Annual Report Project
Tesla Motors Inc.
Armaan Sikand
BUS 210 Summer 2013
Link to: Tesla Motors-Annual Report
http://ir.teslamotors.com/secfiling.cfm?filingID=1193125-13-96241&CIK=1318605
Executive Summary
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Tesla Motor’s performance under various ratio analysis in 2012 was
far from stellar but was a significant increase from 2011. The net
loss it posted in 2012 is the primary reason for the sub-par
performance, but it should be kept in mind that Tesla Motors is a
relatively new company that is on an upward trajectory.
Tesla’s stock’s performance has been nothing short of spectacular as
it has increased by 500% since June 2010.
Tesla will face significant challenges going forward, but Elon Musk
has proven to be a resourceful and capable CEO and Tesla has
continued to produce industry leading innovations.
However, Tesla’s long term objective of making an affordable mass
market car is still at least four years away and this goal is hugely
contingent on advances by Tesla’s Research and Development Team.
Overall, Tesla Motors is a business in a satisfactory financial state
and has its hands on a game changing product. Going forward,
Tesla faces the difficult task of ensuring that its success is
sustainable and this sustainable success needs to be built on a solid
financial foundation.
Introduction
CEO: Elon Musk
Home Office: 3500 Deer Creek Road
Palo Alto, California 94304
Ending date of latest fiscal year:
12/31/2013
• Tesla Motors develops, manufactures, and
sells high-performance fully electric vehicles
and electric vehicle powertrain components.
• Main Geographic Areas: Cars have been
sold to customers in more than 30
countries.
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Audit Report
• Name of Auditor: PricewaterhouseCoopers
• Comment on Auditors Report:
PricewaterhouseCoopers maintains that the
financial statements accurately report the
financial status of Tesla Motors and are in
accordance with generally accepted
accounting principles. However, they also
state that Tesla Motors did not maintain
stringent controls over financial reporting.
Audit Report
• This was because of a material weakness
(when a companies internal controls, which
are put in place to detect irregularities in
financial reporting, may fail to point out
material misstatement in a timely manner)
in their reporting of non-cash capital
expenditures in their consolidated
statement of cash flows. It is the
responsibility of the management of Tesla
Motors to ensure that they maintain
stringent internal controls over financial
reporting.
Stock Market Information
Price of Tesla Stock (NASDAQ: TSLA) – 103.2
12 Month High: 114.90
12 Month Low: 25.52
Tesla Motors has never declared dividends on its
common stock. Dividends are not expected in the
foreseeable future as Tesla Motors intends to
reinvest all its future earnings.
• It should be noted that the ratio analysis carried
out below is a reflection of Tesla Motors’
performance till December 2012. The current stock
price is a reflection of its exemplary performance in
the first quarter of 2013.
• Accurate as of: 11:27 AM ET on June 17 th 2013
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Stock Market Information
• Stock Opinion: Buy
Tesla Motors stock
price over 12
months
Income Statement
Year
2012
Gross Profit
Income from Operations
Loss before income taxes
(Net loss)
2011
In thousands ($)
30,067
413,256
-396,077
-396,213
61,595
204,242
-253,922
-254,411
• Tesla Motors follows a multi-step format
• Income from operations increased by a 102% in a one
year period as Tesla Motors started producing and
selling higher numbers of its Model S sedans.
• Gross Profit decreased by 51% because of a large
increase in costs related to automotive sales, which was
expected to accompany a large increase in production.
• The 55% decrease in Net Income was primarily
because of a significant increase in Research &
Development expenses and because of the decrease in
Gross Profit.
Balance Sheet
Year
2012
2011
Assets =
1,114,190
713,448
In thousands ($)
Liabilities +
Stockholders Equity
989,490
124,700
489,403
224,045
• Inventory increased by 436% as Tesla
started production of its Model S. The
Property, Plant, and Equipment account
increased by 85%.
• Accounts Payable increased by 440% .
Reservation payments (an unearned
revenue account) also increased by 51%.
• Long term debt increased by almost 50% .
• Additional paid-in capital increased by 33%.
Statement of Cash Flows
Year
2012
2011
In thousands ($)
Net Cash used in
Net Cash used in
Net Cash used in
Operating Activities
Investing Activities
Financing Activities
-266,081
-206,930
419,635
-128,034
-162,258
446,000
• In 2012 and 2011, cash flow from operations
was 48% and 49% higher, respectively, than
net income.
• The company is growing through investment
with purchases of property and equipment.
• Tesla Motor’s primary form of financing is its
issuance of common stock.
• Overall, cash has decreased over the past two
years. This was chiefly because of negative
cash flow balances in investing and operating.
Accounting Policies
Significant Accounting Policies:
• Revenue Recognition:
– Tesla Motors recognizes revenue when:
• Persuasive evidence of an arrangement exists.
