By on February 21, 2013

Tesla Motors Inc. released its Fourth Quarter & Full Year 2012 Shareholder letter on Wednesday. While the letter provides a very positive outlook for Tesla’s future, there are some questions looming in the background once we dig deeper into Tesla’s balance sheet.

Despite supply chain issues, Tesla has apparently achieved their stated goal of producing 400 cars per week at their Fremont, California factory. Tesla hopes to capitalize on its new found production ability, an annualized rate of 20 000 units per year, to take the Model S into Europe and Asia. However, there is still no indication whether Tesla will be reporting their sales figures in the United States like other auto makers do.

When viewed in isolation, Q4 has undeniably been one of the most successful sales periods for Tesla. 74% of Tesla’s overall revenues were recognized in Q4 alone, and reported sales growth from Q3 to Q4 was over 500%. But Tesla’s broader financial health isn’t nearly as rosy. The firm’s Q4 loss is reported at almost $90 million or $0.79 on a per share basis. Tesla’s net loss this year is almost $400 million, or $3.69 per share. Despite the fact that Tesla has slowly been improving its operating margin, which currently is at 8%, Tesla has not been able to carve enough contribution out of its sales to help cover its staggering Research and Sales expenses.

These costs combined make up 103% of Tesla’s overall revenues. Despite the fact that Tesla estimates a 15% reduction in its R&D costs for 2013, it is still fighting an uphill battle. Expansion into Europe and Asia will also require more retail and marketing resources, which will only further add to Tesla’s profitability woes.

At this time, Tesla remains highly leveraged, with a debt to equity ratio of 3.62. With some $450 million in long term debt sitting on its books (and nearly $1 billion in total liabilities), and no earnings to repay it with, Tesla’s future stability is questionable. While it does have approximately $200 million cash on hand, between a negative cash conversion cycle of 46 days and interest payments on the debt, not to mention negative free cash flow of over $500 million, one can only wonder how long until the well runs dry. Despite Tesla’s stated “cash flow positive” status in Q1 2013, this is using non-GAAP figures.

Hope still remains for the zero emissions car manufacturer as it looks to achieve economies of scale and reduce its fixed costs through improved production efficiencies. The projected increase in volume will also help towards the bottom line.

N.B: GAAP Figures used

Graeme Kreindler is an HBA Candidate at the Richard Ivey School of Business at The University of Western Ontario. 

 

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28 Comments on “Tesla’s Q4 Results Raise Questions About Long-Term Future...”


  • avatar
    CelticPete

    Telsa will just get government loans for the next gazillion years anyway. I don’t think any amount of failure could make them close shop..

    Electric cars have become the symbol of enviromental freedom from big oil. Politico types love that idea and have no problem using your tax dollars to make Tesla a reality..

    • 0 avatar
      IHateCars

      “Electric cars have become the symbol of enviromental freedom from big oil. Politico types love that idea and have no problem using your tax dollars to make Tesla a reality…”

      I’d rather that government “squander” money on future beneficial technologies rather than the hundreds of billions required to fight wars in far away lands because we think that there might be WMDs….not sure….maybe. But let’s go anyways…

    • 0 avatar

      Why is it everyone attacks ELECTRIC CARS with comments about bailouts, BUT NO ONE ever calls out the CORPORATE WELFARE being spent over at Lockheed Martin???

      SOMETHING has to move technology forward and without government spending on WARS, we really don’t see much innovation. The current war we are locked into is a sick joke. The people we are fighting might as well be throwing rocks. The only tech innovation there is going to eventually be used against citizens. Meanwhile, Lockheed has us building cold war era fighters at $150 million (or more) a pop so we can attempt to make up a ground attack role against people armed with AK-47′s, unexploded ordinance from the 70′s and towels.

      Next thing is the space program. We need to go to Mars just to push technology forward.

  • avatar
    MeaCulpa

    Where is tesla incorporated? Is it a Cali corporation or a foreign Delaware corporation?

  • avatar
    jasontali

    I love Tesla. I love the idea unfortunately I would bet on this company failing if it can not mass produce common cars. The reality is there is just not a market for its products substantial enough for the automaker to sustain itself.

  • avatar
    E46M3_333

    I’d like to know how much profit they make on each car. When Jaguar or BMW sells an $80K car, the profit margin is huge since much of that cost is high-markup options. Tesla has to spend $20K to $30K for the battery alone, so I dare say their profit per car is much lower than other car makers.

    Also, they will have to refresh the car soon. No one is going to want to buy a “new” 2012 Model S in 2015.

    Any of the major car makers could have strapped 7000 laptop cells together with an electric motor to power a car with giant iPad in the dash. The technology is not all that impressive. I suspect the major car makers did the ROI math and concluded they would not recoup the huge investment in a new EV-optimized platform.

    Tesla will have to keep putting a positive spin on their financials, lest potential customers begin to fear they will be stuck with a car from a bankrupt company.

    I wish them luck, but I’ve been predicting fail on them from the very beginning.

    • 0 avatar
      MBsam

      That’s a completely, utterly uninformed comment there.

      There is a reason why HUGE major manufactures are turning to Tesla for their battery tech. It’s simply because Tesla has done far more R&D in this field and is currently the technical champion of the segment.

      • 0 avatar
        E46M3_333

        I agree that in the field of stringing 7K laptop cells together to power a car, Tesla is the tallest dwarf.

        Congratulations on refuting none of the points in my “uninformed” post.

