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Tesla Inc (TSLA) Extended Graph Analysis

April 29th, 2019 Posted by Extended Analysis No Comment yet

Tesla Motors Inc (TSLA) has officially changed its name to Tesla Inc. The company has acquired Solar City in August 2016, a solar power company.

tesla-motors-inc

About the Company

Company Profile

Tesla, Inc. is an American automotive and energy company based in Palo Alto, California. The company specializes in electric car manufacturing and, through its SolarCity subsidiary, solar panel manufacturing. Founded July 1, 2003, in San Carlos, CA by Elon Musk.Source: Wikipedia

 

TESLA EXTENDED GRAPH ANALYSIS

 

A) TESLA CASH FLOW

TeslaCASH FLOWS

Net Cash flows provided by operating activities Net Cash used for investing activities Net Cash provided (used for) financing Capital Expenditure Free Cash Flow
2014 -57,337,000 -990,444,000 2,143,130,000 -969,885,000 -1,027,222,000
2015 -524,499,000 -1,673,551,000 1,523,523,000 -1,634,850,000 -2,159,349,000
2016 -123,829,000 -1,416,430,000 3,743,976,000 -1,440,471,000 -1,564,300,000
2017 -60,654,000 -4,418,967,000 4,414,864,000 -4,081,354,000 -4,142,008,000
2018 2,097,802,000 -2,337,428,000 573,755,000 -2,319,516,000 -221,714,000
TTM 2,097,802,000 -2,337,428,000 573,755,000 -2,319,516,000 -221,714,000

Facts

  • Net cash flows provided by operating activities was $2.098 billion in 2018 and the trailing twelve months.
  • Also, net cash used for investing activities was $-2.34 billion in 2018 and the trailing twelve months.
  • And, cash provided (used for) financing was $574 million in 2018 and the trailing twelve months.
  • On the other hand, capital expenditures were $-2.32 billion in 2018 and the trailing twelve months.
  • Free cash flow was $222 million in 2018 and the trailing twelve month

Explanation

  • The net cash flows provided by operating activities soared up to 103 percent from 2017 to 2018 due to depreciation.
  • Also, the net cash used for investing activities is the purchases of property and equipment, excluding capital leases, net of sales.
  • Net cash provided (used for) financing activities are proceeds from the issuance of convertible and other debt; and repayments of convertible and other debt. Plus collateralized lease borrowings and other repayments.
  • On the other hand, capital expenditures are an investment in property and equipment.
  • Free cash flow increases by 1768 percent although negative, compared to 2017.

Interpretation

Tesla suffered a negative free cash flow for the past five years due to its huge investment in property and equipment. However, in 2018, free cash flow improved by 1768 percent. There is no cash left over from cash from operations after operating expenses and capital expenditures or CAPEX.

B) TESLA BALANCE SHEET

tesla motors

BALANCE SHEET 2014 2015 2016 2017 2018
Total cash 1,905,713,000 1,196,908,000 3,393,216,000 3,367,914,000 3,685,618,000
Current Assets 3,198,657,000 2,791,568,000 6,259,796,000 6,570,520,000 8,306,308,000
Total assets 5,849,251,000 8,092,460,000 22,664,076,000 28,655,372,000 29,739,614,000
Current liabilities 2,107,166,000 2,816,274,000 5,827,006,000 7,674,670,000 9,992,136,000
Total liabilities 4,937,541,000 7,003,516,000 17,911,165,000 24,418,130,000 24,816,371,000
Equity 911,710,000 1,088,944,000 4,752,911,000 4,237,242,000 4,923,243,000
Retained earnings -1,433,682,000 -2,322,323,000 -2,997,237,000 -4,974,299,000 -5,317,832,000
Total debts 2,466,280,000 2,715,586,000 7,128,431,000 10,314,938,000 11,971,371,000
Working capital 1,091,000,000 -25,000,000 433,000,000 -1,104,000,000 -1,686,000,000

Facts

  • Total cash were $3.37 billion and $3.69 billion in 2017 and 2018 respectively.
  • And, current assets were $6.57 billion and $8.31 billion in 2017 and 2018 respectively.
  • Total assets were $28.66 billion and $29.34 billion in 2017 and 2018 respectively.
  • Current liabilities were $7.67 billion and $9.99 billion respectively.
  • Total liabilities were $24.42 billion and $24.82 in 2017 and 2018 respectively.
  • Equity were $4.97 billion and $5.32 billion in 2017 and 2018 respectively.
  • Retained earnings were -$4.97 billion and -$5.32 billion in 2017 and 2018 respectively.
  • Total debts were $10.31 billion and $11.97 billion in 2017 and 2018 respectively.
  • Working capital was -$1.1 billion and -$1.7 billion in 2017 and 2018 respectively.

Explanation

  • Total cash growth was 48 percent in five years period.
  • And, current assets growth was 61 percent in five years period. Increased in inventory has impacted the total.
  • While total assets growth was 80 percent in five years period.
  • Current liabilities increased 79 percent in five years due to an increase in accounts payable.
  • On the other hand, total liabilities increased 80 percent in five years due to an increase in long-term debt which increases year-over-year.
  • Equity has a growth of 81 percent in five years due to year-over-year increases in paid-in capital.
  • Retained earnings were negative in the last five years and falling year-over-year.
  • Moreover, total debts increase year-over-year and have grown 79 percent in five years. Long-term debt impacted the total and in 2018 the short term-debt increased by 186 percent from 2017 to 2018.
  • On the other hand, working capital was negative due to current liabilities are higher than the current liabilities in 2017 and in 2018. Due to increased accounts payable and short-term debt.

Interpretation

Tesla’s total current assets are not enough to pay its total current liabilities in the past two years because liabilities are higher than the current assets.