• Deliveries have occurred and there are no uncertainties regarding
customer acceptance
• Fees are fixed or determinable
• Collection is reasonably assured
• Tesla recognizes revenue from the following sources:
• Automotive sales
• Regulatory credit sales
• Development services
•
Marketable Securities
Marketable securities are comprised of commercial paper and corporate debt
and are all designated as available-for-sale and reported at estimated fair
value, with unrealized gains and losses recorded in accumulated other
comprehensive loss which is included within stockholders’ equity.
Accounting Policies
•
Marketable Securities
Marketable securities are comprised of commercial paper and
corporate debt and are all designated as available-for-sale and
reported at estimated fair value, with unrealized gains and losses
recorded in accumulated other comprehensive loss which is included
within stockholders’ equity.
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Inventory and Inventory Valuation
Inventories are stated at the lower of cost or market. Cost is computed
using standard cost, which approximates actual cost on a first-in, firstout basis.
• Property, Plant and Equipment
Property, plant and equipment are recognized at cost less accumulated
depreciation. Depreciation is generally computed using the straight-line
method over the estimated useful lives of the related assets
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Cash and Cash Equivalents
All highly liquid investments with an original or remaining maturity of
three months or less at the date of purchase are considered to be
cash equivalents.
Accounting Policies
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Notes to financial statements:
– Overview of the Company
– Summary of significant accounting policies
– Balance Sheet Components
– Fair Value of Financial Instruments
– Reservation Payments
– Convertible Preferred Stock
– Convertible Preferred Stock Warrants
– Department of Energy Loan Facility
– Common Stock
– Equity Incentive Plans
– Information about Geographic Areas
– Strategic Partnerships
– Commitments and Contingencies
– Subsequent Events
– Quarterly Results of Operation
– Restatement of Unaudited Condensed Consolidated Financial Statements
Financial Analysis
Liquidity Ratios
Ratio
Liquidity Ratios
2012
Working Capital ($, in thousands)
Current Ratio
Receivable turnover
Average days’ sales uncollected
Inventory turnover
Average days’ inventory on hand
Operating cycle
Payables turnover
Average days’ payables
Toyota Motor
Corp. (2012)
2011
-14340
181499
-
0.97
1.95
-
22.72
25.14
8.76
16.07 days
14.52 days
41.67 days
2.41
2.99
10.79
151.45 days
122.07 days
33.82 days
167.52 days
136.59 days
75.49 days
2.13
3.35
7.81
171.36 days
108.96 days
46.73 days
• Toyota Motors has been used to benchmark Tesla’s Liquidity Ratios
• The formulas and working for the ratio’s above are shown in
Appendix A on slide number.
Financial Analysis
Liquidity Ratios
• Working Capital and Current Ratio have significantly
decreased from 2011, primarily due to 440% increase
in accounts payable.
• The Receivable’s turnover and Average days’ sales
uncollected has decreased from 2011, but is still
relatively higher than an industry benchmark – Toyota
Motors
• Tesla’s Inventory Turnover and Average days’ inventory
on hand has decreased and is extremely low when
compared to the benchmark. This is primarily because
Tesla Motors planned to greatly increase production in
2012-13 and had built up large inventory reserves in
order to meet these needs.
Financial Analysis
Liquidity Ratios
• Tesla’s Operating Cycle has increased and is
significantly higher than the industry
benchmark. We can expect the operating
cycle to decrease in 2013 because of large
increases in sales and consequently, cost of
goods sold.
• Tesla has a much lower payables turnover
and higher average days payable than the
industry benchmark. This is primarily due to
Tesla’s strong negotiation power with its
suppliers and uses them as a form of
financing.
Financial Analysis
Profitability Ratios
Ratio
Profitability Ratios
2012
2011
Profit Margin
-96%
-124%
Asset Turnover
0.45
0.37
Return on Assets
-43%
-46%
Return on Equity
-227%
-118.00%
• The formulas and working for the ratio’s
above are shown in Appendix B.
• Tesla Motors profit margin has increased from
2011 however, it is still operating at loss. This
is predicted to change from the boost in
revenues when they start recognizing
revenue from cars sold in early in early 2013.
Financial Analysis
Profitability Ratios
• Asset Turnover also increased in 2012
but is also comparatively low, Tesla
needs to increase its asset management
efficiency
• Return on Assets also increased but is
still negative and needs to be improved.
This will happen when Tesla posts a net
profit.
• Return on Equity decreased primarily
because of the increase in net loss and
the decrease in stockholders equity.
Financial Analysis
Market Strength Ratios
Ratio
Price/Earnings per share
Dividend Yield
Market Strength Ratios
2012
2011
-9.18
-11.29
N/A
N/A
• The formulas and working for the ratio’s above are
shown in Appendix C.
• Price/Earnings per share has increased from 2011.
This increase happened even with a decrease in net
income and is testament to Tesla’s stock’s impressive
performance.
• Dividend Yield is not applicable as Tesla has not
declared dividends.