      • 0 avatar
        gslippy

        +1. Toyota partnered with Tesla because of how primitive Tesla’s technology is.

        • 0 avatar
          stuki

          Did anything ever come of that “partnering”. Or was it simply another case of a hyped through the roof startup, successfully scaring a larger, more established player into partnering with them for what ultimately turned out to be unfounded fears of being left behind?

      • 0 avatar
        CJinSD

        “I agree that in the field of stringing 7K laptop cells together to power a car, Tesla is the tallest dwarf.”

        That’s the first thing that popped into my head too. Toyota’s involvement with Tesla is about NUMMI, good will, and an unchecked government of profound corruption.

    • 0 avatar
      gslippy

      “Any of the major car makers could have strapped 7000 laptop cells together with an electric motor to power a car with giant iPad in the dash.”

      Said by someone who thinks this is easy to do, but a bad idea. Have you any idea how hard it is to manage that sort of battery power?

      • 0 avatar
        E46M3_333

        Well, let’s see. I have a BSEE degree from one of the top five engineering schools in the U.S. Also hold an MBA. I’ve been in product and technology development with Fortune 50 companies for over 25 years. I’ve been designing LiIon batteries and control systems since shortly after Sony introduced the first cells in 1992. So yes, I fully understand what’s involved in making a pack like Teslas. Perhaps that’s why I’m unimpressed. I could do the same thing if you gave me half a billion dollars of taxpayer money.

        What are your qualifications, slippy?

      • 0 avatar
        WheelMcCoy

        The Tesla segment on National Geographic

        http://youtu.be/VVktbM6jZxg

        described the arrangement of the batteries as top secret (around 22:15). The arrangement is for safety in the event of a collision, and is balanced against energy density and proper cooling.

        The video — 45 minutes — is worth watching. It doesn’t delve into the financials, but it does show that Tesla’s execution has been quite remarkable.

      • 0 avatar
        gslippy

        BSME + MBA, in product development for 25+ years also.

        Perhaps now we should compare our… rulers.

  • avatar
    AFX

    This whole thing about Tesla is nothing to get worked up about, in 10, maybe 5, years they won’t be around anyways. The way that I look at it is that their electric cars are just toys for rich people, and not something practical for the average person. If I think of an electric vehicle I’m thinking of something small, lightweight, aerodynamic, with low rolling resistance, so it gets good range, and practical too. So what have they made so far, a converted Lotus sportscar, and a full sized sedan. Neither of which makes any sense if you’re looking to maximize the benefits of an electric vehicle. The Lotus is too small with no storage room, and the sedan is too big. You don’t load an electric car up with the weight of 4 people and their luggage and expect to drive it like a normal car.

    I look at the big picture of their products. You have to have the support of the factory in order to own one of their cars, because nobody’s qualified to work on them except Tesla themselves. It’s not like you can go to your local garage or NAPA to get parts for one. The battery pack is going to eventually die, then you’ll be paying out the wazoo for a new one, IF the company is still in business. If the company goes under you’ll have a nice big lawn ornament on your hands, because you’ll never be able to keep the car running or get the specialized parts it needs. The only thing then they’d be good for is as a museum piece. It’d be easier to get parts for Jay Leno’s Chrysler Turbine car, than an old Tesla, if the company goes out of business.

    If Tesla had any sense at all they’d be developing more practical vehicles that the market actually wants or needs. After the initial novelty wears off with the early adopters their sales are going to tank. Right now their electric cars don’t make any sense.

    • 0 avatar

      Remember how cellphones were the size of Tesla S’ battery pack and costed about as much in 2013 dollars. They were also called “toys of the rich”.

    • 0 avatar
      baggins

      They arent building it for you. I live here in Silicon Valley, next town over from Tesla HQ. I see Tesla Lotus all the time, and have seen Tesla S many times.

      I saw one Tesla S on Tuesday is the parking lot of a Sand Hill Road VC.

      Its a fashion statement for a guy who earns millions a year. He has a Range Rover or GL450 for when he takes the kids to Tahoe.

      Seriously, I would wager the median net worth of a Tesla S buyer is north of $5M. The mean net worth is likely waaaaay higher.

    • 0 avatar
      GiddyHitch

      Starting with expensive models like the Roadster and Model S that appeal to rich guys was the business plan – they are the only ones that could afford to pay the kind of margins that would cover the high startup costs and low economies of scale associated with initial EV production. The Model X CUV is supposed to come out within the next couple of years with a starting price in the 30s and then an entry level sedan priced around $20k a few years after that.

      The S is more common than Lincolns (save livery TCs) around here.

      • 0 avatar
        redmondjp

        You’re right, but at their current cash burn rate just to get the sedans out the door, they are going to run out of money long before they somehow acquire a few hundred million $ to develop any new models.

        Not gonnna happen.

        I say this as a former EV owner (my EV was made by Jet Industries, look them up – hint, they aren’t around any longer).

  • avatar
    gslippy

    I would like to see Tesla divulge their production and sales numbers, rather than plant capacity. Not doing so is shady.

  • avatar
    porschespeed

    Hi-effen-larious.

    Tesla’s future has never been in doubt-it will never make money. Period. Full stop.

    It’s not ‘BK and gone’ because of a pile of investor cash. Everybody with a clue knew that when the latest Musk cash burner was allowed to flame, there’d be idiots. And here they are.

    It’s more negative than the last GM – any moron who can actually read a spreadsheet knew that 5 years ago. Musk isn’t capable of running a taco stand.


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