It is a group work. Our case study is Uber. Read the attached case study and do the project as per the given instructions. The first part is analyzing the microeconomics, second is project evaluation, and finally the macroeconomics. It has to be 5 pages long (Excluding the Title page and References). I have attached an example of a completed project on another company, it has to be a similar approach
final_project_example.docx
uber_case_2_.pdf
instructions_group_project_2_.pdf
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The Prospect of Electric Vehicles —— Tesla
Introduction
Electric vehicle (EV) has a long history from the 1800s. Since the shortage of traditional energy
gasoline surfaces, electric vehicles that provide environmental alternatives have been regarded as an
inseparable part of future as they are cheaper substitute solutions to traditional gasoline-based vehicles. The
market for electric vehicles is arriving at a critical point now. The last three years have been a series of
milestones for the automotive industry. 2017 was a landmark for electrical vehicles and hybrid vehicles —
— global total sales of new energy vehicles exceed one million units for the first time ever. Total car sales
increased in 1% on account of rising electrical vehicles market shares. Global number of sales of electric
vehicles reached 2.1 million worldwide at the end of 2018. The U.S government has introduced policy and
regulation that help electric vehicles market to grow. The electric car market has never stopped growing ever
since the electric car was introduced. There is no doubt that we pay close attention to the trend of automotive
industry which is a vital engine of the U.S. economic growth.
Microeconomics Analysis
The automotive industry where Tesla is operating in is an oligopoly market which consists of small
number of competitive firms. The industry is highly centralized and dominated by a few enterprises. The
automotive industry is dominated by some prestigious giants companies such as Ford & General Motors,
BMW & Mercedes-Benz, Toyota & Honda representing American carmaker, German carmaker and
Japanese carmaker respectively. In the oligopoly market, to compete with these established companies and
win a place in the market, Tesla relied on selling premium vehicles at the beginning to solve the dilemmas
that they have a shortage of capital at that time. They were able to raise enough money to operate and
establish their future development of EVs and they managed to fight a way out in the oligopolistic
automotive industry
EVs create a lot of opportunities that come with challenges like other transformative technology.
Indeed, there are barriers such as EV charging service vs. existing gasoline station in terms of price,
mileage, assistance and so on since EV market is still at an early stage. The major barriers can be
categorized into three aspects: high costs of EVs in the U.S., limited charging solution and consumer
adoption.
Solutions to Barriers of EVs in the U.S.
1. High Costs of EVs
a. Demand side
i.
High costs of EV
Solution: Government provide deducted tax to incentivize and promote EV cabs. Manufacturers may
discount utility fees.
b. Supply side
i.
Need construction of brand new supply chain
Solution: Manufactures provide supply chain development. Drawing more investment on research
and development. Connecting industry and academia closely.
2. Limited Charging Solutions
a. Investment in fast charger at home
b. Limitations of current battery models such as capacity and reliabilities
Solution: Need innovative battery designs. Increase coverage of charging station. Collaboration with
existing private charging owners.
3. Consumer Adoption: potential consumers educational
a. Cheaper gasoline-based vehicle
b. Consumer educational costs
Solution: Develop a feasible consumer educational plan. Provide tax incentives to consumers.
Here is an approximated demand curve of Tesla Model X. Data are from Tesla’s annual report and
Cargurus.
Graph #1 Approximated Demand Curve of Tesla Model X
The traditional automotive industry is reaching a turning point. Nowadays, Gasoline-based carmakers
are scrambled to join in the competition of EV market. Hybrid car Prius from Toyota has a 22-year history;
BMW has launched pure electricity powered car models series i. Recently, Porsche released Taycan, an EV
is equated to Tesla Model X in September 2019. Here are some considerations for Tesla to stay ahead of the
fierce race. First, Tesla needs to maintain their brand name: Tesla, a well-established undisputed leader in
EV market. One of the unignorable advantages of traditional giants carmakers is they have accumulated
customer base and established markets all over the world. Tesla is the leader of EVs but they still lack of
credentials in quality control. Next, customer service is another important aspect. Tesla just released cheaper
insurance plans compared to market average price for EVs to ensure the rights of Tesla drivers. Third, they
need to maintain the investment in advanced technology. According to their annual report in 2019, they are
researching and developing sustainable energy such as leveraging solar energy on EVs. Despite the
breakthrough of new technologies, Tesla still need to pay attention on maintaining reliable production. For
example, “producing battery packs with high energy density with low costs.” (Tesla Annual Report 2018)
Within the grand environment, we can anticipate continuing investment and innovation in technology
that will lead to a growing demand of electric vehicles sequentially, will begin to accelerate electric vehicle
deployment.