 

C) TESLA FINANCIAL RATIOS

tesla-motors

FINANCIAL RATIOS 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 TTM
Asset turnover (average) 1.23 0.45 0.37 0.45 1.14 0.77 0.58 0.46 0.46 0.73 0.73
Return on assets % -61.21 -59.76 -46.28 -43.36 -4.19 -7.11 -12.75 -4.39 -7.64 -3.34 -3.34
Financial leverage (average) 0.00 1.86 3.18 8.94 3.62 6.42 7.43 4.77 6.76 6.04 6.04
Return on equity % 0.00 0.00 -118.03 -227.22 -18.69 -37.25 -88.84 -23.11 -43.63 -21.31 -21.31
Return on invested capital % 0.00 0.00 -64.97 -72.34 -4.55 -8.45 -21.46 -6.27 -11.47 -1.90 -2.38
Interest coverage -21.01 -154.40 0.00 0.00 -1.17 -1.82 -6.37 -2.75 -3.69 -0.52 -0.52

Facts

  • Asset turnover was averaging 0.46 and 0.73 in 2017, 2018 respectively.
  • Return on assets was -.0764 percent and -.0334 percent in 2017 and 2018 respectively.
  • Financial leverage was averaging 6.76 and 6.04 in 2017 and 2018 respectively.
  • Return on equity was -43.63 percent and -21.31 percent in 2017 and 2018 respectively.
  • Return on invested capital was -11.47 percent and -1.90 percent in 2017 and 2018 respectively.
  • Interest coverage were -3.69 and -0.52 in 2017 and 2018 respectively.

Explanation

  • Asset turnover ratio means that each dollar of assets generates an average of 46 cents and 73 cents of sales in 2017 and 2018 respectively.
  • While the returns on assets (ROA) indicates that for every dollar that was invested in assets produced -$76.4 and -$33.4 of net income in 2017 and 2018 respectively. In other words, there were no returns on the dollar invested in assets because it is negative.
  • Moreover, financial leverage indicates that liabilities are 676 percent and 604 percent of shareholders’ equity in 2017 and 2018 respectively.
  • Also, return on equity indicates that every dollar of common shareholders’ equity earned -$43.63 percent and -$21.31 in 2017 and 2018 respectively. In other words, the shareholders did not earn a return on their investment.
  • Return on invested capital indicates that for every dollar invested in capital produces a -$0.1147 and -$0.0190 cents negative returns in 2017 and 2018 respectively.
  • On the other hand, interest coverage means that Tesla has negative 3.69 and negative -0.52 times earnings than its current interest payments in 2017 and 2018 respectively. In other words, its earnings are less than the current interest payment.

Interpretation

The profitability of Tesla was not impressive. The return on the investments in assets, equity and invested capital was negative meaning there was no return on the investment. Moreover, financial leverage was high at 604 percent. In addition, Its current interest payment is greater than its earnings.

 

D) TESLA INCOME AND MARKET

tesla-motors

  2014 2015 2016 2017 2018 TTM
Revenue 3,198,356,000 4,046,025,000 7,000,132,000 11,758,751,000 21,461,268,000 21,461,268,000
EBIT -186,689,000 -716,629,000 -667,340,000 -1,632,086,000 -252,840,000 -252,840,000
Net Income -294,040,000 -888,663,000 -674,914,000 -1,961,400,000 -976,091,000 -976,091,000
Market capitalization 27,954,000,000 31,543,000,000 34,423,000,000 52,328,000,000 57,442,000,000 48,338,000,000
Intrinsic value 6,912,210,299 12,344,598,323 1,227,212,668 9,992,830,135 27,736,000,163 35,273,927,556

Facts

  • Revenue were $11.76 billion and $21.46 billion in 2017 and 2018 respectively.
  • While EBIT was -$1.63 billion and -$253 million in 2017 and 2018 respectively.
  • Net income were -$1.96 billion and -$976 million in 2017 and 2018 respectively.
  • In addition, market capitalization were $57,442,000,000 and $48,338,000,000 in 2018 and the trailing twelve months respectively. The market value falls down by 20 percent in the trailing twelve months from 2018.
  • On the other hand, the intrinsic values were $27,736,000,163 and $35,273,927,556 in 2018 and the trailing twelve months respectively. In other words, the intrinsic value was $27.74 billion and $35.27 billion in 2018 and the trailing twelve months.

Explanation

  • The revenue growth was 85 percent in five years and it increases year-over-year.
  • While EBIT was erratic in movement and negative in the last five years.
  • In addition, net income was erratic in movement and was negative in the last five years.
  • Moreover, market capitalization has a growth of 42 percent in the last five years.
  • The intrinsic value was erratic in movement from 2014 to 2017. However, the value increased by 64 percent and 21 percent in 2018 and the trailing twelve months respectively.

Interpretation

Although the revenue increases year-over-year, the bottom line was not impressive. The cost of revenue represents 80 percent of the sales. In addition, the intrinsic value is lesser than the market capitalization of Tesla. It may be said that the market value is overstated.

E) KEY EXECUTIVE COMPENSATION

tesla-motors

Key Executive Compensation 2013 2014 2015 2016 2017
Key Executive Compensation 875,592 20,950,746 24,641,448 17,360,435 27,558,904
Elon Musk / CEO and Chairman of the Board 69,989 35,360 37,584 45,936 49,920
Deepak Ahuja / Chief Financial Officer 338,000 3,784,343 339,300 0 15,498,009
Jason Wheeler / Former Chief Financial Officer 0 0 20,898,296 501,931 174,041
Douglas John Field / Senior Vice President, Engineering 0 0 3,115,708 2,420,475 9,151,618
John Mcneil / Former President, Global Sales and Service 0 0 0 6,464,510 2,435,706
Jeffrey Straubel / Chief Technology Officer 467,603 17,131,043 250,560 7,927,583 249,600

DETAILED DISTRIBUTION

2013 2014 2015 2016 2017

Key Executive Compensation

Salary 620,880 622,960 980,521 1,601,503 1,702,407
Bonus 10,500 0
Annual Other Income 0
Restricted Stock Award 56,424 32,655 2,808,785 4,238,644 20,756,754
Securities Option 187,788 20,295,131 20,852,142 10,747,808 4,567,304
LTIP Payout 0 0 0 0 0
Non-Equity Compensation 0 0 0 772,480 395,803
Other Compensation 0 0 0 0 136,636
Total 875,592 20,950,746 24,641,448 17,360,435 27,558,904

