Tài liệu ôn tập cuối kỳ Tesla International - Bussiness ( BUS123) | Đại học Hoa Sen

Tesla is a foresighted and forward-thinking firm that has transformed the electric
vehicle market. Tesla's journey began with the sporty Roadster. However, the price
was insufficient to attract additional clients. Later, the business created a more
stable and inexpensive version with a long-range and sedan-like appearance. The
company's current leadership, led by Elon Musk, has increased its value and
competitiveness. In an established and already competitive market, it now
competes with substantial global brands.
Tesla has signed a contract to sell 27 luxury sports supercars in six countries,
including the United States of America (USA), in May 2020. The local currencies
will pay revenues from the other five countries at the exchange rate prevailing at
the delivery time. However, the exchange rate is probably uncertain that estimates
of the expected value and standard deviation have been provided by the Bank of
America for all, except one (EUR) of the currencies. This report concerns the
evaluation and risk analysis of the total revenue for Tesla, with the assumption of
independent normal distribution of coins and consideration about whether to accept
or reject the HSBC’s offer when this bank offers only $2,150,000 for the total revenue.
SUMMARY OF RESULT
The expected revenue from the sale of the cars is computed as $2,186,774.78, and
the risk (standard deviation) is $35,078.12.
The probabilities of the revenue exceeding $2,280,000 are 0.39 percent, while the
likelihood of income being less than $2,160,000 is 22.36 percent.
The cumulative distribution of the total revenue at $2,150,000 is 14.68%, which
means the total revenue exceeding $2,150,000 is 14.68%, and the probability of
total income less than this amount is 85.32%. That is to say, there is a big chance
that the total revenue is worthy of more money than the tendered offer from HSBC.
It is not a good offer for Tesla because the company is very likely to earn more. RECOMMENDATION
The report recommends that the company reject the bank’s offer due to the
possibility of earning higher than the amount offered by HSBC.
Tesla sells luxury sports cars and recently signed a forward contract to deliver on
1st May 2021 to its global customers. Providing that the selling prices are fixed in
local currencies at the prevailing exchange rate at delivery time, a risk analysis is
performed to instruct all the instructed parties to cope with the uncertainty. This
information involves uncertainties about the company's final revenue at the end of
the contract period. The Bank of America and Historical Chart on Macro trends
provided exchange rate estimates for these countries to make a proper analysis.
HSBC offered to pay a certain sum of $2,150,000 to the company in return for all
the revenue in local currencies to manage the exchange rate risk.
The report aims to calculate the probabilities of earning revenue in excess or below
the expected income, assess the offer from HSBC, and predict other risks that the
company and the bank will face. The data after analysis made a recommendation to
help the CEO decide to reject HBSC's offer and wait for the new potential contract for company profit.
Tesla signed a contract to sell 27 cars in six countries. These include ten cars in the
United Kingdom (UK), two in France, eight in Japan, four in Canada, two in South
Africa, and one in the United States of America (USA). Though the exchange rate
means and standard deviation for the countries are the same, the selling prices are
different, thus, presenting different risk levels. Additionally, the exchange rate
between these currencies is flexible. There is uncertainty about the expected
revenue at the end of the contract period. To reduce the exchange rate uncertainty,
Bank of America provided estimates for exchange rates and their standard
deviation around their averages (Table 1).
Since the estimation of the exchange rate of EUR/USD is not available, it is
estimated by using the daily closing values from the last 24 months, 1st May 2019
to 1st May 2021, from the Historical Chart on Macro trends website (2021). The
mean and standard deviation for Euro is calculated as 1.14301 and 0.04401 to US
dollar, respectively. Filling in the estimation of France order, the table of total
analysis is listed as in table 2.
From the above, all the currencies are assumed to follow an independent normal
distribution, and the total revenue is the linear combination of a series of
independent standard random variables. According to Weiss (2012), the total
revenue follows a normal distribution, with the mean being the sum of means and
the standard deviation being the square of the sum of variances. In particular, the
uncertain revenue amounts to $2,186,774.78, and the standard deviation is
$35,078.12. In figuring the standard deviation, sales to Japan and Canada were
treated differently (their variances were squared differently before summing them),
which reduces risk, subsequently accomplishing the benefit of diversification.
Further calculations on the probability of earning higher or lower revenue than the
average help a company make an informed decision. Thus, the likelihood that
income will exceed $2,280,000 is 0.39 percent, while the probability that revenue
will be less than $2,160,000 is 22.36 percent.
In HBCS’s offer case, the company received an offer of a certain sum of
$2,150,000 in return for the uncertain currencies. The cumulative distribution of
the total revenue at $2,150,000 is 14.68%, which means the total income exceeding
$2,150,000 is essential data to analyze the risk that can happen to the company.
As an option of managing its risk, Hong Kong and Shanghai Banking Corporation
(HSBC) offers to pay a certain sum of $2,150,000 in return for the uncertain
revenue in local currencies. The probability of total income exceeding $2,150,000
is 14.68%, and the likelihood of total revenue less than this amount is 85.32%.
That is to say that there is a significant chance that the total income is worthy of
earning more money than the tendered offer from HSBC. Therefore, it is not a
good offer for Tesla. Furthermore, the proposal from HSBC is even less than the
expected value of the total revenue, $2,186,774.78. Therefore it could hardly be considered a good deal.
After considering the offer from HSBC, the Sales Manager is willing to accept the
offer, which means he possesses pessimistic expectations about the future value of
the total revenue and the loss hurts him more than the utility from an equivalent
gain. This analysis fits the definition of risk-averse (Investopedia, 2015) precisely,
which refers to the behavior that the investor prefers to the return with more
negligible risk and gives up the higher possible return. On the other hand, the CEO
refuses to accept the offer; he expects a higher return with higher risk. Thus, the
Sales Manager is more risk-averse than the CEO. According to Wikipedia (2013),
it is “the reluctance of a person to accept a bargain with an uncertain pay-off rather
than another bargain with more certain, but possibly lower expected pay-off.”
Apart from currency rate risk, the bank assumes other risks because of the risk
inherent in foreign financial transactions. These include credit, physical, market
stagnation, and country risks.
Credit risk refers to a vehicle dealer's or a final buyer's failure to pay the expected
price on time. In contrast, physical risk involves the chance of automobiles being
damaged after delivery but before selling to the ultimate consumer due to a natural
disaster. Although the bank may mitigate these risks by offering automobile
insurance, this comes at additional expenses.
Another risk to the bank is market stagnation due to a financial or economic crisis.
Stagnation is a state in which an economy's total production decreases, flattening,
or rising slowly. Persistent unemployment is also a characteristic of a stagnant
economy. Stagnation results in balanced employment growth, no wage increases,
and an absence of stock market booms or highs (Investopedia 2021)
Others include country risks such as changes in legislation and regulations and
political risks in these countries.
This report calculated the expected return and risk for a contract has signed by
Tesla to sell 27 sports cars in six different countries. According to the estimates of
mean and standard deviation for the currencies provided in the source, total
revenues have a mean value of $2,186,774.78 and a standard deviation of
$35,078.12. The company should consider the future trend of foreign currencies
and their risk preference when the HSBC bank pays $2,150,000 for the total
revenue. Because the standard deviation reflects the risk of the coins, the company
faces higher uncertainty of the currency revenue. The company might reduce the
risk, such as increasing income by investing in currency-hedged mutual funds.
In conclusion, this report highly recommends that the company reject HSBC’s
offer and wait for other potential contracts because of the benefit more.