ILP: PART 1 – TESLA 1
Integrated Learning Project: Part 1 – Company Selection Assignment
Tesla
Melissa Ruk
School of Business, Liberty University
BUSI615: Logistics
Professor Jonathan Wilson
October 29, 2023
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Company Description
Tesla, Inc. symbolizes innovation and sustainability in the global automotive industry
(Furr & Dyer, 2023). Founded by Silicon Valley visionaries, Tesla has become synonymous with
cutting-edge electric vehicles (EVs) and clean energy solutions (Thompson et al., 2023). As
Thompson et al. explained, the company is named after the famous physicist Nikola Tesla and
was officially incorporated in 2003. Headquartered in Palo Alto, California, Tesla has not only
redefined the way we think about automobiles but has also sparked a global shift toward
sustainable transportation (Maradin et al., 2022).
Tesla's journey began with the Tesla Roadster, an all-electric sports car that challenged
the misconception that electric vehicles were slow and lacked a significant driving range
(Gregersen & Schreiber, 2023). Introduced in 2008, the Roadster demonstrated that EVs could
be high-performance, with a sleek design and a significant range on a single charge. This
breakthrough marked the inception of Tesla's mission to accelerate the world's transition to
sustainable energy (Lobo, 2020). In 2009, the company unveiled its second car, the Model S,
which enabled the company to generate over 1,000 reservations for the new model and over $40
million in financing, allowing the company to gain the necessary funds needed to continue the
development of its battery technology (Thompson et al., 2023). By 2010, Tesla went public,
offering 13.3 million shares at $17, which closed later that day at $23.89 per share, rocketing the
company to a value of $2.2 billion. In 2012, Tesla released their much-awaited Model S, an all-
electric luxury sedan (Thompson et al., 2023). According to Thompson et al., 2023 the Model S
developed the standards for EV performance by offering consumers impressive acceleration and
extended driving range. The Model S also offered consumers a cutting-edge Autopilot system
that has gone on to redefine how we think about autonomous driving as Tesla has continually
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made advancements toward a future of self-driving cars. Since its initial offering of the Model S,
Tesla has introduced the Model 3 and Model Y, making electric vehicles accessible to a broader
audience, as the Model 3 has gone on to become one of the best-selling electric cars in the world
(Gregersen & Schreiber, 2023)
Tesla's commitment to sustainable energy extends beyond automobiles. Tesla is not only
an automotive company but is an innovator in energy (Maradin et al., 2022). Tesla has ventured
into solar energy solutions with its Solar Roof, a sleek and efficient solar panel-integrated
roofing system that enables homeowners to generate their own clean energy (Tesla, 2023). Tesla
has also developed a product line of energy storage solutions, the Powerwall and Powerpack,
which allow individuals and businesses to store energy for later use, reducing reliance on fossil
fuels and contributing to a more sustainable future (Tesla, 2023a). In addition to personal energy
products, Tesla has also developed their Gigafactories, massive worldwide facilities where Tesla
manufactures batteries, electric vehicles, and energy storage products at an unprecedented scale
(Rapier, 2023). These factories allow Tesla to drive down the costs of developing and
manufacturing, along with developing energy-efficient manufacturing facilities.
With an intense commitment to innovation, Tesla has revolutionized the automotive
industry and sparked a global movement toward sustainable energy and transportation (Maradin
et al., 2022). From the company’s groundbreaking electric vehicles to its array of solar energy
and energy storage, Tesla continues to push the boundaries of what is possible. Tesla's vision,
dedication to reducing carbon emissions, and increasing sustainable solutions make the company
a pioneer in the 21st century.