Elon Musk / CEO and Chairman of the Board

Salary 33,280 35,360 37,584 45,936 49,920
Bonus
Annual Other Income
Restricted Stock Award 10,620
Securities Option 26,089
LTIP Payout
Non-Equity Compensation
Other Compensation
Total 69,989 35,360 37,584 45,936 49,920
Deepak Ahuja / Chief Financial Officer
Salary 338,000 338,000 339,300 0 428,846
Bonus 0
Annual Other Income 0
Restricted Stock Award 10,501,859
Securities Option 3,446,343 4,567,304
LTIP Payout 0 0
Non-Equity Compensation 0 0
Other Compensation 0 0
Total 338,000 3,784,343 339,300 0 15,498,009

Jason Wheeler / Former Chief Financial Officer

Salary 0 0 46,154 501,931 174,041
Bonus
Annual Other Income
Restricted Stock Award
Securities Option 20,852,142
LTIP Payout
Non-Equity Compensation
Other Compensation
Total 0 0 20,898,296 501,931 174,041

Douglas John Field / Senior Vice President, Engineering

Salary 0 0 306,923 301,153 300,000
Bonus 0
Annual Other Income 0
Restricted Stock Award 2,808,785 2,119,322 8,851,618
Securities Option
LTIP Payout
Non-Equity Compensation
Other Compensation
Total 0 0 3,115,708 2,420,475 9,151,618

John Mcneil / Former President, Global Sales and Service

Salary 0 0 0 501,923 500,000
Bonus 0 0
Annual Other Income 0 0
Restricted Stock Award 2,119,322 1,403,277
Securities Option 3,070,785 0
LTIP Payout 0 0
Non-Equity Compensation 772,480 395,803
Other Compensation 0 136,626
Total 0 0 0 6,464,510 2,435,706

Jeffrey Straubel / Chief Technology Officer

Salary 249,600 249,600 250,560 250,560 249,600
Bonus 10,500 0
Annual Other Income 0 0
Restricted Stock Award 45,804 32,655
Securities Option 161,699 16,848,788 7,677,023
LTIP Payout 0 0
Non-Equity Compensation 0 0
Other Compensation 0 0
Total 467,603 17,131,043 250,560 7,927,583 249,600

Facts

  • The total key executive compensation was $27,558,904 in 2017.
  • Elon Musk total compensation was $49,920 in 2017.
  • While Deepak Ahuja total compensation was $15,498,009 in 2017.
  • In addition, Jason Wheeler total compensation was $174,041 in 2017.
  • Douglas John Field total compensation was $9,151,618 in 2017.
  • Moreover, John McNeil total compensation was $2,435,706 in 2017.
  • Jeffrey Straubel total compensation was $249,600 in 2017.

Explanation

  • The total key executive compensation had increased by 58.75 percent from the previous year.
  • Elon Musk total compensation represents 0.18 percent of the total key executive compensation.
  • While Deepak Ahuja total compensation represents 56.24 percent of the total key executive compensation.
  • And, Jason Wheeler total compensation represents 0.63 percent of the total key executive compensation.
  • Douglas John Field total compensation represents 33.21 percent of the total key executive compensation.
  • In addition, John McNeil total compensation represents 8.84 percent of the total key executive compensation.
  • Jeffrey Straubel total compensation represents 0.91 percent of the total key executive compensation.

Interpretation

The total key executive compensation represents 1.24 percent of the gross profit, however, its EBIT and net income were negative.

 

F) TESLA LOBBYING/CONTRIBUTIONS TO POLITICIANS

tesla-motors

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
40,000 30,000 170,000 120,000 120,000 0 0 0 560,000 820,000 760,000 890,000

 

Firms Hired

Total Reported by Filer

Reported Contract Expenses (Included in Total Reported by Filer)

Tesla Motors

$890,000.00

West Front Strategies $200,000.00
Holland & Knight $130,000.00
Tia Ginsberg & Assoc $120,000.00
Burton Strategy Group $15,000.00
Total $465,000.00

Lobbyists representing Tesla Motors Inc, 2018

Lobbying Firm Hired Amount Subsidiary

(Lobbied For)

Lobbyist
Burton Strategy Group $15,000.00 Tesla Motors Burton Jeff
Holland & Knight $130,000.00 Tesla Motors Dunham, Ben
Karakitsos, Dimitri
Mason, Scott D
Reynolds, Tom
Tesla Motors $890,000.00 Tesla Motors Hennessy, Scott
Kintz, Brooke Frankenfield
Nazar, Hasan
Veitch, Alexandra Norris
Tia Ginsberg & Assoc $120,000.00 Tesla Motors Ginsberg, Matt
Pike, Madelene
Tai, Jason
West Front Strategies $200,000.00 Tesla Motors Brown, Cindy S
Davis, Ashley E
Mcdaniel, Malloy
Remington, Kristi
Stein, Shimon

Source: OpenSecret.org   The Center for Responsive Politics

 

Facts

  • Lobbying was $40,000 in 2007.
  • And, lobbying in 2008 was $30,000.
  • In 2009 the lobbying was $170,000.
  • In 2010 the lobbying was $120,000.
  • While in 2011 the lobbying was $120,000.
  • On the other hand, in 2012, 2013 and 2014, the lobbying was $0.
  • Lobbying in 2015 was $560,000.
  • The lobbying in 2016 was $820,000.
  • Moreover, lobbying in 2017 was $760,000.
  • And in 2018 lobbying was $890,000.

Explanation

The total lobbying in 2018 of $890,000 represents 0.02 percent of the total operating expenses.

Interpretation

Total lobbying expenses are not shown in the financials of Tesla, however, yearly the company contributed to the politicians.

