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Tesla’s Cash Metrics – Cash On Hand And Free Cash Flow

Tesla Gigafactory Shanghai. Source: Tesla Q3 2019 Update Letter

Cash is literally the lifeline of a business.

For this reason, Tesla’s (NASDAQ:TSLA) cash flow has always been a hot topic, not just among the investors but also the creditors.

Most parties are eager to find out about Tesla’s cash position, and they want to know if the company has enough liquidity to run its businesses.

For your information, Tesla has been not only profitable but also cash flow positive.

As a result, Tesla’s cash on hand has been massively expanding as shown in the next discussion.

Before we begin, Tesla’s cash on hand, cash reserves, or cash positions mentioned in this article is meant the same and used interchangeably.

In the following discussion, we will dig into Tesla’s cash position and analyze the respective cash reserves over a period of time to see how the numbers have changed.

In addition, we also will take a look at the operating cash flow and the respective cash margins.

Also, we will compare Tesla’s cash position with free cash flow to see how the 2 cash positions are doing with respect to each other.

For your information, Tesla’s free cash flow is derived from operating net cash minus capital expenditures and it is meant to measure Tesla’s net cash outflow or inflow.

Finally, we also explore Tesla’s net cash from financing activities to see what the company does with the cash.

Let’s start with the following topics.

Tesla’s Cash On Hand

Tesla's cash on hand

Tesla’s cash on hand

* Cash on hand data are calculated by the author based on Tesla’s quarterly cash & cash equivalents and restricted cash obtained from the company’s consolidated balance sheets.
* Tesla’s fiscal year begins on Jan 1 and ends on Dec 31.

The graph above shows Tesla historical cash on hand or cash reserve for the period from fiscal 2015 to 2022.

Cash on hand or cash position depicted in the chart above refers to highly liquid current assets, including cash and cash equivalents disclosed in the balance sheets.

Aside from cash and cash equivalents, restricted cash – only the current portion – is also included as part of Tesla’s cash on hand in the chart above.

The long-term portion of restricted cash is excluded as they are collateral that needs to be held for more than 1 year.

Here is what Tesla says about restricted cash in the financial statements:

Restricted Cash
We maintain certain cash balances restricted as to withdrawal or use.

Our restricted cash is comprised primarily of cash as collateral for our sales to lease partners with a resale value guarantee, letters of credit, real estate leases, insurance policies, credit card borrowing facilities and certain operating leases.

In addition, restricted cash includes cash received from certain fund investors that have not been released for use by us and cash held to service certain payments under various secured debt facilities.

Here is a snapshot that shows examples of Tesla cash and cash equivalents, as well as the current and long-term portion of restricted cash, disclosed in the Q1 2021 financial statement:

Tesla total cash - 2021 4Q

Tesla total cash – 2021 4Q

As seen, Tesla has only a bit of restricted cash compared to its huge pile of cash & cash equivalents.

All told, Tesla’s cash on hand has basically been trending upward since fiscal 2015 and expanded the most at the beginning of 2020.

For example, Tesla has only $1.5 billion in total cash 6 years ago but the amount has since gone higher and reached $18.6 billion as of fiscal Q2 2022, one of the highest figures ever reported.

Tesla’s growing cash on hand has been driven primarily by the growth of the company, including working capital and cash flow.

For your information, Tesla is a capital-intensive automaker and requires tonnes of cash as working capital.

As the company grows, it makes sense for the company to expand the working capital and thus, the cash position.

Tesla’s Digital Assets – Bitcoins

Tesla's cash on hand with bitcoins

Tesla’s cash on hand with bitcoins

* Cash on hand data are obtained from prior discussions.
* Tesla’s bitcoin fair market value was extracted from the company’s quarterly filings.
* Tesla’s fiscal year begins on Jan 1 and ends on Dec 31.

Aside from cold hard cash, Tesla also holds investments in bitcoins.

Therefore, other than cash, Tesla also holds digital assets such as bitcoins as a form of liquid asset.

However, digital assets such as bitcoins are not recognized as cash in Tesla’s balance sheets and thus, they are not accounted for as current assets.

Instead, they are recognized as indefinite-lived intangible assets or simply digital assets under the portion of non-current assets.