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Financial Trends
Overview
According to Tesla’s 2022 Annual Report, after cash and cash equivalents, inventory
makes up the largest short-term asset on the balance sheet at 31.37% of the company’s current
assets of $12.839 billion (Tesla, 2023c). The inventory comprises $6.137 billion of raw
materials, $2.385 billion of work in progress, $3.475 billion of finished goods, and $842 million
in parts for service. Since Tesla’s entrance into the automobile market, Tesla has chosen to use a
different business model compared to other auto manufacturers. Because of a direct sales model,
Tesla has eliminated the partnership between manufacturers and third-party large dealerships
(Weber, 2023). As explained by Weber, one of the most significant drawbacks is that Tesla
retains ownership of each vehicle until the completion of the purchase. This means finished
goods will remain on the company’s balance sheet until the automobile is sold to the customer.
According to Tesla, this business model allows for more inventory control and reduces the
amount of extra inventory on hand (Tesla, 2023c). Tesla also states in its 2022 Annual Report
that because they have lower levels of finished goods, it can keep higher levels of raw materials.
Hence, the company can fulfill customer orders as deposits and custom orders are placed. Based
on the 2022 Annual Report, Tesla’s inventory turnover ratio is 4.72, meaning it will take about
77 days to sell the current inventory. A company’s inventory ratio is the number of times a
company has sold and replenished its inventory over a set amount of time (Schroeder et al.,
2020)
The success of Tesla is driven by its continual innovation and efforts to achieve lower
emissions. To achieve this, the company has worked to release products at more affordable
prices to ensure they are continually expanding their target audience. Tesla understands that part
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of achieving its goals is offering products that the masses can purchase. In 2021, Tesla’s revenue
was $53.823 billion; at the end of 2022, Tesla's revenue had grown to $81.462 billion, and by the
end of Q3 2023, Tesla had already achieved a total revenue of $71.606 billion (Tesla, 2023c;
Tesla, 2023d). The continuous increase in revenue is thanks to the Model 3 and Tesla’s
commitment to developing products for everyone. According to Dugar (2023), Tesla’s Model 3
is the most affordable model in Tesla’s fleet, starting at $38,900. By the end of Q3 2023, Tesla
had already sold 419,074 units of the Model 3 and Y, while they only sold 45,905 of its more
expensive luxury models X and S (Tesla 2023e; Tesla 2023f). Through Tesla’s financial data, it
is easily seen that the company’s Model 3 and Y are more competitively priced for the
marketplace and generate increased revenues for Tesla year-over-year.
At the most recent close, Tesla stock was valued at $207.30 per share, with a 52-week
high of $299.99 and a low of $101.81 per share, along with a 52-week change of -8.90%
(Yahoo! Finance, 2023). Because of the current economic situation and market volatility, it is
impossible to predict future gains or losses. As Tesla works on their EV technology and
continues to bring more affordable automobiles to the market, the company’s stock should
continue to experience growth as they capture more of the market share.
Income statements
Income statements are one of the three financial statements that organizations create to
understand their financial performance over a given period (Schroeder et al., 2020). The income
statement lets stakeholders find information on an organization's revenue, expenses, gains, and
losses. According to Schroeder et al., the income statement is also called the profit and loss
statement. Schroeder et al. stress the importance of creating an accurate income statement as they
provide insight into the organization’s operations, how efficient management is, show which
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areas of the organization are either over or under performing, and can help demonstrate how the
organization is doing when capered to industry peers.
When looking at the 2022 Annual Report, one can easily see that even as other
companies struggled through the COVID-19 pandemic, Tesla was able to generate and increase
the company’s revenue. At the year-end of 2020, Tesla’s revenue was $31.536 billion, in 2021,
revenue was $53.823 billion, and at the end of 2022, Tesla's revenue had grown to $81.462
billion (Tesla, 2023c). This means that from the end of 2020 to the end of 2022, Tesla increased
their revenue by 158%. When looking at Tesla’s 2023 Quarter 3 fillings, they have already had
total revenues of $71.606 billion, which could mean Tesla could easily surpass the previous
year's revenue as, at this point in 2022, the company only had $57.144 billion in revenue (Tesla,
2023d). The majority of the company’s revenue comes from automobile sales and leases.