 

G) TESLA FINANCIAL STRENGTH

tesla-motors

DATA

Working Capital Total Assets Sales EBIT Market Value of Equity Book Value of Total Liabilities Retained Earnings
-1,686,000,000 29,739,614,000 21,461,268,000 -252,840,000 48,338,000,000 24,816,371,000 -5,317,832,000

Formula:

Z-Score =  1.2A + 1.4B + 3.3C + 0.6D + 1.0E

 

Calculation Ratio Z-Score Result
A – Working Capital / Total Assets -0.06 1.2 -0.07
B – Retained Earnings / Total Assets -0.18 1.4 -0.25
C – EBIT / Total Assets -0.01 3.3 -0.03
D – Market Value of Equity / Book Value of Total Liabilities 1.95 0.6 1.17
E – Sales / Total Assets 0.72 1.0 0.72
Z-Score 1.53

 

The Z-Score formula is computed as follows: Z-Score =  1.2A + 1.4B + 3.3C + 0.6D + 1.0E

Facts

  • A – -0.06 * 1.2  = -0.07
  • B – -0.18 * 1.4 = – 0.25
  • C – -0.01 * 3.3 = – 0.03
  • D – 1.95  * 0.6 = 1.17
  • E – 0.72 * 1.0  = 0.72
  • Z – Score = 1.53

Explanation

Z-Score is a mathematical measurement that is used to compare data points from different sets of data to arrive at the relationship to the mean. This impression is often known as the Altman Z-Score. This measurement was used to forecast the likelihood of the company would go bankrupt.

Interpretation

The Z – Score of Tesla was 1.53. According to Altman, a score of 0 – 1.8 would likely to declare bankruptcy in the future. Let us go deeper into the analysis with care. Tesla is an auto industry and is highly capital intensive, in addition, its cost of revenue from year-to-year is expensive which needs a huge amount of cash to meet its production demands. Although Elon Musk has no problem in obtaining funds, he has somehow developed that trust among investors which is very significant.

This statistical measurement sums several weighted financial ratios and compares it to the scale shown above as A, B, C, D & E. The profitability, liquidity, leverage, and efficiency are the main factors of this measurement. Hence, total assets are the denominator in four equations, and total assets represent a huge percentage on all the ratios, the result is most likely negative and low.

Conclusion

Since Tesla was founded in 2003, investors believed that the company can succeed. In the past, Tesla has faced a number of challenges and was able to meet its target production but with a quarter of short-target production. There was an issue of Model 3 production mistakes which is excessive automation.

According to Bloomberg in an article written by Tom Randall and Dean Halford updated April 30, 2019, they estimated that the company had manufactured 241,253 cars of Model 3s or 22,640 units in the current quarter or 5,902 units per week. When I first valued Tesla in April 2014, the number of units I estimated at the end of 2014 was 42,250 units which are almost the actual number of units produced by the company when the report came out. I also projected the five years annual from 2015 up to 2019. The total number of units I projected at the end of 2019 was 259,521 units which are not far from the Bloomberg estimate.

Tesla Inc is not liquid because of the demand in cash is too high. Its financial leverage ratio was 6.04 or 604 percent, meaning debt is 604 percent of total equity. In other words, Tesla is using more debt than equity. The market price in 2019 drop by 28.66 percent from the end of 2018.

Elon Musk had established the confidence of many investors and I believed that the company will succeed although Tesla is experiencing a tough time running its operation due to the high volume of demands and production that must be manufactured and delivered.

I believed in the ability of Elon Musk in running the company as other investors have put there trust in him. I can say that I can recommend a Buy on the stock of Tesla Inc (TSLA).

CITATION

https://www.morningstar.com/stocks/XNAS/TSLA/quote.html

https://www.sec.gov/cgi-bin/browse-edgar?CIK=TSLA&owner=exclude&action=getcompany&Find=Search

 

Researched and written by Criselda

Twitter: criseldarome

Tesla Motors Inc

Tesla Motors Inc (TSLA) Investment Valuation

April 13th, 2014 Posted by Deep Analysis No Comment yet

TESLA MOTORS INC (TSLA) was founded in 2003 by a group of Silicon Valley engineers who prove that electric vehicles are awesome.

Tesla logored

About

Tesla Motors Inc (TSLA) design, develop, manufacture and sell high-performance fully electric vehicles and electric vehicle powertrain components. They have operationally structured their business in a manner that they believe will enable them to rapidly develop and launch advanced electric vehicles and technologies. In addition, TSLA believes their electric vehicles are engineered by expertise, and their operational structure differentiates them from incumbent automobile manufacturers.

Moreover, Tesla Motors uses proprietary technology, world-class design, and state-of-the-art manufacturing processes to create a new electric vehicle capable of highways. They used an innovative distribution model that is Company-owned sales and service centers. This approach allows them to maintain the highest levels of customer experience and they make sure that their customer needs are fulfilled. They believe their operational infrastructure provides them with a competitive advantage compared to ordinary automobile manufacturers.

Incorporation

Tesla Motors Inc (TSLA.O), Tesla Motors, Inc. (Tesla), incorporated on July 1, 2003.  The Company is also producing commercially an electric vehicle, the Tesla Roadster, aside from developing it’s Model S and vehicle manufacturing capabilities at the Tesla Factory. Tesla is designing, developing and manufacturing lithium-ion battery packs, electric motors, gearboxes, and components both for its vehicles and for its original equipment manufacturer customers.

Manufacturing Activities

The manufacturing activities are manufactured at the companies electric powertrain manufacturing facility in Palo Alto, California and at the Tesla Factory. Moreover, the Company also provides services for the development of electric powertrain components and sells electric powertrain components to other automotive manufacturers.

Tesla has provided development services and powertrain components to Daimler AG (Daimler) for its Smart for two and A-Class electric vehicles. The Company has received an initial purchase order for the development of a powertrain system for an additional Mercedes Benz vehicle from Daimler.

How does the company make money?

Tesla Motors Inc makes the best electric cars and electric powertrains in the world. Tesla technology has the most efficient path to future supportable energy. Hybrids no. Hydrogen no. Hype no. The Tesla electric drivetrain offers a radically different experience. The driver, the car, and the environment connect in ways they’ve never connected before.

