs. It is also easier
for the company to manage its inventory thanks to the fact that their cars
are production constrained and attractive to the customers. Now, let's point
out the inventory facts.

Revenues Increase Faster Than Inventory

Tesla's revenues have substantially increased, from $400 million in 2012 to
$2 billion in 2013. And the story is going to repeat in the following years. In
fact, analysts expect revenues of $3.7 billion and $5.3 billion for the years
2014 and 2015.
For the last five quarters (see table below), the growth rate of revenues
stands for at 19%, while the inventory growth rate comes at 6%. For Q4
2013, revenues are up by 42% and inventory is down by 2%. This table
demonstrates the fact that Tesla can sell its cars very quickly in the market.
Customer's demand for Tesla's electric cars is huge, cars don't stick in the
factory waiting for a customer, as it is the case with certain cars companies.
This is why revenues grow faster than inventory.

Let's go on with Fact #2, which goes a little bit deeper in the inventory
details.

Low Finished Goods, High Raw Materials

If you look at the inventory details, you can notice that finished goods
increase at a growth rate of 2.6% for the last five quarters, while raw

materials increase by 3%. Specifically, Q4 2013 % change is very

interesting. In fact, raw materials go up by 12.3% and finished goods go
down by 32.3%, which proves the fact that Tesla sells its car very quickly.
Moreover, the company expects higher demand in the future as evidenced by
raw materials, which have increased the three last quarters from $99.7
million to $184.6 million.

As you can see in the graph, raw materials bottomed in Q2 2013. Since
then, Tesla almost doubles it at $184.6 million, while finished goods stay
approximately at the same level, from $77.8 million to $69.3 million.
Regarding the finished goods, you can see that they are very low in
comparison with total revenues, which shows that Tesla is production
constrained at the moment. Remember that the company has planned to
build a gigafactory to expand its production capacity, so I wouldn't be
surprised if that number goes up heavily in the future, but remains at the
same level as a % of total revenues.

Accounts Receivable as a % of Total Revenues Stay Low

When you have an attractive product such as Tesla's cars, you can sell it
straight forward to the market, without asking for deferred payment, which
comes directly in accounts receivable. In Tesla's case, accounts receivable
represent less than 8% of total revenues for the last quarter, which is
relatively small and points out the capacity of Tesla to receive payment from
customers without delays.