Question

In: Finance

Proterra was founded by Dale Hill in 2004 with a vision to design and manufacture world-leading,...

Proterra was founded by Dale Hill in 2004 with a vision to design and manufacture world-leading, advanced technology heavy-duty vehicles powered solely by clean domestic fuels. After launching a first successful fleet of alternative fuel buses in the 1990s, Proterra focused on developing the 'bus of tomorrow.' Proterra Inc. also designs and manufactures heavy-duty vehicles including EcoRide, a battery electric and zero-emissions bus, and Proterra Catalyst, an electric transit vehicle. The company manufactures a TerraFlex Energy System that enables customers to select amount and type of energy storage to meet specific route requirements, plus TerraVolt fast-charge batteries, TerraVolt extended range batteries, an on-route charge station and in-depot charging services. It offers financing solutions, route simulation analysis, battery lifecycle management, and standard warranty services (Proterra, 2015). It serves customers throughout the United States. The company is privately owned, but is in the process of becoming a public corporation. With this expectation, the firm's chief executive officer (CEO) has asked for determination of which of two companies appears to be a better peer to compare itself against, New Flyer Industries, Inc. (a Toronto-based firm), or Tesla. Tesla Motor Vehicles designs, develops, manufactures, and sells high-performance fully electric vehicles and stationary energy storage units similar to certain Proterra products. Tesla Motors has subsidiaries in North America, Europe and Asia, with the primary purpose of these subsidiaries being to market, manufacture, sell and/or service their vehicles (Tesla Motors, 2016). New Flyer was founded in 1930, and is now the largest transit bus and motorcoach manufacturer and parts distributor in North America with fabrication, manufacturing, distribution and service centers in Canada and the United States. It is North America's heavy-duty transit bus leader and offers clean diesel, natural gas, diesel-electric hybrid, electric-trolley and battery-electric. Information regarding Tesla and New Flyer is given here, for your use in comparing these firms.

Tesla Versus New Flyer

Significance

Measure

TSLA

NFI

Total Market Value of all outstanding shares.

Market capitalization

33.63B

1.831B

Number of outstanding shares currently held by all shareholders.

Outstanding shares of stock

147.28M

59.742M

A Beta coefficient indicates the systemic risk that an asset has relative to an average asset. A risk-free asset has a Beta of zero.

Beta

1.28

0.16

The return the firm must earn on its existing assets to maintain the value of its stock, and the required return on any investments by the firm that have essentially the same risks as existing operations.

WACC

9.03%

8.34

PE ratio divided by expected future earnings growth (after multiplying the growth rate by 100).

PEG Ratio

18.47

0.5

A measure of profit per dollar of assets.

ROA

-7.04%

6.26%

A measure of how the stockholders fared during the year.

ROE

-113.20%

13.21%

A measure of how much investors are willing to pay per dollar of current earnings. Higher PEs are often taken to mean the firm has significant prospects for future growth.

P/E Ratio

-29.17

25.3

Ratio of Net income to sales.

Profit Margin

-23.91%

-3.83%

References

Bloomberg. United States rates and bonds.

Federal Reserve. (2016). Federal Reserve economic data.

Korosec, K. (2015). This startup is gearing up to be the Tesla of electric buses. Fortune Magazine.

Proterra. (2015). About Proterra.

Securities and Exchange Commission. (n.d.) SEC.gov home.

Tesla Motors. (2016). Tesla Motors, Inc. 2016 annual report.

Yahoo. (n.d.) Yahoo finance.

Assume that you are the finance manager for Proterra and you have been asked to provide an analysis of the following issues, as the firm develops benchmarks for its cost of capital (WACC) estimates. The firm's CEO has instructed you to use the pure play approach to estimate its WACC cost of capital, and has chosen Tesla Motors (ticker symbol TSLA) and New Flyer (ticker symbol NYI.TO) as possible representative peers (Korosec, 2015).

QUESTION: Analyze the relative applicability or inapplicability of utilizing these firms as peers to evaluate Proterra's likely cost of capital, with the given above data about Proterra, Tesla and New Flyer, and the lessons of Capital Market History.

Solutions

Expert Solution

TSLA NFI
Mcap 33.63 1.83
O/S 147.28 59.74
Beta 1.28 0.16
WACC 9.03% 8.34%
PEG 18.47 0.5
ROA -7.04% 6.26%
P/E -29.17 25.3
Profit Margin (%) -23.91% -3.83%
CMP=Mcap/No of O/S 0.23 0.03

TSLA is a much more mature market leader in all terms over NFI. As per the given financila only indicates the same. however, NFI is an old firm but they are the likely peers to Proterra.

PEG ratio is less than 0.5 indicates that a firm is undervalued and there is huge growth potential is available in the near term.

The profit margin for NFI & TSLA both are negative however in case of NFI profit margin tank because of subsidiary loss, but P/E is positive.

WACC is also at a lower side which is likely for a newly listed company.

TSLA beta is at the higher end however in case of NFI beta is at 0.16 so it's less volatile as compared to a benchmark index.

So NFI is the best peers for Proterra.



