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- 1 Operating Profit of Tesla is reduced by 10% pertaining to an increase in Operational Expenses.
- 2 There is an increase in Net Profit by 7.56% but the change in the Net Profit Margin is negligible.
- 3 Excellent Liquidity and Solvency position is maintained by the company
Tesla Inc. (Nasdaq: TSLA) was established in the year 2003 and is headquartered in Austin, Texas. It operates in two segments: Automotive and Energy Generation and Storage. It deals in designing, developing, manufacturing, leasing, and selling of electric vehicles and Energy Generation and Storage Systems. Under the automotive segment, it offers electric vehicles as well as automotive regulatory credit, non-warranty after-sales vehicles, used vehicles, retail merchandise, and vehicle insurance services. It also provides sports utility vehicles and sedans through direct and used vehicle sales, the network of Tesla superchargers, purchase financing, and leasing services, services for electric vehicles through its company-owned service centers, in-app upgrades, Tesla mobile service- Technicians, vehicle limited warranties and extended service plans. The Energy Generation and Storage segment engages in the design, manufacture, installation, sale, and leasing of solar energy generation and storage products and related services to residential, commercial, and industrial customers. These services are provided through websites, stores, networks of channel partners, galleries, and provision of service and repair to customers of energy products and other financing options are also made available to its customers.
Profitability remains quite constant despite the increase in absolute amounts of Revenue and Net Profit
There is an improvement in the gross profit margin of Tesla by 2.863% QoQ as Total Revenue increased by 6.850% and the main driver of growth of revenue is through Automotive sales; which increased by 8.163%. The revenue through service and other segments increased by 17.04% while the cost of revenue increased by 8.375%, the main drivers of the increase in cost are costs of energy generation and storage; which increased by 16.59%. This is the main reason behind the massive increase in costs and also leading to revenue generation. Operating profit is reduced by 9.94% pertaining to an increase in Research and Development costs by 22% and Selling, General, and Administrative Expenses are increased by 10%.
In spite of an increase in net profit by 7.56%, which is from $2,513 Million to $2,703 Million on a quarterly basis, the net profit margin remains quite constant at around 10.5%.
With the growth of Electronic vehicles outside the USA, the company will increase its Revenue and region of operations and it will boost the profitability and the growth of the company.
Through the above graph, it can be clearly observed that despite an increase in revenue there are no significant movements in the profit of the company.
Looking at the value addition to shareholders, EPS on a diluted basis increased by 6.849%, which is from 0.73 to 0.78 on a quarterly basis while there is not any significant change in a number of outstanding shareholders.
If the trend formed in the graph continues then there can be significant growth in the EPS; which can be a positive sign for the shareholders of the company.
Tesla is constantly improving its working capital management by reducing the Days of Payable Outstanding, it is reduced by 10 days in a year while the days’ sales outstanding remained quite constant over the year from 11 to 12 days. It is so as to keep paying its creditors on time, the company needs to manage its cash and cash equivalents effectively.
The liquidity ratio has increased by 1.46% from 1.56x to 1.59x though the change is not very significant, the company is managing an excellent liquidity position and almost 52% of the Total Current Assets are held in Cash and Cash Equivalents, the amount of which can be used to pay off the liabilities. The company has cash equivalent to 80% of Total Current Liabilities. So there is no concern in the quarters ahead regarding the short-term liquidity of the company.
Looking at the debt pattern of the company over the last five quarters it can be seen that the company is constantly reducing long-term debt on its books and paying off the liabilities and if we additionally use a ratio of Long Term Debts to Total Assets it can be confirmed that the company is trying to become debt free in the next 2 to 3 financial years. To further check through the funding pattern of the company it can be observed that the company is funded by equity by more than 90%.
Performance of Investments in Digital Assets (Bitcoins)
The company has gained through investments in Digital Assets (in the form of Bitcoins) which increased in value by 6.67% till the end of last quarter which is about $12 Million not recorded in the income statement of the company. It is such that the recent laws state that companies are not allowed to revalue investments in digital assets in the case of gains until and unless the profit is booked through the sale of these Assets while if there were any losses then it could be recorded in the quarterly books itself. Lastly, the company sold its digital Assets a year back in Q2 2022, since then the company has maintained the current level of Digital Assets.
Conclusion
Tesla is about to announce its Q3 results in the month of October where it is expected to report growth in profits by a single digit number continuing with the trend of growth, reduction in the debts further improving the solvency of the company and an attempt to increase the free cash flow to firm by more efficiently managing its operations and increasing the capacity of its energy storage would be adding to the performance of the company. Additionally, it is expected that the coming products will have more safety features added to it. Though the company is having low profitability when compared with peers in the industry it is way better than the other member companies in the industry.
Nancy J. Allen is a crypto enthusiast, with a major in macroeconomics and minor in business statistics. She believes that cryptocurrencies inspire people to be their own banks, and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning. She frequently researches, and posts content on the top altcoins, their theoretical working principles and technical price predictions.
