TESLA MOTORS, INC

FINANCIAL STATEMENT ANALYSIS

Financial Statement Analysis for Tesla Motors

Introduction
There are a lot of automobile companies in the world and some of them have special technologies
of their own. The technology industry is not as competitive as other industries. It requires highly
technological innovations to operate efficiently. As long as companies keep coming up with new
creative design ideas, the industry will keep producing products and making profit, but it is not
easy for any company, even Tesla Motors. Tesla Motors successfully used battery technology on
their automobiles, which leads the company in the electric automaker field.
In the automotive industry, some auto companies use specialized technology of their own. Tesla
Motors is one of these companies, which has successfully used its battery technology on
automobiles, and has helped the company become very successful. In this project paper, I will
research and analyze Teslas stock market activities, financial statements, and ratio analysis. I will
finish research summary with suggestions.

Company Overview and Company News

Tesla Motors, Inc. is an American automotive company based in Palo Alto, California. It
designs, manufactures, and sells electric cars, electric vehicle powertrain components, and battery
products. The company was founded by two Silicon Valley engineers Martin Eberhard and Marc
Tarpenning in July 2003. Elon Musk, current CEO and widely knows as co-founder of PayPal,
joined Tesla in 2004 as a chairman. They got the name from the historic electrical engineer and
physicist, Nikoka Tesla, who invented AC motor, which was also used in Tesla cars.
The Tesla Roadster, the company's first vehicle, was the first production automobile to
use lithium-ion battery cells and the first production EV with a range greater than 200 miles
(320 km) per charge. Between 2008 and March 2012, Tesla sold more than 2,250 Roadsters in 31
countries. Tesla stopped taking orders for the Roadster in the U.S. market in August 2011. In
December 2012, Tesla employed almost 3,000 full-time employees. By December 31, 2015, this
number had grown to 13,058 employees. Tesla's primary goal was to commercialize electric
vehicles, starting with a premium sports car aimed at early adopters and then moving as rapidly as
possible into more mainstream vehicles, including sedans and affordable compacts.
Currently, the Company produces and sells two electric vehicles: the Model S sedan and the
Model X sport utility vehicle (SUV). The Company has delivered over 107,000 Model S vehicles
across the world. In addition to developing its own vehicles, it sells energy storage products. Its
energy storage products include the seven kilowatt-hour and 10 kilowatt-hour Powerwall for
residential applications, and the 100 kilowatt-hour Powerpack for commercial and industrial
applications. The Company delivers energy storage products under the Tesla Energy brand. It
manufactures its products primarily at its facilities in Fremont, California, Lathrop, California,
Tilburg, Netherlands and at its Gigafactory near Reno, Nevada. The Company uses battery packs
manufactured at the Gigafactory for its energy storage products.

Stock Market Activity

Tesla Motors, Inc. is listed under NASDAQ as TSLA. 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, and
by 2014 Tesla had market value half that of Ford. Today, Teslas stock trades at around $193.15
per share. Current summary for stock quote of Tesla Motors, Inc is as follows.
NASDAQ: TSLA
Price 6/26/16: $193.15
Market Cap: $28.45B
52 Week Range: $141.05 $286.65
1y Target Est: $251.38
Shares Outstanding: 133.94M

Financial Statement Analysis

Teslas revenue increased 11% to $4,46 billion in 2015 compared to 2014. This is due to
deliveries of the Model S. Below revenue is where it gets interesting. Tesla has a 25% gross profit
margin. This margin is almost twice that of GM, which had a 13% gross profit margin in 2015.
Moving down the income statement to operating income, Tesla has an operating loss. This
operating loss is due to continued investment in future models and technologies and expanding
the sales and service network and charging network. Tesla pays little in taxes due to tax losses
from its initial operating losses in the start-up phase. The bottom line on the income statement is
that Tesla remains a start-up or newer business thats not generating earnings from its sales. We
can see this in the cash flow statement.
Tesla generated operating cash flow in 2015. However, free cash flowoperating cash flow less
capital expendituresis negative. This is to be expected for a company thats expanding its sales,
service, charging stations, and production capacity.