On the other hand, the goal of Tesla is to increase the world’s transition to electric mobility with a full range of increasingly affordable electric cars. further, the Company is bringing on the change in the industry. According to Tesla vehicles and EVs powered by Tesla are fun to drive and environmentally responsible.

TESLA PRODUCTS 

ModelS 2015-tesla-model-x

MODEL S AND MODEL X

The Model S and Model X are the next steps in Tesla’s “Secret Plan” to increase the world’s transition to electric mobility. Model S is now in production!

Tesla Motors Inc recognized its revenue from the sales of Model S and the Tesla Roadster, including vehicle options, sales in accessories and services.

THE TESLA ROADSTER

The Tesla Roadster was seen used in early 2008 as a car with no equal.

TSLA Roadster

The company has sold approximately 2,500 Tesla Roadsters to customers in over 30 countries, generally in North America and Europe. The production of Tesla Roadster flows at Lotus Cars Limited in January 2012.

Gen III

Tesla has announced their intent to develop a third generation electric vehicle, to which they refer as “Gen III”, to be produced at the Tesla Factory. In addition, they also intend to offer this vehicle at a lower price point and expect to produce it at higher volumes than their Model S. They expect that this vehicle will be produced in approximately three years.

Powertrain Development and Sales

Moreover to their own vehicles, they also design, develop, manufacture and sell electric vehicle powertrain components to other automotive manufacturers. Tesla has provided development services and complete powertrain systems and components to Daimler for its Smart for two, A-Class, and B-Class electric vehicles.

Stationary Energy Storage Applications

In 2013, Tesla developed stationary energy storage products for use in homes, commercial sites and utilities. They plan to ramp sales of these products in 2014.

Tesla’s Batteries and Powertrains will help lessen global dependence on petroleum-based transportation and drive down the cost of electric vehicles. By cooperating with other car manufacturers, they hope to increase more electric cars on the road.

TSLA product8  TSLA product12   TSLA product7

PLUG IN Anywhere. Seriously. Where there’s an outlet, you can charge. The type of outlet or charging station will determine how fast you can charge. Every TESLA AND EV using their technology is a step towards making increasingly affordable electric cars available to the consumer. It’s more than electric, it’s Tesla.

ACCESSORIES

Tesla has a variety of accessories, here are some of their product accessories.

TSLA product4TSLA product9tesla-energy

RISK FACTORS TO CONSIDER

There are certain risks that must be carefully considered, they may be unable to sustain their current level of production and deliveries of Model S or increase production and deliveries in line with their plans, both of which could harm their business and prospects. This statement was written in the financial report of Tesla on its annual 2013 SEC filings.

Who is running the Business?

The two most important people behind Tesla Motors Inc was the Chief Executive Officer and the Chief Financial Officer.  Let us find out what makes them great.

Elon MuskCo-Founder, CEO, and Product Architect

ElonMusk1

Elon Musk is the CEO and Product Architect of Tesla Motors and the CEO/CTO of Space Exploration Technologies (SpaceX).

Elon has overseen product development and design from the beginning, including the all-electric Tesla Roadster, Model S and Model X. Transitioning to a maintainable energy economy, in which electric vehicles play a crucial role, has been one of his central interests for almost two decades, beginning from his time as a physics student working on ultracapacitors in Silicon Valley.

  • Elon is the chief designer, overseeing the development of rockets and spacecraft for missions to Earth orbit and ultimately to other planets at SpaceX.
  • Moreover, in 2008, SpaceX’s Falcon 9 rocket and Dragon spacecraft won the NASA contract to provide a commercial replacement for the cargo transport function of the Space Shuttle, which retired in 2011.

More about SpaceX

  • The SpaceX Falcon 1 was the first privately developed liquid fuel rocket to reach orbit.
  • In 2010, SpaceX became the first commercial company to successfully recover a spacecraft from Earth orbit with its Dragon spacecraft.
  • SpaceX became the first commercial company to dock with the International Space Station and return cargo to Earth with the Dragon in 2012.
  • In addition, Elon is the non-executive chairman and principal shareholder of SolarCity, which he helped create. SolarCity is now the leading provider of solar power systems in the United States.
  • Prior to SpaceX, Elon co-founded PayPal, the world’s leading Internet payment system, and served as the company’s Chairman and CEO.
  • Before PayPal, Mr. Musk co-founded Zip2, a provider of Internet software to the media industry.
  • Moreover, Elon has a physics degree from the University of Pennsylvania and a business degree from Wharton.

Deepak AhujaChief Financial Officer 

Deepak CFO

Deepak brings more than 15 years of global automotive finance experience to the Tesla team. As Chief Financial Officer, Deepak brings invaluable insight into a well-versed industry

  • Prior to joining Tesla Motors, Deepak was the Controller of Small Cars Product Development at Ford with the goal of bringing several exciting fuel-efficient automobiles to the North American market.
  • Previously, Deepak was CFO for Ford of Southern Africa, a $3 Billion subsidiary where he oversaw the finance, legal and IT functions.
  • Prior to that, Deepak served as CFO for Auto Alliance International, a joint venture between Ford and Mazda with over $4 billion in revenue.

Moreover,

  • His career at Ford included assignments in all aspects of the business, including Manufacturing, Marketing, and Sales, Treasury, Acquisition, and Divestitures.
  • Before joining Ford, Deepak worked as an engineer for Kennametal, Inc. near Pittsburgh, PA for almost 6 years and developed two new ceramic composites cutting tools for machining of aluminum alloys in aerospace and automotive industries.
  • Deepak holds a bachelor’s and master’s degrees in materials engineering from Banaras Hindu University and Northwestern University, respectively and an MBA from Carnegie Mellon University.
  • In 2010, following Tesla’s successful IPO, Deepak was named Silicon Valley Business Journal’s CFO of the Year.

Value Investing Guide on Tesla Motors Inc 

Liquidity and Solvency

A solvent company is one that owns more than it owes; in other words, it delivers a positive net worth and a manageable debt burden.

