Tesla Financial/Stock Analysis & Capital Structure



At the end of 2012, Tesla’s stock price was $33.87 per share. Three years later, shares had grown to over $200. By December 2017, shares had climbed to around $340. In 2020, Tesla performed its first stock split; before its five-for-one stock split that year, single shares had topped $500.

Since the stock split in 2000, Tesla shares have still been on a tear. Tesla shares dipped below $100 in Q1 2020 before topping $1,200 per share around 18 months later. At the end of Q1 2022, the price of Tesla’s stock was $1,077.60.

Although its been the darling for many investors over the past decade, Tesla’s (TSLA) current balance sheet and capital structure have been a cause for concern for analysts and investors.

Key Takeaways

  • During the early days of the company, Tesla relied heavily on debt to financial expansion.
  • Most recently, Tesla’s operations have turned positive – allowing the company to flip its retained earnings positive.
  • Throughout 2021, Tesla outperformed analyst expectations regarding earnings-per-share.
  • As of December 2021, Tesla’s total debt and total equity are almost equal.
  • After a stock split in 2020, Tesla has signaled its intention to split its stock again pending board approval.

Tesla’s Beginnings

The popularity of the Tesla success story is widely known. Tesla did what the Big Three could not: produce a quality electric vehicle that is in huge demand.

Contrary to popular belief, Elon Musk was not a founding member of Tesla.

The company was founded in 2003 but didn’t release its first car—the Roadster—until five years later. In 2012, the company moved from the Roadster to the Model S sedan. That same year, Tesla also built charging stations in both the U.S. and Europe, allowing Tesla owners to charge their vehicles for free. As of 2022, the company has several models on the market including the Model S, Model 3, Model X, and the Model Y. Tesla has also expanded its product line and offers solar panels and solar roof installation.

Tesla was founded by two engineers, Martin Eberhard and Marc Tarpenning who named the company Tesla Motors. It caught the attention of PayPal co-founder Elon Musk, who invested millions during the early rounds of funding. Musk eventually became chair of the company before taking on the role of the chief executive officer (CEO).

Capital Structure Debt

As an investor, you should first consider Tesla’s debt story and industry background in the automotive industry. Auto manufacturers require huge amounts of capital to invest in the actual manufacturing process. However, since 1800, Ford (F) is the only auto manufacturer in the United States that has gone bankrupt.

Tesla has to fuel its expansion by leveraging debt. As of December 31, 2021, Tesla reported total liabilities of $30.5 billion. Between 2020 and 2021, the company incurred 7% more debt. A majority of this debt is due in the short-term, as Tesla had over $10 billion of accounts payable at the end of 2020 – almost a 40% increase from the year prior. In addition, Tesla reported over $5.7 billion of accrued short-term liabilities, $1.4 billion of deferred revenue, and $925 million of customer deposits for products not yet delivered.

Regarding long-term liabilities, Tesla was holding over $5 billion of long-term debt and lease obligations at the end of 2021. In total, approximately 1/3 of the company’s debt is noncurrent while the rest is due for payment within the next 12 months.

On the asset side, Tesla was holding less than $18 billion of cash at the end of 2021. As expected, most of the company’s assets are tied into long-term, illiquid assets. Tesla’s cash on hand decreased almost $2 billion from 2020 to 2021, although the company’s total current assets slightly increased.

Shareholder Equity

Between 2020 and 2021, Tesla adopted new accounting treatment for its additional paid-in capital. The adoption of ASU 2020-06 reduced the company’s additional PIC balance by $474 million. However, the value of the company’s equity still increased over 10% over 2021.

A critical part in evaluating Tesla’s capital structure relates to the company’s retained earnings. After historically investing in heavy machinery, manufacturing space, and production efficiency, Tesla famously failed to incur a profit for years. Now, the company is finally reaping the benefits of its long-term strategy. At the end of 2020, Tesla’s retained earnings was -$5.4 billion. At the end of 2021, Tesla’s retained earnings flipped positive to $331 million.

In 2020, Tesla announced a five-for-one stock split. The Board of Directors approved and declared a common stock split in the form of a stock dividend. Tesla made the decision in an effort to “make stock ownership more accessible to employees and investors”.

With share prices topping $1,000 in 2022, Tesla announced plans to potentially incur another stock split. As of April 2022, this second stock split in company history still needed to be approved by Tesla’s board. By making shares even more accessible, the move is expected to favorably impact Tesla’s shareholder equity by further driving investor interest in the company’s stock.

Change Over Time

As of the end of 2018, Tesla’s debt-to-equity (D/E) ratio was 3.71. Tesla was carrying over $23 billion of debt, while it has raised roughly $6 billion of equity. Fast-forwarding to 2021, the company’s capital structure has completely changed. With roughly $30 billion of total liabilities and $30 billion of equity, the company’s debt-to-equity ratio stood at 1.01 at the end of the year.

Another positive signal for Tesla is the company’s recent profitability. In Q4 2018, the company reported a quarterly earnings-per-share of $0.19. However, the company’s trailing 12-month EPS was -$1.14. For every dollar an investor had invested in Tesla, they’d generated over $1 of loss.

20,000%

Investors that purchased Tesla shares on January 1, 2012 would have gained almost 20,000% on their investment on January 1, 2022.

Today, the story is different. In Q4 2021, Tesla’s quarterly EPS was $2.05 – a company record. It’s trailing 12-month EPS was $4.90 – also a company record. Tesla beat earning per share estimates each quarter in 2021.

In addition, company-wide profit is exceling. Tesla’s Q4 2021 revenue of $17.7 billion represented almost a 65% increase from Q4 2020. The company’s profit margin of 13.1% is over 400% higher than from one year ago. Though the company’s net cash on hand has decreased, the company generated $2.61 billion of operating income during the fourth quarter of 2021.

Is Tesla Financially Stable?

Though not always the case, Tesla’s financial health has substantially improved over the past few years. In 2021, the company was profitable and though its cash balance decreased, it earned over $2.6 billion of operating income in Q4 2021 alone.

What Is Tesla’s Financial Strategy?

Tesla’s financial strategy of patience and long-term investing seems to have paid off. Tesla must continually increase efficiency, reduce cost, and expand manufacturing capacity. Now that the company is profitable, it might be able to solicit debt financing at lower costs than before.

Is Tesla in a Good Financial Position?

After strong financial numbers in 2021, Tesla is in a much better financial position than it was just a few years prior. In 2021, Tesla was profitable, beat EPS targets each quarter, and has a much healthier debt-to-equity ratio.



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