Ratio Analysis
To understand Teslas financial situation, we are going to use some key financial ratios to explain
the situation.
First, Profitability Ratios measure how the company is generating returns on revenues and
investments. Tesla has had net loss of ($294) M and ($889) M in 2014 and in 2015, respectively.
For this reason, Tesla is not a profitable company in terms of return on revenue and investments,
yet. Teslas The Return on Sales (ROS) ratio was (9.0%) in 2014 and (22.0%) in 2015, indicating
that Tesla performed weaker compared to the prior year as well as to the industry average 6.92%.
With Return on Asset (ROA) of (5%) in 2014 and (11%) in 2015, Tesla also preformed weaker
and felt behind the industrys 4%. In 2015, Teslas Return on Equity (ROE) dropped to (82%)
from (32%), while the industry performed much better with 15%. Even though Teslas gross
profit margin dropped slightly, from %28 to %23, it outperformed the industry average of 19%,
which shows us there is a room to be profitable in the future.
Second, Efficiency Ratios measure how the, company is using its resources efficiently. My
analysis shows us that Teslas management was efficient and quicker in in terms of collecting
receivables. Accounts receivable turnover ratio was 23.95 in 2015 and 14.11 in 2014, while the
industry average was 16.42. When it comes to efficiency in handling inventory, Tesla, at 2.44, felt
behind the industry averages 10.15. As Tesla is newcomer to the car manufacturer industry, the
asset turnover ratios indicate that Tesla is less efficient. Tesla has an asset turnover of 0.50,
whereas industrys is 0.71.
Third, Liquidity Ratios measure how the company is meeting her current obligations. A higher
current ratio means the company is more capable of paying its obligations. In 2015, Tesla had a
current ratio of 0.99 compared to the industry, which has a current ratio of 1.3. Since the current
ratio is equal to 1, it means that Tesla is capable of paying off its obligations.
Last, Solvency Ratios measure the company is handling debt appropriately. Financial leverage
shows a companys use of leverage of all types (debt + liabilities). Teslas financial leverage is
above industry average in 2014 at 6.4 and in 2015 at 7.43. The Debt Ratio reveals the proportion
of assets financed with debt by total liabilities divided by total assets. Tesla has significantly high
debt- 86% of assets in 2015. Another risk to a company with high debt is its ability to make
timely interest payments. The Times Interest Earned Ratio indicates a companys ability to cover
its periodic interest payments. Tesla had negative 6.03 in 2015 and negative 1.85 in 2014, which
was below industrys 0.99 because of negative Operating Income in both years. It indicates that
interest obligations may be difficult to meet. Free Cash Flow reflects the amount of cash available
for business activities after allowances for investing and financing activity requirements. The
formula is based on Net Cash from Operating Activities (NCOA), subtracting both capital
expenditures and dividends paid. Teslas free cash flow is deterring each year, from ($1,027)
millions in 2014 to ($2,159) millions in 2015 due to spending on Model S manufacturing,
Supercharger network infrastructure, and construction of Gigafactory in Reno, NV.

Research Summary
At this point, weve seen that Tesla remains unprofitable and doesnt generate cash. The current
valuations supporting the $25 billion market capitalization are based on future expectations.
While Teslas product is beautiful and the company is a technological pioneer, Tesla remains a
speculative stock. The story holds water only with projections of profitability and volumes well in
excess of Teslas current 35,000 vehicles per year.
The leaders in the industryToyota (TM), General Motors (GM), Volkswagen (VOW), and Ford
(F)have billions of free cash flow, thousands of established sales and service sites, and a long
history of generating value for shareholders. You can invest in this space with the exchangetraded fund CARZ or through the Fidelity Select Automotive Portfolio mutual fund.
Tesla has approximately $1.4 billion in cash, including recently-issued common stock, according
to Seeking Alpha. That should allow it to continue an aggressive program of capital investments
for another one to two years, the analysis says. While theres no indication when the companys
cars will begin turning a profit, Tesla stock remains highly valued, and further stock offerings are
expected.
In terms of sales revenue, Tesla Motors has exciting growth rate. For some analysts, Tesla is over
valued and their stock didnt worth that price. However, if we compare Tesla to the traditional car
companies, Tesla Motor is a leading innovator in terms of new green technology that really
attracts many customers. Green market isnt a theory in the book, consumer has accepted and
willing to pay for it. Henry Ford had said: If I had asked people what they wanted, they would
have said faster horses. As long as Tesla is an innovator and a challenger, why not keep that
stock price? Last time, Steve Jobs has done something change the cell phone industry the
iPhone. Today is Tesla, like their advertisement says: Green never looked so good.

References
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Frase, L., & Ormiston, A. (2004). Understanding Financial Statements. New Jersey: Pearson
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Hey-Cunningham, D. (1993). Financial Statements Demystified. New South Wales: Allen &
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