Project Evaluation
Tesla
Sales/Revenue
Cost of Goods Sold
Net Income
2014
3.2B
2.32B
(294.04M)
2015
4.05B
3.12B
(888.66M)
2016
7B
5.45B
(674.91M)
2017
11.76B
9.45B
(1.96B)
2018
21.46B
17.42B
(976.09M)
Table #2 Financials of Tesla
Ford Motor
Sales/Revenue
Cost of Goods Sold
Net Income
2014
144.08B
2.32B
1.23B
2015
149.56B
3.12B
7.37B
2016
151.8B
5.45B
4.6B
2017
156.78B
9.45B
7.73B
2018
160.34B
17.42B
3.68B
Table #3 Financials of Ford Motor
Discount rate (MARR) calculation
In order to evaluating the NPV or FV of Tesla and other companies electrical vehicle project, need to
analyze the Minimum Rate of Return (MARR). MARR should be greater than three components, which are
1.cost of borrow money, 2.cost of capital (WACC), and 3. opportunity cost.
First, analyzing the cost of borrowing money by researching the debt of Tesla and initial investment
that borrow from the bank or creditor. The major debt of Tesla owe is Long term debt. Calculating the
percentage of interest expense compared to the net income, and take average from 2014 to 2018. After that,
approximating the cost of borrowing money.
year
Long term debt
Interest Expense
Interest expense / total sale
2014
1.85B
100.89M
3.1%
2015
2.27B
118.85M
2.9%
2016
7.39B
198.81M
2.8%
2017
11.15B
471.26M
4.0%
2018
11.12B
663.07M
3.0%
Table #4 Long-term Debt of Tesla from 2014 to 2018 (data from balance sheet and income statement
Market Watch.com)
The average cost of borrowing money from 2014 to 2018 is 3.16%.
Second, analyzing the opportunity cost of Tesla electric car, by using equation opportunity cost =
FO-CO (FO = Return on alternative project, CO = Return on current project). Listing the an alternative
project that can invest for Tesla, and finding the highest rate of return, that will be the opportunity cost.
Project
Investment
Rate of Return
Result
Technology
Improvement
1B
8%
Increase sales 5.3% in
each coming 3 years
Advertising one year
500 million
3.8%
35% Increase sale 6%
65% Increase sale 3%
Therefore, the opportunity cost is 8%.
Third, Calculating the WACC (Weighted Average Cost of Capital), which represented minimum
return of Tesla that can match the cash flow to creditors, owners and other capital providers. WACC can be
𝑒𝑞𝑢𝑖𝑡𝑦
𝑑𝑒𝑏𝑡
calculated to the formula: 𝑊𝑎𝑐𝑐 = 𝑡𝑜𝑡𝑎𝑙 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 ∗ 𝑐𝑜𝑒 + 𝑡𝑜𝑡𝑎𝑙 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 ∗ 𝑐𝑜𝑑 ∗ (1 − 𝑟𝑡) = 8.5%(coe: cost of
equity, cod: cost of debt). Therefore, the WACC of tesla is 8.5%.
By comparing the cost of borrowing money (3.16%), opportunity cost (8%), and WACC (8.5%), the
MARR should be 8.5%.
Cash Flow of Cost
We compared some different model of cars with Tesla Model S. For the first two models, their prices
are similar to Tesla Model S. The rest of three models are hybrid cars with a lower price. Since some data
cannot be found in 2019 models, we use 2018 data and assume 2018 as the present time in the calculation.
According to the Consumer Reports, if a vehicle was properly maintained, its lifetime can be 15 years and
go 300,000 miles. Therefore, we calculate the NPV within 15 year lifetime to compare each model’s NPV at
2018
MSRP
($)
Maintenance
cost per year
Repair
cost
per
year
Cost in miles per
year
(electric/gas)
(15000 miles)
Average
Annual
Insurance
cost
Estimated
Annual cost
2018 Tesla
Model S
$78,000
$560
$196
$600
$2,724
$4080
2018 BMW
6-Series
$70,200
$1967.2
$636.6
$3105.8
$1948.8
$7658.4
2018
MercedesBenz CLSClass
$75,150
$2250.6
$680
$3029.5
$1720.2
$7680.3
2018
Chevrolet
Malibu
$21,680
$930.2
$204.4
$1927.2
$1462.8
$4524.6
2018 Honda
Civic
$20,250
$746.2
$154.6
$1699.8
$1403.8
$4004.4
2018 Toyota $23,475
Prius
$756.6
$154.6
$1110
$1373.8
$3385
Table #5 Table of Cash Flow of Costs
An example of cash flow for Tesla Model S within 15 year. Present time is 2018 (t = 0)
Cash flow for Tesla model S
0
$7800
1
2
1
4
$4080
$4080 $4080
Calculation
1
5$4080
NPV ($)
2018 Tesla
Model S
111881.29
2018 BMW
6-Series
133797.17
2018
MercedesBenz CLSClass
138929.03
2018
Chevrolet
Malibu
59253.35
2018 Honda
Civic
53503.48
2018 Toyota
Prius
51584.84
Table #5 Calculation of NPV of Major EV Model
Based on the NPV calculation, at the high-priced vehicles, the electric vehicle such as the Tesla
Model S has a lower NPV than other two non-electric vehicles. In addition, at the low-priced vehicles, the
hybrid car such as Toyota Prius still has a lower NPV than other two non-hybrid car. Even though
consumers spend more money buying an electric cars compared to a traditional gas car, in the long run, the
cost of electric cars is less than the traditional gas car. Therefore, in the long run, the most affordable vehicle
choice is the electric vehicle or a hybrid vehicle.
