Financial assessment of Tesla motors, inc

To truly know what a company stands for, how well it is performing, how realistic are the company’s targets, how well can we trust in its future, we have to look at and analyze the company’s finances. And the best insight into the financial standings of the company, available to the public, like investors, potential or current shareholders, or finance students, as myself, are the company’s financial statements. If a company is publicly traded on one of the stock exchanges around the world, its financial statements have to be published on their websites and made available to the public, making it easier to find all the information needed.

Before looking at the statements, we have to understand the background of the company, its history, what does it stand for. Looking at various sources across the internet I have found the following information.

Overview of Tesla Motors, Inc.

By January 2009, Tesla had raised US$187 million and delivered 147 cars. Musk had contributed US$70 million of his own money to the company. On May 19, 2009, Germany's Daimler AG, maker of Mercedes-Benz, acquired an equity stake of less than 10% of Tesla for a reported US$50 million. On June 29, 2010, Tesla Motors launched its initial public offering on NASDAQ. 13,300,000 shares of common stock were issued to the public at a price of US$17.00 per share. The IPO raised US$226 million for the company. It was the first American car maker to go public since the Ford Motor Company had its IPO in 1956.

Now with more than 50,000 vehicles on the road worldwide, Tesla is preparing to launch Model X, a crossover vehicle that enters volume production in 2015. Featuring exhilarating acceleration, falcon wing doors, and room for three rows of seating, Model X defies categorization.

Tesla’s vehicles are produced at its factory in Fremont, California, previously home to New United Motor Manufacturing Inc., a joint venture between Toyota and General Motors. The Tesla Factory has returned thousands of jobs to the area and is capable of producing 1,000 cars a week. Tesla is not just an automaker, but also a technology and design company with a focus on energy innovation.

Having looked at the history and plans for the future of Tesla Motors, let’s look at their financial statements and analyze, how well are they performing.

Financial statements analysis of the company

Being an American company, registered in the United States of America, the financial statements of Tesla Motors are prepared in accordance with the US GAAP. The company among other reports prepares annual reports to the US Securities and Exchange commission (SEC), where they describe their financial data. I have found the following information on the company’s balance sheet and Income statement on the website of NASDAQ, where the shares of the company are traded.

First, let’s look at the annual income statement of Tesla Motors. At first glance, we can see that Gross Profit has been steadily growing since 2011, and at the end of the 2014 financial year it amounted to 881 million US Dollars. Compared to the previous year, 2013, gross profit has increased by 93%, which is with no doubt a good indicator. At the same time, we can also notice, that operating expenses have also increased, and in 2014 amounted up to around 1 billion US Dollars. Compared to 2013, operating expenses have increased almost 2 times, thus, getting a positive operating income for the company was impossible.

For the year 2014 the company got an operating loss of 186 mln. USD, compared to the previous year’s smaller loss of 61 mln. At the same time, it is important to notice, that getting an operating loss is normal for the company, as it is still in the product launching, start-up phase, and the losses for the years 2012, 2011 have been significantly bigger.

In addition to the previous factors, we can see that in 2014 Tesla had to pay interest expenses of around US$ 100 mln., compared to 2013 this indicator grew 3 times, which can indicate, that Tesla took new loans to finance its activity. This contributed to the end-of the year Net Loss of 294 mln. USD, which is worse, than for the year 2013, when the Net Loss amounted to 74 mln. USD. The reasons behind this could be various, from additional costs and expenses due to the launch of a new product, to decline of customer demand due to growing market instability.

Looking at the balance sheet of the company, we can notice that the current assets of the company, as well as the assets overall have increased compared to 2013. This is due to the increase of cash and cash equivalents more than 3 times. Thus, in 2014 current assets amounted to 3.2 bln. USD, compared to 1.2 bln. USD a year before. Long-term assets have also, increased, primarily due to the increase of fixed assets up to 2.6 bln. In the year 2014 the total assets of the company amounted for 5.8 bln. USD, that is a 141% increase. At the same time, total liabilities have also increased. Short-term debt increased from 7 mln. USD in 2013 to 611 mln. in 2014, which proves my theory suggested above during the income statement analysis about a new loan; accounts payables increased more than 2 times, while long-term debt has also increased from 2013 to 2014 2 times. This lead to overall liabilities increasing almost 4 times and amounting to 4.9 bln. USD. At the same time, share prices of Tesla Motors increased, as the company has a big confidence of investors.

Evaluating the liquidity of the company, let’s calculate some ratios. (in 000’s)

The company’s Working Capital is calculated as= total current assets- total current liabilities

In 2014 Tesla’s WC was: $ 3 198 657 - $ 2 107 166= $1 091 491.

In 2013 the WC was: $ 590 779.

We can see, that in one year the company managed to almost double its working capital, which means it has almost twice as much current assets to cover its current obligations. It is a positive sign.

The second ratio to look at is the Current Ratio . The current ratio is considered to be a good indicator of a company’s ability to pay its debts on time.

In 2014, Tesla’s CR was: current assets/current liabilities= 152%

In 2013 the CR was: 188%

So in 2013 this indicator was better, but a CR bigger than 1 is good in any case.

The third indicator to look at is the profit margin, which shows how well is the company controlling its costs and is calculated the following way:

Net income/ net sales x 100.

In 2014, Tesla’s profit margins was: 9%

In 2013: 4%

We can observe a slight increase, which is a positive tendency.

The next ratio analyzed is the Return on Assets . It shows how much income is earned on each dollar of invested assets.

In 2014, ROA was: net income/average total assets= 7.1%

In 2013, ROA was: 4.2%

This brings us to the one of the most important ratios financial analysts and investors like to look at, the ROE, Return on Equity . It indicates, whether a company has earned a favorable return for stockholders.

ROE= net income/average owners’ equity

In 2014, Tesla’s ROE was: 32%

In 2013: 11%.

This shows, that compared to the previous year the company did better in earning a favorable return to its stockholders.

Conclusion

Having looked at Tesla Motors’ history, its current position and plans for the future I came to the conclusion that it is a company with great ideas, ambitions, possibilities. The innovative products they create can not only make the company leading competitor in the automobile industry, but also ensure a better future for the following generations by dramatically reducing CO2 emission of cars.

Having analyzed the company’s financial statements, I came to the conclusion, that is still experiences financial difficulties, such as having net loss instead of profit. But it may be due to the fact, that the company is still developing rapidly and is far from being in its peak position. After introducing more car models and new products they are working on currently, I have the confidence, which is shared by many investors, that the company will perform better, which will be duly reflected by all the financial indicators.

Analyzing next year’s financial statements, I expect Tesla Motors to perform better, and hope they will fulfill my expectations.

List of used resources

• 1.    United States Securities and exchange commission (SEC), http://www.sec.gov/Archives/edgar/data/1318605/000119312513096241/d452995 d10k.htm

• 2.    Tesla Motors website, https://www.teslamotors.com/about

• 3.    Tesla Blog of Elon Musk, https://www.teslamotors.com/blog/secret-tesla-motors-master-plan-just-between-you-and-me

• 4.    “Tesla Boosts Funding to Start Electric-Car Assembly”, Bloomberg article,

• 5.    Pacific                 Business                 news                 article

  http://www.bizjournals.com/pacific/stories/2009/06/22/daily33.html

  • 6.    Financial statistics from the website of Tesla http://ir.teslamotors.com/releasedetail.cfm?releaseid=483517

  • 7.    Data of NASDAQ, http://www.nasdaq.com/symbol/tsla/financials

  • 8.    NASDAQ

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"Экономика и социум" №1(20) 2016