Liquidity

Let us review the liquidity of Tesla Motors Inc. The key ratios are the current and quick ratios. It shows that the average current ratio of Tesla was 1.61, although the rule of thumb is 2.0, it tells us that the company appears to have sufficient current assets to meet its short-term debt obligations when it falls due.

Quick Ratio

In addition, the quick ratio was averaging 0.99, the rule of thumb is 1.0, meaning, Tesla has the capability of paying its short-term financial obligations using their liquid assets.  Current assets by definition are convertible into cash in less than one year. You will notice that in 2012, the current ratio decreased by 50.26 percent from 2011, this is due to higher expenses associated the expansion of their network and service infrastructure as well as the growth of their business in general. It tells us further that the company is not struggling financially.

Solvency

Now, let us walk a little further and find out the solvency ratio of Tesla.  Solvency ratio was averaging negative 0.90 because the company suffered losses for the past three years of its operations. From 2010 to 2012, Tesla is having a hard time meeting its long-term debt. Although the ratio was negative, the yearly trend shows a favorable improvement. In 2013, the ratio was positive at 0.05, meaning its net income plus depreciation and amortization were greater by 5 percent against its total debt or in other words, the ratio in 2013 has increased by 1,492 percent from 2012. Therefore, it means that Tesla has now the ability to meet its long-term debt.

Leverage

In addition, the leverage ratio was averaging 1.44 or 144 percent for the past 4 years. It means that Tesla has 144 percent total debt against its shareholders’ equity. In other words, the company is using more debt or 44 percent above its shareholders’ equity as part of its capitalization structure. Since borrowing money is very common in a capital-intensive company such as automobile manufacturers, Tesla is using debt almost half above its equity for its capital investments. Moreover, the financial leverage ratio was averaging 3.41, it tells us that total assets were 341 percent against shareholders’ equity.

Tesla Motors Inc Income Statement

Revenue

Explanation

The table above shows that the revenue trend from 2009 to 2013 was 1,697 percent increased. On the other hand, although, net income was negative for the past 5 years, 2013 shows a favorable result with an increase of 435 percent from 2012. During 2012, Tesla Motors Inc has suffered a large loss of $396 million, a little more than half of that in 2011, because of the expansion in retail network and the launching of Supercharger network in California which brought additional expenses.

Interpretation

However, despite the negative earnings, the growth in 2013 was satisfactory. Tesla shows the possibility of profitability in the future as they intend to commence deliveries to China in the spring of 2014. In addition, they plan to significantly expand production capacity for Model S and Model X, and various plans they intend to do in the succeeding years. This indicates that Tesla Motors Inc has the capacity to generate more revenue in the future.

Profitability Ratios

Let me guide you another step in the profitability ratios of Tesla Motors Inc. The gross margin of Tesla Motors Inc was averaging 19 percent. To explain further, the cost of goods sold was averaging 81 percent, these are the expenses required to manufacture the products. The operating margins were negative, however, the ratio was improving year over year. The operating margins, not only include the cost of goods sold but also the selling and administrative expenses as well as depreciation. It is the income associated with the ongoing operations of the company’s core business.

Net Margins

Tesla’s net margins were also negative for the past 5 years, however, the ratio was favorably improving. Since Tesla Motors Inc is young and in the process of developing its products, their cost of revenue was high. It is anticipated that in 2014 its net income would be positive and will show a favorable result due to its annual trending.

Tesla Motors Inc Cash Flow Statement

The cash flow margin of Tesla was negative from 2009 until 2012 due to its negative net earnings. However, in 2013, it shows a positive sign of 12.82 percent. The free cash flow and operating cash flow was also negative from the past 5 years, except in 2013, where the operating cash flow shows a positive sign of $258 million. Moreover, during 2012, the company has the highest loss from its 5 years of operation due to the expansions and launching of Supercharges network expenses, aside from these expenses they also incurred significant amount in advertising expenses.

Explanation

Although Tesla Motors Inc suffered losses from 2009 to 2012, 2013 shows a favorable sign of improvement. For a young growth company, it is anticipated that the first few years of its operation will be a loss or breakeven.  It indicates that the company is capable of generating revenue from its production and it will be sufficient in the next succeeding years.

The Investment Valuation of Tesla 

This investment valuation was prepared in a very simple and easy way to evaluate a company for business valuation.  My basis for this valuation is the company’s five years of historical financial records, the balance sheet, income statement, and cash flow statement.

The Discounted Cash Flow (DCF) Approach

Discounted Cash Flow (DCF) is a method of valuing the intrinsic value of Tesla Motors Inc. DCF calculates the value today based on cash projections that Tesla could make available to investors in the future. It is called “discounted” because of the concept that the value of the dollar to be received in the future is less than the value of a dollar on hand today.

DCF formula

Where:

  • Vo is the value of the equity of a business today.
  • CF1 to CFn represent the expected cash flows (or benefits) to be derived from periods 1 to n.  The discounted cash flow model is based on time periods of time of equal length.  Because forecasts are often made on an annual basis in practice, we use the terms “periods” and “years” almost interchangeably for purposes of this theoretical discussion.
  • r is the discount rate that converts future dollars of CF into present dollars of value.

The equation above is the basic discounted cash flow (DCF) model.

Summary

TSLA DCF

The discounted cash flow indicates a present value of $247.9 million, at a rate of 15 percent. The calculated future value was $498.62 at the end of 5 time periods or 5 years. In other words, the future value of $498.62 is equal to the present value of $247.90.

The future value of money is how much it will be worth at some time in the future. In other words, it shows how much an investment will be worth after compounding for so many years.

The Relative Valuation Method of Tesla

There are two basic methods of valuing stocks. The most frequently used method is a relative valuation, which compares a stock’s valuation with those of other stocks or with the company’s own historical valuations.