That said, Tesla bought $1.5 billion worth of bitcoins in 2021 according to the following statements.

Here is an excerpt extracted from the 2021 annual report regarding Tesla’s investment in bitcoins.

Tesla Investments in Bitcoin
During the six months ended June 30, 2022 and 2021, we purchased and/or received an immaterial amount and $1.50 billion, respectively, of digital assets.

As of June 30, 2022, we have converted approximately 75% of our purchases into fiat currency.

As of June 30, 2022 and December 31, 2021, the carrying value of our digital assets held was $218 million and $1.26 billion, which reflects cumulative impairments of $169 million and $101 million, each period, respectively.

The fair market value of such digital assets held as of June 30, 2022 was $222 million.

Therefore, as of June 31, 2022, Tesla’s bitcoins carrying value was only $218 million.

Despite the lower carrying value of Tesla’s bitcoins compared to the purchase price, Tesla’s bitcoin fair market value was worth $222 million as of June 31, 2022.

For your information, the fair market value is the value you get when you liquidate your investment.

Therefore, if you take into account the bitcoin fair market value, Tesla’s total liquid assets or total cash on hand may end up totaling nearly $19 billion ($18.6 billion + $0.22 billion) as of fiscal 2Q 2022 as shown in the chart above.

Tesla’s Operating Cash Flow

Tesla's operating cash flow

Tesla’s operating cash flow

* Net cash from operations are obtained from Tesla’s consolidated statements of cash flow and are presented on a TTM basis in the chart above.
* TTM figures are calculated based on the sum of the quarterly data on a trailing 12-month or 4-quarter basis.
* Tesla’s fiscal year begins on Jan 1 and ends on Dec 31.

A discussion of cash flow without including net cash from operations is deemed incomplete.

As such, I have included a chart above that depicts Tesla’s net cash from operations.

As seen, Tesla’s net cash from operations has been on a rise and soared the most between fiscal 2020 and 2022.

As of 2Q 2022, Tesla’s net cash from operations broke all prior records and clocked at $14 billion USD on a TTM basis.

Year over year, Tesla’s net cash from operations grew nearly 60% in fiscal 2022 Q2, suggesting that the company has literally been printing cash.

Tesla’s Operating Cash Flow Margin

Tesla's cash conversion rate

Tesla’s cash conversion rate

* Operating cash flow margin is calculated by the author based on the ratio of Tesla’s TTM operating cash flow to TTM revenue.
* TTM figures are presented based on the sum of the quarterly data on a trailing 12-month or 4-quarter basis.
* Tesla’s fiscal year begins on Jan 1 and ends on Dec 31.

Tesla’s operating cash flow margin as shown in the chart above hovers slightly above 20% throughout fiscal 2022, illustrating the company’s powerful cash generation capability.

As of 2Q 2022, Tesla’s operating cash flow margin came in at 21%, a massive figure by historical metrics.

At this ratio, Tesla’s operating cash flow result is comparable to and has even exceeded that of General Motors as shown in this article: General Motors’s operating cash flow margin.

At more than 20% of the operating cash margin, Tesla is capable to convert $1 dollars of sales to $0.20 dollars of net cash from operations.

Additionally, Tesla’s operating cash flow margin has been on a rise and is now at a record high in fiscal 2022, illustrating the growing operating cash flow of the company.

In short, Tesla is a cash cow that knows how to print cash.

Tesla’s Free Cash Flow

While Tesla’s cash reserves and operating cash flow have been at record highs, they will not mean anything if Tesla keeps burning more cash than it can generate.

In this section, we are going to compare Tesla’s cash burn with cash reserves.

Tesla’s cash outflow or cash burn comes from two areas: (1)operating activities and (2)capital expenditures.

Operating activities are day to day business activities that consumes operating cash flows, including employees payroll, offices and factories rental, equipment and tools maintenance, R&D expenses, contracts, advertising and administrative expenses.

On the other hand, capital expenditures or CAPEX are cash needed to acquire and maintain hard assets such as property, buildings, equipment, offices and factories.

For Tesla, capital expenditures are crucial financial outlays required to maintain and expand its business operations, including the construction of its Gigafactory all around the world.

In the balance sheet, Tesla’s capital expenditures are treated as investments rather than expenses.

