The Analysis of Tesla Motors Inc.

The Analysis of Tesla Motors Inc.

Abstract

    Tesla Motors, Inc. is an American company who produces vehicles and innovative energy sources. Their current products include the Model X, Model S, and lithium ion batteries. The Model 3 will be released in the fourth quarter of 2017. Tesla Motors is a public company that trades on the NASDAQ stock market under the symbol TSLA. On the stock market, the price of Tesla was not stable and kept decreasing year by year. The total asset growth rate in 2015 is 38.79%, although the net loss and decreasing stock price restricted the growth rate, it still invest a lot  in the fixed assets. Tesla has partnered with Panasonic to build a Gigafactory in Nevada that will produce lithium ion batteries. Nevertheless, investing in Tesla will be very risky because projected success of Tesla is heavily dependent on the success of their Model 3 car. But, three hundred and twenty-five thousand preorders of the Model 3 car shows an impressive demand for the car.  On the other hand, as of now the growth of Tesla stock prices are directly correlated to the growth of revenue and product delivery. Knowing this, we cannot ignore the fact that Tesla is heavily invested in the Gigafactory, which leads us to question their priorities in term of revenue growth. Despite this, we believe that now is the best time to consider a long-term investment in Tesla. inc

The Financial Analysis of Tesla Motors Inc.

   Tesla Motors, Inc. is an American sedan and energy storage company that designs, manufactures, and sells electric cars, electric vehicle powertrain components, and battery products. Tesla Motors is a public company that trades on the NASDAQ stock exchange under the symbol TSLA. The CEO of Tesla Motors, Inc. is Elon Musk.

Main Products of Tesla

  The first vehicle produced by Tesla was the Model S, a sedan model with advanced safety features. The Model X, is a sports utility vehicle with specially designed falcon doors that allow the driver to park in tight spaces and is marketed as a family car without the sacrifice in style and speed. The Model 3, an affordable sedan model, will be released in the fourth quarter of 2017 and we consider it a major product because its anticipated success will be a major turning point in Tesla’s financial status. The common denominator in all of the Tesla vehicles is the patented lithium ion battery. It is positioned at the base of all their vehicle models, and it the reason why the performance of Tesla vehicles are unparalleled.  

Gigafactory

  Tesla has partnered with Panasonic to build a Gigafactory in Nevada that is projected to produce more lithium ion cells in 2020 than was produced worldwide in 2013 (Tesla). They also plan to build stationary battery packs/ energy sources that will help reduce the energy costs of the surrounding businesses and surrounding residences.

Revenue Performance 

  According to a revenues year over year analysis provided by John Parker of Market Realist (shown above) Tesla experienced an exponential growth from 2012 to 2013. But from 2013 to 2014 there was a great decrease in revenue growth of approximately 331%. Then from 2014 to 2015 it decreased further to a 26.5% revenue growth rate for 2015.

Greatest Influence on Revenue

   Upon studying the year over year revenue growth analysis it was clear that there had been major events that substantially affected Tesla’s revenue. Explanations provided by Tesla were complications with suppliers including a limitation in raw materials, and production restrictions which alludes to an incapability to produce at an efficient rate, a poor delivery growth rate that could also mean that Tesla was producing more vehicles than they were selling or delivering. And an important setback was that Tesla was required to stop operations for one week in order to improve the production line of the Model X (John Parker).

Revenue performance

                                            2012                 2013                 2014                2015

Net loss                           (888,663)         (294,040)          (74,014)          (396,213)

Loss from operations      (716,629)         (186,689)          (61,283)          (394,283)

  From the income performance, Tesla’s main source of revenue is from selling vehicles. During 2015, they recognized total revenues of 4.05 billion dollars, an increase of 847.7 million dollars over total revenues of 3.20 billion dollars for the year ended December 31, 2014, primarily driven by the growth of Model S deliveries worldwide. Gross margin for the year ended December 31, 2015 was 22.8%, a decrease from 27.6% for the year ended December 31, 2014. But Tesla’s net loss increased year by year and did not have net income. The net loss of 2015 was 888 million and 663 thousand dollars, it was much more than net loss in 2017, which was ‘only’ 186 million and 689 thousand dollars.

   From the 10K report, we found that the loss from operations took up most of the net loss, in 2015, it increased to 716 million and 629 thousand dollars, and it was nearly 80% of the net loss. Operation expense includes research and development, selling, general and administrative.

   In 2015, Tesla did a lot of researches and development about their new product Model X and their future product - a lower priced vehicle “Model 3” designed 13 years for the mass market, which will be produced in 2016 and delivered in 2017. Research and development expenses in 2015 were 717.9 million dollars, an increased from 464.7 million dollars in 2014. The increase in research and development expenses consisted 93.9 million dollars  in  materials to support Model X and Model 3 development and Model S improvements, a 75.9 million dollars increase in employee compensation expenses, a 30.6 million dollars increase in facilities and depreciation costs, a 20.1 million dollars increase in costs related to Model X, Autopilot and dual motor powertrain engineering, design and testing activities, and a 22.8 million dollars increase in stock-based compensation expense related to increased headcount and increasing values of awards granted. [from 10k]

  In 2015, Tesla also made great progress in their new generation of energy storage products, the 7 kWh and 10 kWh Powerwall for residential applications and the 100 kWh Powerpack for commercial and industrial applications.

  Tesla built many charger stations in 2015, the number of stations in North America in 2015 was as twice as much it was in 2014. And the Supercharger network also is an important part of the development. The Supercharger network is the equipment which can provide 120 kW fast charging service to replenish 170 miles of range in the battery pack in 30 minutes. Tesla built these Superchargers throughout North America, Europe and Asia for fast charging of Tesla vehicles. Their Supercharger network is a strategy to remove the barrier to the broader adoption of electric vehicles caused by the perception of limited vehicle range and to provide fast charging for long-distance travel. Supercharger stations have four to ten Superchargers and are strategically placed along main highways to allow Model S and Model X owners and the Model 3 owners in the future to enjoy long distance travel with minimal stops. In 2015, Tesla had 584 Supercharger stations open in North America, Europe, and Asia. With these huge amounts of charger stations, the operation fee also increased a lot, include the research and development and the service and maintaining of them (belongs to selling and general and administrative expense). Tesla is planning to continue to expand the Supercharger network in the United States, Europe, and Asia. They also said that the operation expense will increase 20% in 2016, we think it’s meaningful to enlarge their scale and business globally.