However, they also have experienced year-over increases in revenue generation from the
company’s energy generation and storage products, along with other services offered. The
continual year-over-year increase in revenue is because, each year, more consumers are looking
to purchase EVs. As Tesla continues manufacturing more affordable automobiles, it should
experience continued revenue growth as more individuals can purchase Tesla’s products.
As Tesla has experienced growth from their sales, they also have experienced increased
costs to generate the stated revenue. From 2020 to 2022, Tesla has increased its cost of goods by
143% over three years. Total costs of goods in 2020 were $24.906 billion, in 2021 $40.217
billion, and in 2022 $60.609 billion (Tesla, 2023c). At the end of each year, Tesla generated a net
income of $862 million in 2020, $5.644 in 2021, and $12.587 billion in 2022. The increase in
expenses is partly due to the persistent inflation within the economy but also due to the increase
in cars that are being produced. In 2022, Tesla had manufactured 1.369 million automobiles,
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while at the end of Q3 2023, Tesla had already manufactured 1.350 million automobiles (Tesla
2023e; Tesla 2023f).
Even though Tesla has experienced year-over-year increases in revenue and net income,
it is important to look at other metrics to understand the full financial picture. Profit margin is an
important metric that can be calculated with the information on the income statement. The profit
margin tells stakeholders how much profit was generated from the activities that make the
company money (Schroeder et al., 2020). Based on the number provided in the 2022 Annual
Report, Tesla's profit margin was 25.5%, or Tesla netted $0.255 from each dollar generated from
sales. In other words, for every dollar earned, $0.75 is spent on expenses. When one looks at the
Net profit margin, Tesla drops to 15.45% or $0.1545 for each dollar generated. In general, higher
profit margins translate to a more robust and healthier business, while lower ones mean the
company should make changes (Schroeder et al., 2020). Because Tesla continually invests in
new technologies, one should expect a lower profit margin as the company reinvests a significant
portion of its gains into developing new technologies and automobiles. As the company
continues to expand, one could expect to see increased profit margins as the company matures.
Balance sheet
An organization's balance sheet can be a powerful tool, containing essential information
that allows decision-makers to make informed decisions (Handley, 2005). The balance sheet will
disclose an overview of the organization's assets, liabilities, and shareholder’s equity. The
information found on a balance sheet is essential as it reflects the financial position and health of
an organization at a point in time (Kulikova et al., 2015). As explained by Kulikova et al., the
assets listed on the balance sheet have an economic value and can provide future benefits to the
organization if turned into cash. Liabilities, on the other hand, are financial obligations of the
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organization, such as loans, bills, or other types of payable. While shareholder’s equity is
calculated by subtracting the organization's liabilities from the assets, the outcome is the claim
the organization’s owners have to the organization’s assets (DesJardine et al., 2022)
According to the 2022 Annual Report of Tesla, the company’s Consolidated Balance
Sheet reflects a total assets growth from December 31, 2021, to December 21, 2022, where the
company assets grew from $62.131 billion to $82.338 billion (Tesla, 2023c). These assets
include such items as cash, cash equivalents, inventory, accounts receivables, property, digital
assets, and operating lease vehicles, with cash, cash equivalents, inventory, and property, plant,
and equipment making up approximately 62% of Tesla's assets or $51 billion at the end of 2022.
In the company’s recently released Quarter 3 2023 financial states, Tesla reflects the following
as of September 30, 2023: total assets have continued to grow to $93.941 billion, liabilities have
only moderately grown to $39.446 billion, and total equity has grown to $53.446 billion (Tesla,
2023d).