Related Solutions

Proterra was founded by Dale Hill in 2004 with a vision to design and manufacture world-leading,...
Proterra was founded by Dale Hill in 2004 with a vision to design and manufacture world-leading, advanced technology heavy-duty vehicles powered solely by clean domestic fuels. After launching a first successful fleet of alternative fuel buses in the 1990s, Proterra focused on developing the 'bus of tomorrow.' Proterra Inc. also designs and manufactures heavy-duty vehicles including EcoRide, a battery electric and zero-emissions bus, and Proterra Catalyst, an electric transit vehicle. The company manufactures a TerraFlex Energy System that enables customers...
The Porsche Shop, founded in 1985 by Dale Jensen, specializes in the restoration of vintage Porsche...
The Porsche Shop, founded in 1985 by Dale Jensen, specializes in the restoration of vintage Porsche automobiles. One of Jensen's regular customers asked him to prepare an estimate for the restoration of a 1964 model 356SC Porsche. To estimate the time and cost to perform such a restoration, Jensen broke the restoration process into four separate activities: disassembly and initial preparation work (A), body restoration (B), engine restoration (C), and final assembly (D). Once activity A has been completed, activities...
The Porsche Shop, founded in 1985 by Dale Jensen, specializes in the restoration of vintage Porsche...
The Porsche Shop, founded in 1985 by Dale Jensen, specializes in the restoration of vintage Porsche automobiles. One of Jensen's regular customers asked him to prepare an estimate for the restoration of a 1964 model 356SC Porsche. To estimate the time and cost to perform such a restoration, Jensen broke the restoration process into four separate activities: disassembly and initial preparation work (A), body restoration (B), engine restoration (C), and final assembly (D). Once activity A has been completed, activities...
The firm Hill is planning to acquire Dale, another firm in the same industry. Relevant financial...
The firm Hill is planning to acquire Dale, another firm in the same industry. Relevant financial information for the two firms is shown below. Both firms are financed entirely by equity. The acquisition will result in expected cost savings for the merged (post-acquisition) firm with a total present value of $38 million. (a) Assume for this part of the question that Hill’s shares are valued at $4.50 each. How many new shares would Hill issue to Dale's shareholders in exchange...
The firm Hill is planning to acquire Dale, another firm in the same industry. Relevant financial...
The firm Hill is planning to acquire Dale, another firm in the same industry. Relevant financial information for the two firms is shown below. Hill Dale Price per share, $ 4.50 1.90 Number of shares 28,000,000 10,500,000 Dividend payout ratio 0.65 0.20 Both firms are financed entirely by equity. The acquisition will result in expected cost savings for the merged (post-acquisition) firm with a total present value of $38 million. (a) Assume for this part of the question that Hill’s...
4. The firm Hill is planning to acquire Dale, another firm in the same industry. Relevant...
4. The firm Hill is planning to acquire Dale, another firm in the same industry. Relevant financial information for the two firms is shown below. Hill Dale Price per share, $ 4.50 & 1.90 Number of shares 28,000,000 & 10,500,000 Dividend payout ratio 0.65 & 0.20 Both firms are financed entirely by equity. The acquisition will result in expected cost savings for the merged (post-acquisition) firm with a total present value of $38 million. (a) Assume for this part of...
The firm Hill is planning to acquire Dale, another firm in the same industry. Relevant financial...
The firm Hill is planning to acquire Dale, another firm in the same industry. Relevant financial information for the two firms is shown below. Hill Dale Price per share, $ 4.50 1.90 Number of shares 28,000,000 10,500,000 Dividend payout ratio 0.65 0.20 Both firms are financed entirely by equity. The acquisition will result in expected cost savings for the merged (post-acquisition) firm with a total present value of $38 million. (a) Assume for this part of the question that Hill’s...
Emirates Group Security Vision, Mission Vision To maintain recognition internationally as being one of the leading...
Emirates Group Security Vision, Mission Vision To maintain recognition internationally as being one of the leading organizations, in the business of providing aviation and security related services and to set the benchmark for this service within the aviation industry. Instruction: identify the specific type of the above vision statement? Develop at least three different vision statements for the above organization. Mission Emirates Group Security is committed to safeguarding all customers, staff, and assets against acts of unlawful interference through continuous...
The Study of Instructional Improvement (SII; Hill, Rowan, and Ball, 2004) was carried out by researchers...
The Study of Instructional Improvement (SII; Hill, Rowan, and Ball, 2004) was carried out by researchers at the University of Michigan to study the math achievement scores of first- and third-grade students in randomly selected classrooms from a national U.S. sample of elementary schools. Using the information above answer the following question using excel and show work. 1. Analyze Classroom data          Describe the relationship between the dependent variable and independent variable Run the appropriate test and you’re your conclusion...
Jeffery Smith founded Smith’s technology in 1994 in Melbourne, Australia, with $10,000 and a unique vision...
Jeffery Smith founded Smith’s technology in 1994 in Melbourne, Australia, with $10,000 and a unique vision of how technology should be designed, manufactured and sold. More than 5 million customers later and with an annual IT budget of approximately $500 million per year, Smith has made an indelible mark on the computer industry—and the world. The enterprise sells more than 1,000 apps every day to customers in 120 countries and employs 40,000 people worldwide. Covid has had a significant impact...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT