Tesla's Latest Filing: The Good, The Bad And The EPS

Graeme Kreindler
by Graeme Kreindler

Tesla’s shares roared to over $250 on Tuesday February 5th, amid release of financial results. Tesla’s 8-K regulatory filing highlights a record 6,892 Model S’s sold, non-GAAP earnings of $46M ($0.33 on a per share basis), and projected vehicle delivery growth of 55% among others. The shares are currently trading just above the $260 during after-hours trading.

Here we find ourselves at yet another quarterly earnings report, and yet again when looking at the GAAP figures, Tesla posts a net loss of about $74 million, and an EPS of -$0.62. Yet another year of losses for Tesla, but the punch line for accounting stiffs like myself seems to be “who cares!”

From this time last year Tesla’s share price has grown over 600% (this time last year, it was trading at $34.38 versus $248 today). [1] For those of you who have consulted my past work for free investment advice in the past, I apologize, but I am quickly learning that a business degree doesn’t turn you into Jordan Belfort overnight. To capture the highlights of Tesla’s recent results I present you with the good, the bad, and the ugly.

The Good

Tesla exhibited strong quarterly sales growth with revenues up by 43%. An even more impressive figure is the fact that Tesla’s revenue grew by 387% from 2012 to 2013 which was a result of the company’s ability to deliver 22,477 vehicles throughout the year.

Tesla was also able to vastly improve its gross margin. In 2012 the company’s gross margin was just over 7%. In 2013 the margin had improved to almost 23%. By contrast, Porsche’s gross margin in 2012 was 37%. [2] Continued growth in gross margin will be a key factor moving forward to improve profitability.

Strong cash flows from operating activities amount to roughly $258 million. This is the first year for Tesla in which it has exhibited positive cash flow from its operating activities. Tesla also has a large cash balance of over $845 million, largely driven from the proceeds of debt and equity financing.

The Bad (aka the not so good)

While I would be hard pressed to call a net loss of $74 million good, there is still some upside when comparing the loss figure to last year’s loss of $396 million. The 82% reduction in net loss and continued upward trend is a definite positive to Tesla’s less than stellar earnings. Sales growth and increased margins will only help to bring Tesla into the black in future.

However, it still seems that operating expenses are getting the best of the company. While in 2012, total operating expenses amounted to 103% of total revenues, they are only 26% in 2013. Despite the reduction, with a gross profit of only $456 million, the related operating expense figure of $517 million is gobbling up what remains of the gross profit. Selling General and Admin expenses increased by 90%, while Research and Development expenses decreased from $274 million to $232 million. As a high growth company that relies on continued innovation for success, it will be interesting to see how the company will manage R&D expenditure in the future. Tesla could find itself in a Catch-22 situation whereby revenues are dependent on new technology, but profits cannot be delivered without a decrease in its cost structure, which includes spending on this precious R&D.

The Ugly

The ugly fact remains that Tesla’s earnings per share is negative $0.62. Based on Tesla’s February 25th closing stock price, its Price to Earnings multiple is negative 400. Simply put, investors are willing to pay $400 for every $1 in losses the company incurs. If I were to get a message in my inbox that told me that a Nigerian Prince was willing to pay me $400 for every dollar of student debt to my name, it would quickly become part of my Happy Hour story-telling repertoire.

Now I understand that the basic fundamentals of valuation are based on a company’s future earnings, and not their past, but I wouldn’t put my precious dollars into a company before I saw some concrete return.


[1] http://ca.finance.yahoo.com/q/hp?s=TSLA

NB: All calculations completed using Tesla’s 8-K and 10K figures

[2] Calculated using: http://www.volkswagenag.com/content/vwcorp/info_center/en/publications/2013/03/Porsche_Annual_Report_2012.bin.html/binarystorageitem/file/Porsche-Download_e.pdf pg. 131

Note: Article was ammended due to the reporter mixing the R&D and SG&A numbers.

Graeme Kreindler
Graeme Kreindler

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  • Ruggles Ruggles on Feb 28, 2014

    RE: "Tesla cannot reduce overhead costs. It has to increase them. And that’s the problem." Why? I agree that in the short term you are correct, but you imply that they can NEVER reduce overhead costs--something every other brand is attempting even now." They have to get through the short term to get to the long term. That's the discussion. RE: "But when I spoke of 'reducing costs' I was also speaking of all the startup costs; the building of factories, the setup of the Supercharger network, etc. These are relatively short-term (albeit expensive) costs that will go down as those projects are completed, leaving Tesla to focus on product more than expansion." And this is the major undertaking that requires massive amounts of capital, capital Tesla is NOT creating through everyday operations. The discussion is whether or not Tesla can accomplish all of this without selling off its dealer network for capital at some point. RE: "Those other brands are currently shutting down and even divesting themselves of unused plants (a potential mistake by Daimler Chrysler considering Fiat/Chrysler now has need of more assembly area for trucks)." Huh? How so? GM has reopened Spring Hill. Chrysler will run overtime at its current plants to avoid building a new Ram assembly plant. Your info is about 5 years old. RE: "Ford is now looking for a $12B infusion of cash (loan) due to its own dodging of Federal loans which might have saved them from putting even the Blue Oval itself on the line." First, Ford DID hock the Blue Oval. Second, Ford is NOT looking for $12 billion in cash. They are looking to EXPAND their current lines of credit by $1.3 Billion.

    • See 8 previous
    • Vulpine Vulpine on Mar 01, 2014

      @ruggles Yes it is, because the article I linked specifically stated that Ford is going for a 12 BILLION line of credit. I can't help it that you want to play the semantics game by pointing out that they're losing an older one that covered most of that amount.

  • Ruggles Ruggles on Mar 01, 2014

    RE: "Auto industry success is a marathon, not a sprint ... and at current volumes, Tesla is barely walking." from the Bloomberg piece

  • AZFelix Hilux technical, preferably with a swivel mount.
  • ToolGuy This is the kind of thing you get when you give people faster internet.
  • ToolGuy North America is already the greatest country on the planet, and I have learned to be careful about what I wish for in terms of making changes. I mean, if Greenland wants to buy JDM vehicles, isn't that for the Danes to decide?
  • ToolGuy Once again my home did not catch on fire and my fire extinguisher(s) stayed in the closet, unused. I guess I threw my money away on fire extinguishers.(And by fire extinguishers I mean nuclear missiles.)
  • Carson D The UAW has succeeded in organizing a US VW plant before. There's a reason they don't teach history in the schools any longer. People wouldn't make the same mistakes.
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