Tesla Company Analysis

Gabriel Kislik

Investment Finance

Prof. Jozkowski

03/13/14

Company Analysis – Tesla Motors, Inc. (TSLA)

In today’s economy, a company’s financial position represents a quintessential component for investors in their decision-making process, as it informs them of the company’s general well being. Most importantly, by determining the viability, the stability, and the profitability of a business over a certain amount of time, investors are able to gain a better understanding of the company itself, and properly value it. Similarly, a company’s financial position can help an investor extrapolate the company’s past performance, into an estimate of the company’s future performance, giving an investor the chance to make the most rational decision.

I have chosen to analyze Tesla Motors, Inc., (NASDAQ: TSLA) an American public company founded in 2003 by Elon Musk, Martin Eberhard, Marc Tarpenning, JB Straubel, and Ian Wright, “designs, manufactures, and sells electric cars as well as electric vehicle powertrain components.”^[1] Currently, the automotive company headquartered in Palo Alto, California produces three vehicle models: the Tesla Roadster, the Model X, and the Model S. For this particular assignment, I will focus on the company’s balance sheets, income statements, and cash flow statements for the last 5 years.

First of all, I believe that it is important to give a simplistic overview of each statement and any large movement from year to another, in order to examine the bigger picture and the possible influence certain events may have had on the company’s performance. For instance, one immediately notices in the company’s income statement that revenue has grown from $112 million in 2009, to $2,013 million in 2013, highlighting the recent success the company has known in the automotive industry. Similarly, we observe that gross profit has increased from $10 million in 2009, to $456 million in 2013. However, we also notice that total operating expenses (research and development expenses as well as sales, general, and administrative expenses) have increased from $61 million in 2009 to $518 million in 2013, suggesting that tremendous efforts were made financially to stimulate innovation and better technology while expanding the company’s day-to-day operations. Moreover, one can observe that total assets have grown over the past five years by almost 92%, with an increase from $101 million in 2009 to $1266 million in 2013. Although all these numbers point towards a certain trend in which Tesla has been extremely successful, if looked at more carefully, numbers can be interpreted in quite a different way.

In fact, a company’s balance sheet can be extremely informative when looking at a company’s assets, liabilities, and equity. For instance, one notices that cash has increased from $70 million in 2009 to $846 million in 2013. However, one also notices that the company’s total cash experienced a tremendous increase between the years 2009 and 2013, from $202 million to $846 million, or a 76% increase. This unusual phenomenon was linked to the storm in 2012, which left Tesla as the only company to offer fully electric cars that are both luxurious and powerful. Similarly, one also observes that net property, plant, and equipment value has increased from $21 million in 2009 to $1121 million in 2013. Particularly, one notices that property, plant, and equipment assets tremendously increased between the years 2012 and 2013, from $552 million to $1121 million. I believe that this is linked to the many new factories and operating sites that Tesla developed and is currently developing, including it’s new $5 billion “gigafactory”.

Finally, one also observes that the company may have adopted a new financing strategy, as short-term debt decreased between 2012 and 2013 from $51 million to $0, while non-current liabilities have tremendously increased between 2012 and 2013, from $450 million to $1075 million. Interestingly enough, we also observe that total stockholder’s equity has decreased in the past 4 years from $254 million in 2009 to $125 million in 2012, to increase in 2013 to $667 million. This 81% increase is closely related to the amount of retained earnings from the company that is then reinvested into the company’s capital. For example, retained earnings increased from $261 million in 2009, to $1140 million in 2013. Therefore, although the company has considerably increased it’s long-term debt; great efforts are being made to increase the company’s current assets while reducing its current liabilities.

The income statement is also particularly interesting to look at for specific trends over time.

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In this particular case, we first notice that revenue and net income have grown over time, except between 2012 and 2013 where net income decreased because of an increase in total assets.

We also notice that revenues and profits are growing in a consistent manner, except for between the years 2012 and 2013, where it experienced exponential growth. Therefore, from this particular statement we can assume that Tesla’s performance is not easily predictable, as it tends to have significant swings in specific expenses.