The book value growth rate of Tesla Motors Inc. was 20 percent from 2010 to 2013. The calculated book value in 5 years’ time was $13.48 per share at $1.6 billion. Moreover, the earnings per share and the return on equity were negative for the past 5 years due to negative net earnings, however, it is trending positively in a high percentage significantly in 2013.

Conclusion

Overview, it indicates that Tesla Motors Inc is capable of producing more revenue, and has sufficient current assets to meet financial obligations. The company shows significant improvements year over year when it comes to its earnings and productions. Since, Tesla is a young, high-growth company, therefore, I recommend a Buy on the stock of Tesla Motors Inc.

Part II

After the above information was published, I perceived that the company needed to be revisited and some further insights needed to be explained.  It was decided that it is better to continue with the analysis for a deeper aspect.

This company updates are an additional analysis of Tesla Motors Inc with regards to its historical data. This analysis is significant to include with your investment decision on Tesla.

Tesla’s Run Rate

Tesla Motors Inc has made significant progress in increasing its production level aided by its manufacturing, design and quality improvements and the strong efforts from their suppliers. The company expects production to increase from 600 vehicles per week presently to about 1,000 vehicles per week by the end of 2014 or from 31,200 vehicles to 52,000 vehicles annually, as they expand their factory capacity and address supplier bottlenecks. This was taken in the 2013 Tesla SEC filings. In consideration of Tesla’s working capital of 2013, it has a tremendous increased from 2012 to 4321 percent.

Problems regarding supplier

According to Elon Musk in one of his interview, that, they planned to increase their cash and cash equivalent for the purposes of unanticipated issues or problems regarding the suppliers’ delay in the delivery of the materials needed in their production. The management will make it possible to maintain its full production capacity without delays and sacrificing the quality of their products.

Risk Factors

There are risk factors that could materially affect Tesla’s financial condition and future results. Here are some of the risk factors that Tesla Motors Inc is facing.

Model S

Model S contains numerous purchased parts which they source globally from over 300 direct suppliers, the majority of whom are currently single source suppliers for these components. If these single suppliers fail to deliver Tesla’s requirements on a timely basis at a competitive price, could suffer delays, possibility of losses, might incur higher cost of revenue, in which case, Tesla may not be able to sustain their current level of production and deliveries of Model S or increase their production as planned, which may affect the operating results of the company as they continue to focus on supplier capabilities and constraints. Tesla has not qualified alternative sources for most of the single sourced components used in their vehicles and they do not maintain long-term agreements with a number of its suppliers.

Maintaining desired quality levels

Tesla’s ability to use their manufacturing processes as planned for volume production while maintaining their desired quality levels and efficiently making design changes to ensure consistently high quality since the production process is still maturing, due to the new product, new equipment, and new employees.

Moreover, they have limited experience in the high volume delivery of their Model S vehicles. They have just started their deliveries in Europe and may face difficulties meeting their delivery and growth plans in Asia and other right-hand drive markets later this year, which may impact their ability to achieve their worldwide delivery goals.

Tesla has introduced a number of new manufacturing technologies and techniques. Model S has a number of new and unique design features, such as a 17-inch display screen, newly designed retractable exterior door handles and a panoramic roof, each of which poses unique manufacturing challenges.

Production and deliveries

Model S production and deliveries will continue to require significant resources and they may experience unexpected delays or difficulties. It may harm their ability to maintain full manufacturing capacity for Model S, or cause them to miss planned production targets, any of which could have a material adverse effect on their financial condition and operating results.

Moreover, in October 2013, they entered into an amendment to their existing supply agreement with Panasonic Corporation in order to address their anticipated short- to medium-term lithium-ion battery cell needs. While Tesla expects that this supply agreement, as amended, will provide them with sufficient cells for the next few years. They may not be able to meet their long-term needs, including for their third generation electric vehicle, which they refer to as “Gen III.” And other programs they may introduce, without securing additional suppliers or other sources for cells. If Tesla Motors Inc cannot secure such additional suppliers or sources, they might experience production delays, which could have a material adverse effect on their financial condition and operating results.

Production Costs for Model S

Tesla’s production costs for Model S were high initially due to start-up costs at the Factory, manufacturing inefficiencies including low absorption of fixed manufacturing costs, higher logistics costs due to the immaturity of their supply chain, and higher initial prices for component parts during the initial period after the launch and ramp of Model S. As they have gradually ramped production of Model S, manufacturing costs per vehicle have fallen.

The Executive Compensation

I would like to cite the compensation of Tesla’s executives’ as I find it significant to include in this article. The information below shows the total compensation of Tesla’s executives in 2012, the 2013 report on compensation will be included in their 2014 financial statement.

TSLA executive compensation

Facts:

The total cash compensation is comprised of yearly Base Pay and Bonuses. Further, the total aggregates grant date fair value of stock and option awards and long term incentives granted during the fiscal year. On the other hand, the Other Compensation-like awards that are not applicable to the other categories.

The board of directors of Tesla has a fortune worth $6.8 billion, deserves a generous incentive package because the company wants to “appropriately reward the CEO’s previous and current contributions and to create incentives for the CEO to continue to contribute significantly”, gathered from Tesla’s SEC filings.

News about Tesla

Furthermore, the latest news from AutoGuide.com, in an article entitled Tesla CEO Took 99.9 Percent Pay Cut in 2013, I quote, “In 2013, Tesla CEO Elon Musk received total compensation of $69,989 with the value of stock and options totaling just $36,709. That’s a sharp contrast compared to his total compensation from 2012 when the CEO received $78.2 million in total compensation. His value of stock and options from 2012 was $78.1 million.”

Liquidity Ratio in 2014 Q1

The current ratio and the quick ratio of Tesla Motors Inc in the trailing twelve months 2014 were 1.04 and 0.72, respectively.

Discounted Cash Flow (DCF) Method 

Estimating the absolute value of a company’s stock is not an easy way to do because you have to consider a lot of factors. However, the discounted cash flow is one of the methods that some analysts commonly used to determine stock prices in a different and sound way. Further, I review the trend in the company’s historical five-year financial data and its ability to produce or manufacture its products. And, I came up with the following figures presented in the table below. Slowly, I will walk you through step by step process on the explanation and interpretation of the data.