For example, the Gigafactory Shanghai China and Gigafactory Berlin Germany which were recently launched were accounted for as capital expenditures.

Be reminded that debt repayment and refinancing do not fall into the operating activities of the company and hence, it’s not part of the cash outflow or cash inflow discussed here.

Therefore, the combination of these 2 cash activities, net cash from operations and capital expenditures, constitutes Tesla’s free cash flow.

Tesla’s historical free cash flow is plotted in the following chart.

Tesla's free cash flow

Tesla’s free cash flow

* Free cash flow is calculated by the author based on the difference between Tesla’s net cash from operating activities and capital expenditures obtained from the company’s consolidated cash flow statements.
* TTM figures are presented based on the sum of the quarterly data on a trailing 12-month or 4-quarter basis.
* Tesla’s fiscal year begins on Jan 1 and ends on Dec 31.

In general, free cash flow is derived from the following equation:

Free cash flow = operating cash flow – capital expenditures

The operating net cash can be a positive or negative number, depending on whether Tesla’s business operations can generate positive or negative operating net cash.

Sometimes the business can use up more cash than it can generate during the normal course of the business operation. In this case, the operating cash flow will be a negative number.

Coming back to the chart, the free cash flow chart above depicts Tesla’s TTM cash outflow or inflow for the period from fiscal 2015 to 2022.

According to the chart, Tesla’s TTM free cash flow has now been mostly positive in most recent quarters, implying that the company’s operating activities have generated sufficient cash to cover its business operations and CAPEX.

Prior to generating positive free cash flow, Tesla had burned an incredibly large amount of cash as depicted in all the negative figures in the above chart between 2015 and 2018.

If you look closely, Tesla’s cash outflow was the worst in fiscal 2018, with a cash deficit totaling as much as $4 billion on a TTM basis in some of the fiscal quarters.

Nevertheless, Tesla’s free cash flow has slowly improved over the years, particularly in the most recent quarters.

The worst was over for Tesla when the company generated its first positive free cash flow in 1Q 2019 on a TTM basis.

Thereafter, Tesla’s free cash flow continued to soar and reached $7 billion on a TTM basis as of 2Q 2022, the highest record the company has ever reported.

Year over year, Tesla’s 2Q 2022 free cash flow amount represents a growth rate of around 70%.

In short, Tesla generates strong free cash flow and is now a cash cow.

Tesla’s Free Cash Flow Margin

Tesla's free cash flow margin

Tesla’s free cash flow margin

* Free cash flow margin is calculated by the author based on the ratio of Tesla’s TTM free cash flow to TTM revenue.
* TTM figures are presented based on the sum of the quarterly data on a trailing 12-month or 4-quarter basis.
* Tesla’s fiscal year begins on Jan 1 and ends on Dec 31.

Similar to the operating cash flow margin, Tesla’s free cash flow margin measures the percentage of free cash flow being squeezed out of revenue.

As shown in the chart, Tesla’s free cash flow margin is at a record high in fiscal 2022, hovering around 10% on average in the past 4 quarters.

As of 2Q 2022, Tesla’s free cash flow margin clocked at 10%, also a record figure by historical metrics.

While Tesla has beaten GM in operating cash flow margin, it lags its counterpart by a few percentage points in free cash flow margin.

In this case, GM’s free cash flow margin reaches a massive 15% as of 2Q 2021 which is way ahead of Tesla.

In short, Tesla converts $1.00 dollar of sales to about $0.10 free cash flow at a 10% free cash flow margin.

Tesla’s Cash On Hand Vs Free Cash Flow

Tesla's cash on hand vs free cash flow

Tesla’s cash on hand vs free cash flow

* Cash on hand and free cash flow data in this chart come from the prior figures computed earlier by the author.
* Tesla’s fiscal year begins on Jan 1 and ends on Dec 31.

The chart above shows the comparison of Tesla’s free cash flow with cash reserves which we saw earlier.

According to the chart, Tesla’s cash reserves are multiple times higher than free cash flow in recent quarters.

However, Tesla’s cash on hand was barely enough to cover the negative free cash flow back in fiscal 2017 and 2018.

As a result of the positive free cash flow in recent quarters, Tesla’s cash on hand continued to soar and reached its record high as of 2Q 2022.