Financial Analysis
Solvency Ratio
Ratio
Debt to Equity
Financing Gap
Solvency Ratios
2012
2011
4.24
1.55
3.84 days
-27.63 days
• The formulas and working for the ratio’s above
are shown in Appendix C.
• The Debt to Equity ratio increased in 2012
primarily because of a decrease in share
holders equity and a very significant increase
in total liabilities.
• There was a significant financing gap in 2011,
which was not present in 2012.
Industry Situation & Company Plans
• The automotive industry is in its best shape since the
2008 recession and most industry analysts have a
positive outlook on the future of the industry.
• Tesla Motors began as a disruptor to the incumbent
players of the automotive market. However, most
industry analysts are tagging Tesla as a game changer,
especially if it can deliver on its promise of a $35,000
electric car. Tesla plans to use the proceeds from the
Model S to produce the $35,000 Model X, which is a
cross between a SUV and a minivan.
• CEO, Elon Musk, envisions a day where there will be
extremely high levels of adoption of electric cars but
believes this is about four years away when technology
to extend the range of the cars exists. Musk’s main
objective for Tesla has always been an affordable massmarket electric car.
Industry Situation & Company Plans
• Tesla Motors had its first ever profitable quarter this Spring
and its stock price has increased by 500% since June 2010.
The company has moved from strength to strength as the
sales of its flagship Model S continue to grow. Its direct
competitors, such as Fisker, have faded away and Tesla is
dominant in the electric car market.
• In addition to its supercharger network, a free network of
charging stations across the USA, Tesla just introduced a
battery swapping system. Battery swapping allows customers
to swap their battery for $60 at half the time it takes to refuel
a car, instead of waiting for it to charge.
• Currently, Tesla is locked in a battle with auto dealers, who
are attempting to prevent Tesla from directly selling to
customers. However, as with previous conflicts, with the New
York Times and TopGear, a swift and effective response from
Elon Musk can be expected.
• Further information on this can be read in the links provided
in Appendix D.
Appendix A – Liquidity Ratios
Liquidity Ratios
Ratio
Formula
Working Capital ($, in
thousands)
Current Assets-Current Liabilities
Current Ratio
Current Assets/ Current Liabilities
Receivable turnover
Net Credit Sales/ Average Accounts
Receivable
Average days’ sales
uncollected
365/ Accounts Recievable Turnover
Inventory turnover
Cost of Goods Sold/ Average
Inventory
Average days’ inventory
on hand
365/ Inventory Turnover
Operating cycle
Average days' inventory on hand +
Average days' sales uncollected
Payables turnover
Cost of Goods Sold/ Average
Accounts Payable
Average days’ payables
365/ Payables turnover
2012
2011
524768-539108
372838-191339
524768/ 539108
372838/ 191339
413256/
((26842+9539)/2)
204242/
((9539+6710)/2)
365/ 22.72
365/ 25.14
383189/
((268504+50082)/2)
142647/
((45182+50082)/2)
365/ 2.41
365/2.99
16.07+151.45
14.52+122.07
383189/
((303382+56141)/2)
142647/
((56141+28951)/2)
365/2.13
365/3.35
Appendix B – Profitability Ratios
Profitability Ratios
Ratio
Formula
Profit Margin
2012
2011
Net Income/Revenue
Asset Turnover
Net Sales/Average
Total Assets
Return on Assets
Net Income/Average
Total Assets
Return on Equity
Net Income/ Average
Shareholders Equity
(-396213) / 413256
(-254411)/ 204242
413256/
((1114190+713448)/2)
204242/
((386082+713448)/2)
(-396213)/
((1114190+713448)/2)
(-254411)/
((1114190+713448)/2)
(-396213)/
((124700+224045)/2)
(-254411)/
((224045+207048)/2)
Appendix C – Market Strength and Solvency
Ratios
Ratio
Formula
Market Strength Ratios
2012
Price/ Earnings
per share
Market Price per Share/
(Net Loss per Share)
Dividend Yield
Dividends per Share/
(Market Price per Share)
Ratio
Formula
Debt to Equity
Average Total
Liabilities/Average
Shareholders' Equity
Financing Gap
Average Days PayablesOperating Cycle
2011
33.87/(-3.69)
28.56/(-2.53)
N/A
N/A
Solvency Ratios
2012
2011
(989490+489403) /
(124700+224045)
(489403+179034) /
(224045+207048)
171.36-167.52
108.96-136.59
Appendix D – Website Links
– http://online.wsj.com/article/SB100014241278
87324049504578541902814606098.html
– http://www.bloomberg.com/news/2013-0621/tesla-adding-model-s-battery-swap-forfaster-refuels-credits.html
– http://www.forbes.com/companies/teslamotors/financial/TSLA/
– http://www.mercurynews.com/business/ci_235
16828/tesla-motors-speeds-next-level
– http://www.bloomberg.com/news/2013-0624/tesla-takeover-turns-tenuous-givenvaluation-real-m-a.html