Cash Flow of Benefit
In order to get more information to prove the electric vehicle is the economical choice, we also
analysis its benefits such as government allowance.
2018 Tesla Model S
Tax Credits
Other Incentives
Total benefit
$7500
$2500
$10000
2018 BMW 6-Series
$0
$0
$0
2018 Mercedes-Benz
CLS-Class
$0
$0
$0
2018 Chevrolet Malibu
$0
$0
$0
2018 Honda Civic
$0
$0
$0
2018 Toyota Prius
$7,500
$1500
$9000
Table #6 Table of Cash Flow of Benefit
By considering the tax credits and other incentives, the purchasing price for the EVs can be
decreased. Calculating the EUAW for benefit within 15 years
Cash flow of
Benefit
0
-$10,000
1
$A
2
14
$A
$A
Calculation
15
$A
EUAW of benefit
2018 Tesla Model S
$-1204.2
2018 Toyota Prius
$-1083.78
Table #7 Calculation of EUAW of Model S and Toyota Prius
NPV before benefits
NPV ($) after benefits
2018 Tesla Model S
$111881.29
$101881.29
2018 BMW 6-Series
$133797.17
$133797.17
2018 Mercedes-Benz CLS-Class
$138929.03
$138929.03
2018 Toyota Prius
$51584.84
$42584.84
2018 Honda Civic
$53503.48
$53503.48
2018 Chevrolet Malibu
$59253.35
$59253.35
Table #8 NPV before benefits and NPV after benefits of Major EV models
The EUAW of benefit is $-1204.2 for Tesla Model S and $-1083.78 for Toyota Prius. On the other
hand, if we consider the benefits with the MSRP, the NPV cost of electric vehicles would be even less than
other non-electric vehicles. Therefore, the electric vehicle is one of the most affordable choices to buy a
vehicle. In recent years, a number of charging piles are constructed, it will become more convenient for
people to charge their electric vehicle. Furthermore, the electricity fee is less affected by the market than the
gas fee. Because of a lot of reasons affected the gas price, the non-electric vehicle might need to pay more
for this month or pay less for next month. The gas price is more unstable than the electricity price. But
overall, the gas price is increasing and more expensive than the electricity price. The electric vehicle would
be the best choice.
Macroeconomics analysis:
There will be more and more electric vehicles in the market for the following reasons:
First of all, the Car Market have been growing all the time, the demand of car will keep increasing, as the
Fig. graph from Automotive market
Fig. info from website zerohedge
increasing of the productivity which cost the price of vehicles to decrease. As both aftermarket and general
vehicle market showing the in the graph above from the website automotive aftermarket . Comparing with
the sales growth show in the figures. According to website CleanTechnica, it indicates Tesla has growth rate
of 25913%, where the market vehicles sales growth have been almost the same in from 2015 to now.
According to the data and graphs, the EV market has been going up sharply, and Tesla is one of the best
sales EV.
Fig. Tesla sales growth by CleanTechnica
Fig. Total EV sales by EEI customer solution
Secondly, People are paying more attention to our environment now, more and more
environmentally friendly product has been preferred for consumers. We can clearly see from the graph of
Electric Vehicles in the market now. Total EV sales has gone up 40% compared 2017. By using Electric
Vehicles, it not only can help our environment, but also save money in terms of gasoline and
electricity(Equivalent). The price of gasoline has been changing every year, since 2011 the price has been
anywhere between 4 dollars to 1.6 dollars in average(in California is more expensive). However, the price of
the electrices has been very stable at around 1.2 dollars in the past few years. It would save money for
consumers in the long run with electric vehicle.