In short, thanks to Tesla’s positive free cash flow, the company would have run into a negative cash position if not for the growing free cash flow recorded over the years.

Tesla’s Net Cash From Financing Activities

Tesla's net cash from financing activities

Tesla’s net cash from financing activities

* Net cash from financing activities is a GAAP measure and is obtained from Tesla’s consolidated cash flow statements.
* TTM figures are presented in the chart above based on the sum of the quarterly data on a trailing 12-month or 4-quarter basis.
* Tesla’s fiscal year begins on Jan 1 and ends on Dec 31.

While Tesla has been cash flow positive and has invested in bitcoins in recent quarters, the cumulative amount does not seem to be large enough to grow Tesla’s cash position to its current level.

The reason is that Tesla has been raising cash through external capital injection such as debt and stocks issuance.

In other words, Tesla gets extra cash from financing activities such as issuing equity and offering debt.

According to the chart above, Tesla’s TTM net cash from financing activities has been mostly positive in all fiscal quarters.

The positive figures indicate that Tesla raised cash through equity injection or borrowings or both.

To further illustrate, the snapshot below shows an example of Tesla’s capital raise through financing activities:

Tesla cash flow from financing activities - 4Q 2021

Tesla cash flow from financing activities – 4Q 2021

In the snapshot above, Tesla raised nearly $9 billion of cash through debt in fiscal 2021.

In the same fiscal year, Tesla also repaid some of the debts which amounted to about $14 billion.

Therefore, the net cash raised in 2021 was -$5 billion which means Tesla has repaid more cash than cash borrowed.

While Tesla had paid back more cash in fiscal 2021, it hadn’t been the case in prior years.

According to the chart, Tesla’s net cash from financing activities was mostly positive in all fiscal quarters, illustrating the cash borrowed or obtained by the company.

As a result, Tesla’s growing cash on hand also had been partly attributed to the capital raise.

Since Tesla has been cash-flow positive, Tesla is no longer relying on external capital injection.

As seen, Tesla started to repay the debt in fiscal 3Q and 4Q 2021 which is shown in the negative net cash from financing activities in the chart.

That said, Tesla paid back $1.2 billion in 3Q 2021 and a massive amount of $5 billion in fiscal 4Q 2021.

In 2022, Tesla continued its debt repayments as seen in the negative net cash from financing activities.

As of 2Q 2022, Tesla’s net cash from financing activities totaled -$5 billion on a TTM basis, illustrating the capability of the company to pay its debt.

Since Tesla is able to generate free cash flow, it makes sense for the company to repay its debt and the company may even be possible to pay out a dividend in the future.

Conclusion

Tesla’s cash on hand or cash reserves are highly liquid assets that include cash such as cash and cash equivalents as well as short-term restricted cash.

However, Tesla does not include its bitcoin investment as part of its cash asset although the digital assets are highly liquid assets that can be sold within minutes.

As of 2022 2Q, Tesla’s total cash position, including cash and restricted cash, stood at $18.6 billion.

In the same quarter, Tesla’s bitcoin valuation carried a fair market value of $0.22 billion.

Therefore, Tesla’s cumulative cash reserves came to about $19 billion as of 2Q 2022 after taking into account the bitcoin fair market value.

Tesla has been having positive operating and free cash flow, driven primarily by record Model 3 and Y deliveries in recent fiscal quarters.

Therefore, Tesla generates tonnes of cash now and is a cash cow.

For this reason, Tesla has started paying back debt as seen in the negative net cash from financing activities in recent quarters.

That said, Tesla paid a massive $5 billion of net cash from financing activities on a TTM basis as of 2Q 2022.

References and Credits

1. All financial figures in this article were obtained and referenced from Tesla’s quarterly and annual filings which are available in Tesla Press Releases.

2. Featured images in this article are used under creative commons license and sourced from the following websites: Marco Verch.

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Disclosure

The content in this article is for informational purposes only and is neither a recommendation nor a piece of financial advice to purchase a stock.

If you find the information in this article helpful, please consider sharing it on social media and also provide a link back to this article from any website so that more articles like this one can be created in the future. Thank you!

{ 1 comment… add one }
  • Dan Neale July 14, 2021, 10:23 pm

    Very helpful.

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