According to the 2022 Annual Report, Tesla’s liabilities also grew from $30.548 billion
to $36.440 billion, and equity grew from $30.189 billion to $44.704 billion, with approximately
41% of the company’s liabilities listed as accounts payable or money owed to others, such as
vendors and suppliers (Tesla, 2023c). If a company has negative shareholder equity, it is a sign
that the company’s total liabilities exceed the total assets, which is a negative sign for the overall
health of the company. Tesla has a current ratio of 1.53, meaning the company has sufficient
current assets to settle any current liabilities quickly. If this ratio is too low, it means a company
does not have enough assets on hand to cover the current debt. At the same time, if the ratio is
too high, it could mean the company is not utilizing assets to generate additional revenue
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(Schroeder et al., 2020). In addition, the company has debt to equity ratio of 0.815. This reveals
how much debt the company’s assets finance the company compared to the company’s equity.
One area that could be a concern for Tesla is the amount the company holds for customer
deposits. At the end of December 2022, the company had $1.063 billion in customer deposits but
fell to $894 million at the end of Q3 2023. This can be a concern as deposits grew from the end
of 2021 to the end of 2022. If there is a constant loss in customer deposits, this is a cause of
concern for Tesla as they want to understand what factors are acting on consumer demand to
shift. Because of the various manufacturing delays created by COVID-19, this could also mean
customers who have been waiting for their new Tesla are finally able to receive the car as
manufacturers are finally getting back to normal after a global shutdown. Even as other
companies struggle in the current economy, Tesla remains a picture of financial health.
Opportunities
Even though Tesla is required by the SEC to publish its quarterly and annual financial
statements, the information compiled within them can provide current and potential stakeholders
with valuable information on the company’s current performance and aid them in their decision
on whether to invest in the company or not. However, these financial statements can also show
internal members of the company where there are areas of potential improvement and growth
within the company. One area in which Tesla can improve its income statement is by continually
managing its inventory levels and the associated expenses. As the world continually faces high
levels of inflation, the cost of raw goods will continue to be an area of potential improvement.
With the continual implementation and improvements of a manufacturing resource planning
system, Tesla can ensure they maintain proper levels of raw goods to meet the current customer
demand while managing expenses. Currently, Tesla’s inventory turnover ratio is 4.72, or
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approximately 77 days to sell the current inventory (Tesla, 2023c). While this is significantly
lower than other companies, this number could increase as purchasing a car becomes
increasingly challenging for consumers because of the rising interest rates. As the cost to finance
a car continues to increase, there is a strong possibility that demand for new cards will decrease;
because of this, Tesla will want to look at ways to manage the various inventories on hand better
to ensure costs as low as possible to safeguard the affordability of their automobiles (Henry,
2022).
Another area of improvement would be to work on decreasing the company’s current
liabilities. At the end of 2022, the company had $15.255 billion in current liabilities or an
average of $3.813 billion per quarter (Tesla, 2023c). By the end of Q3 2023, Tesla already had
$13.937 billion, or approximately $4.645 billion each quarter. (Tesla, 2023d). This increase in
expenses could become very worrisome for the company. Based on the 2022 financials, Tesla
has a current ratio of 1.53, meaning that at the end of 2022, the company had sufficient current
assets to settle any current liabilities. When looking at the Q3 2023, the current ratio had
increased to 1.69 (Tesla, 2023d). According to Schroeder et al. (2020), anything under one is
considered too low; this is because the company has mismanaged its working capital and does
not have enough assets on hand. A ratio of 1.5 to 3 shows that the company has efficiently
managed the company’s working capital. Anything above 3 means the company has too much
working capital that is not being used efficiently for the continual growth of the company. Even
though Tesla has been effectively managing their working capital, it does fall on the lower end.
With the uncertainties in the economy and increased interest rates, should sales fall, Tesla might
have a more challenging time paying off its current liabilities. Because of this, the company
might want to work on paying down its current liabilities as a safeguard against the possibility of
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decreased sales and revenue. By paying off liabilities when assets and cash flow are abundant,
the company will not have to sacrifice its planned research and development in the future due to
required payments to debt.
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