Fig. Total EV sales by EEI customer solution
Fig. Total EV sales by EEI customer solution
Inclusion, by replacing a regular car with a newer technological and efficiency electric cars is a great
idea. Although there are some downsides of EV, for example customers still have the fear about running out
of power in the middle of highway without charging station around. As the improvement of technology, the
EV today have much higher mileage comparing what we had before, and there are more and more charging
stations have built in the past few years. As an unlimited source compared with gasoline, EV would be a
great future in the long run, especially with the other environmentally friendly power coming along like
solar power and reducing the cost of making EV.
Work Cited
Tesla Finances and Accounting
https://ir.tesla.com/financial-information/quarterly-results
Tesla Model X Prices History from 2016-2019
https://www.cargurus.com/Cars/price-trends/Tesla-Model-X-d2132
After Market Growth [Graph] Total U.S. Aftermarket Size
How Big is the Aftermarket Automotive Industry?
Irle, R., “Global EV Sales for the 1st Half of 2019”(2019)
http://www.ev-volumes.com/country/total-world-plug-in-vehicle-volumes/
Shahan, Z., “25,913% Growth In Tesla Sales In 6 Years”(2018)
https://cleantechnica.com/2018/10/04/25913-growth-in-tesla-sales-in-6-years/
Vehicle Ongoing Cost
https://www.edmunds.com/mercedes-benz/c-class/2018/cost-to-own/
Vehicle Lifetime
www.consumerreports.org
Tax credits and other incentives for EV
https://www.edmunds.com/tesla/model-s/2018/deals/
EEI, “Electric Vehicle Sales: Facts & Figures” (2018)
https://www.eei.org/issuesandpolicy/electrictransportation/Documents/EV_%20Sales%20Facts%20a
nd%20Figures.pdf
W15425
UBER: MANAGING A RIDE IN CHINA 1
Xiaoke (Coco) Xu, Professors Xin (Shane) Wang and Neil Bendle wrote this case solely to provide material for class discussion. The
authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised
certain names and other identifying information to protect confidentiality.
This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the
permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights
organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western
University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com.
Copyright © 2015, Richard Ivey School of Business Foundation
Version: 2016-02-29
On December 17, 2014, Chinese search engine giant Baidu confirmed a deal with Uber, which involved
connecting its mapping services to the fast-growing, online ride-hailing app. Although by the time of the
deal, Uber already existed in eight Chinese mainland cities, Travis Kalanick, Uber’s chief executive
officer (CEO), understood that it would still not be an easy ride for Uber to crack the world’s largest
transportation market.
The issues Uber faced in China were similar to the issues it faced as it expanded to other cities around the
world. Uber found itself caught up in wars with local taxi drivers and facing severe challenges from local
ride-hailing services. Uber was also facing questions from Chinese authorities with respect to a few legal
issues. Indeed in May 2015, Uber’s Guangzhou and Chengdu offices were raided by local authorities as a
part of a nationwide ban on drivers without a licence to carry passengers. Despite the backlash from local
government and the taxi sector, Uber remained operational in 10 mainland Chinese cities. As long as
Uber drivers continued to work as an ill-defined group and until a clear regulatory policy was
implemented, Uber could reasonably expect to encounter additional barriers in China. How should Uber
manage its expansion in China?
WHAT DOES UBER DO?
The idea of Uber was inspired by a bad experience of getting a cab in Paris. Travis Kalanick started to
wonder whether it was possible to design an easy way for people to request a cab just by clicking a button
on their mobile phone. The Uber service was officially launched in 2010 in the form of a mobile app for
the iPhone and android phones. The app allowed a user to enter a pickup location on their phone and
summon a car to take them where they want to go. Users could also choose whether they wanted a regular
sedan, a luxury sedan or a sport utility vehicle for the trip. The matching of a driver to a rider was done
automatically by the Uber system. The app used the Global Positioning System to locate the closest car to
the rider’s location and assigned the order to that driver. The taxi fare was then billed directly to the
passenger’s credit card, which was linked to the app when the passenger registered for the service.
Uber originally adopted a business model that used non-experienced drivers who operated their private
cars to offer the service, as opposed to working with traditional cabs operated by licensed taxi drivers.
Drivers without a license to carry passengers remained the majority of Uber’s current drivers, but Uber
This document is authorized for use only by Meliha Bulu-Taciroglu (melike9@ucla.edu). Copying or posting is an infringement of copyright. Please contact
customerservice@harvardbusiness.org or 800-988-0886 for additional copies.
Page 2
9B15A047
had started to embrace greater variety in the vehicle options offered, such as working with licensed
chauffeur drivers, car rental companies and even taxi drivers in an effort to expand the reach of its service.
One of Uber’s most interesting features, which made it stand out and garnered considerable attention, was
its surge pricing. The patented technology was a built-in algorithm that automatically adjusted the rate for
a journey based on the current supply-demand ratio. This process used price as a lever to allocate
resources to achieve a higher level of efficiency. While the precise algorithm …
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