Projected Quarterly 2014

TSLA Projected Q

The above table shows the calculated projected quarterly 2014 revenue of Tesla Motors Inc. According to Elon Musk, the CEO of Tesla Motors Inc, in its 2013 financial report presentation, that they are capable of producing 40,000 units or more of Model S by the end of 2014. Above shows, the projected total number of units was 42,250. The total projected revenue is $3.8 billion ends of 2014. Now, let us walk further, and compute the present value of $3.8 billion.

The formula for the present value is:

Present Value

                                       Or = PV = FV / (1 + r) n

Where:

PV – Present Value

FV – Future Value

r – Rate of Return

n – Number of Periods

Therefore, based on the table above, where the future value at the end of 2014 was $3,832,920,000. Now, we are going to calculate the Present Value discounted at 15 percent.

PV = FV/ (1+0.15) ^1

= $3,832,920,000 / (1+0.15) ^1

$3,832,920,000 / 1.15^1

        $3,332,973,913.04

The calculated present value of the projected 2014 cash flow is $3,332,973,913.04 discounted at 15 percent. In other words, the future value of $3,832,920,000 is worth $3,332,973,913 today.

Projected Cash Inflows

Moving forward, I have prepared a yearly projected cash inflow for five years.

TSLA Projected A

Explanation

The projected total revenue including service income by the end of 2014 was $3.8 billion. On the other hand, the projected number of units at the end of five years (2019), was 259,521 and the total revenue inclusive of service income was $23.54 billion. Since this method of valuation tries to work out the value today of the projected cash flows in the future, let us calculate the present value of $23.54 billion by the following formula:

PV = FV / (1 + r) n

PV = $23,543,711,100 / (1 + 0.15) ^5

= $23,543,711,100 / 1.15 ^5

$23,543,711,100 / 2.011357188

          $11,705,385,421.50

Explanation

Therefore, the calculated present value of the projected cash inflows in the year 2019 of $23,543,711,100 discounted at 15 percent is worth $11,705,385,421.50 today. This is also called the discounted value or the current worth of future value. Total projected growth from 2014 to 2019 was 514 percent. Moreover, the present market price to date, May 5, 2014, was $210.91 per share. If we divide the discounted cash flow value with its present number of outstanding shares, the fundamental or intrinsic value is $98.36 per share. The stocks of Tesla are overvalued by 114 percent. In valuing a young high growth company, in most cases, the results will give us an overvalued price.

Free Cash Flow to the Equity (FCFE)

FCFE is often used to determine the value of a company.  It is a measure of how much cash is available to the equity shareholders’ after all expenses, reinvestment, and debt is paid, and a measure of equity capital usage, according to Investopedia.

Calculation:

FCEE = Net Income – (Capital Expenditures – Depreciation) – Changes in Non-cash Working Capital – (Principal  Repayments – New Debt Issues)

or alternatively,

FCEE = Cash from Operations – (Capital Expenditures – Depreciation) + Net Borrowing.

The table below is the results of my calculations, in which I have used the alternative. Let us find out the results.

TSLA FCEE

Explanation

The free cash flow to the equity of Tesla Motors Inc was improving year over year. It shows that the company is managing its resources effectively. In addition, it tells us how well Tesla is managing its debt load. Tesla’s first two years, 2009 and 2010 shows negative results, which imply that Tesla is in the early stage of a growth outbreak. Hence, the succeeding years, 2012 and 2013 increased dramatically by 160 and 46 percent, respectively.

Sources of Cash

The company’s sources of cash include cash from the deliveries of Model S, customer deposits, the sale of regulatory credits. And cash from the provision of development services and sales of powertrain components and systems. Due to problems incurred recently regarding some suppliers’ inability to supply on time. The reason why Tesla planned to have adequate sources of liquidity to continue on with their current plans. Moreover, to fund their ongoing operations, continue research and development projects, and for expansions.

Tesla’s Industry Peers in China – BYD

BYD was established in January 2003 and headquartered in Shenzhen, China. The Company specializes in IT, automobile, and new energy. Further, BYD is the largest supplier of rechargeable batteries in the globe. Moreover, it has the largest market share for Nickel-cadmium batteries, handset Li-ion batteries, cell-phone chargers, and keypads worldwide. Furthermore, HK. BYD IPO price is HK$10.95 per share. It was the highest IPO price among all of the H-share companies at that moment.

Here is some basic information on BYD Company Ltd.

TSLA BYD

Explanation

The current price of BYD was $5.38, it is lower by 88 percent against its total value of $43.52. The stock price of BYD was undervalued. However, its liquidity ratios were very low. Consequently, it indicates that BYD is having a hard time paying its short term and long term financial obligations. In addition, its debt to equity ratio was 0.20 or 20 percent. Moreover, the calculated book value in year 5 was $6.90.

The bottom line 

Tesla Motors Inc is growing very fast. The market is anticipating a $3.65 billion revenue at the end of 2014 with low profits. For long-term shareholders’ it will not be easy to forecast whether they will be able to make a decent return. For the reason that the market somehow can bake the stock regardless, they will make a good profit or not. However, for short-term investors, Tesla may be an appropriate investment.

CITATION

  1. http://www.reuters.com/finance/stocks/companyProfile?symbol=TSLA.O
  2. http://ir.teslamotors.com/
  3. http://www.teslamotors.com/about
  4. http://www.teslamotors.com/executives
  5. Elon Musk interviews, articles, and blog posts
  6. http://quote.morningstar.com/stock-filing/Annual-Report/2013/12/31/t.aspx?t=XNAS:TSLA&ft=10-K&d=00cab30124b955d581c89f0ff007ad13
  7. https://www.youtube.com/watch?v=SE6GF1Y5WHE
  8. http://www1.salary.com/TESLA-MOTORS-INC-Executive-Salaries.html

Researched and Written by Criselda

Twitter: criseldarome

Note:

Research Reports can be found under the company tab.