Cash is literally the lifeline of a business.
For this reason, Tesla (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.
While Tesla has been makig some profits in recent quarters, it’s a different story when it comes to the company’s cash reserve or cash on hand disclosed in the balance sheets.
As you will see in the following charts, Tesla’s cash on hand has been massively expanding in the past 6 years.
Before we begin, Tesla’s cash on hand, cash reserves or cash positions mentioned in this article are the combinations of cash, cash equivalents and restricted cash disclosed in Tesla’s balance sheet and these terms are 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 substantial cash position with its free cash flow to see how the 2 cash positions are stacking up to one another.
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 will try to find out about the continuous upside seen in Tesla’s cash position.
Let’s take a look!
Tesla’s Cash On Hand
The graph above shows Tesla historical cash on hand or cash reserve for the period from fiscal 2015 to 2021.
Cash on hand or cash position as 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:
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 Q4 2020 financial statement:
As seen, Tesla has only a bit of restricted cash compared to its outsized 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 nearly $16 billion as of fiscal Q3 2021.
Why is Tesla racking up so much cash all these quarters?
It’s simply due to the capital-intensive nature of the automobile business.
Not only does Tesla have to deal with the high costs of maintaining its facilities and equipment but also the high-paid technical personnel who are often under union contracts.
This is especially true when the company is in the midst of an expansion.
This high-expense and high-cost business environment often mean that Tesla needs a very large cash position to deal with the expanding business and thus, the growing working capital requirement.
For this reason, Tesla current asset has also been increasing over the years.
For the most part, more than 70% of the company’s current asset is in cash and cash equivalents as seen from the following snapshot.
With an increasing working capital requirement, it seems natural that Tesla’s cash reserve or cash position will also be increasing.
Tesla’s Digital Assets: Bitcoins
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 Jan 2021 according to the following statements.
Here is an excerpt extracted from the 2020 annual report regarding Tesla’s investment in bitcoins.
Tesla Investments in Bitcoin
In January 2021, we updated our investment policy to provide us with more flexibility to further diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity. As part of the policy, we may invest a portion of such cash in certain specified alternative reserve assets.
Thereafter, we invested an aggregate $1.50 billion in bitcoin under this policy. Moreover, we expect to begin accepting bitcoin as a form of payment for our products in the near future, subject to applicable laws and initially on a limited basis, which we may or may not liquidate upon receipt.
In the 9 months ended on Sept 30, 2021, Tesla’s bitcoins carrying value was only $1.26 billion.
The reason for the decline was partly attributed to the fact that Tesla had sold a portion of the bitcoin holdings in fiscal 1Q 2021 which netted the company $272 million in cash.
Additionally, the decline of Tesla’s bitcoin carrying value was also attributed to the decline of the fair market value of bitcoin, and the company had recorded an impairment charge of $101 million year-to-date.
For your information, the fair market value is the value you get when you liquidate your investment.
That said, as of 3Q 2021, Tesla’s bitcoin fair market value was $1.83 billion, about $570 million higher than the $1.26 billion carrying value recorded in the balance sheets.
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 $18 billion ($16.4 billion + $1.83 billion) as of fiscal 3Q 2021 as shown in the chart above.
Tesla’s Operating Cash Flow
A discussion of cash flow without including net cash from operations is deemed incomplete.
As such, I have included a chart above to depict 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 2021.
As of 3Q 2021, Tesla’s net cash from operations broke all prior records and clocked in at $9.9 billion USD on a TTM basis.
Year over year, Tesla’s net cash from operations grew more than 100%, suggesting that the company has literally been printing cash.
Tesla’s Operating Cash Flow Margin
Tesla’s operating cash flow margin as shown in the chart above hovers above 20% throughout fiscal 2021, indicating the company’s powerful cash generation capability.
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% 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 2021, 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.
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 2021.
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 more than $4 billion on a TTM basis as of 3Q 2021, the highest record the company has ever reported.
Year over year, Tesla’s 3Q 2021 free cash flow amount represents a growth rate of more than 130%.
In short, all hope is not lost for Tesla as the company is a cash cow now.
Tesla’s Free Cash Flow Margin
Similar to the operating cash flow margin, Tesla’s free cash flow margin calculates how much free cash flow is being squeezed out of revenue.
As shown in the chart, Tesla’s free cash flow margin is at a record high in fiscal 2021, hovering around 10% on average in the past 3 quarters.
As of 3Q 2021, Tesla’s free cash flow margin clocked at 9%, which is one of the highest ratios the company has ever achieved.
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.
Tesla’s Cash On Hand vs Free Cash Flow
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 3Q 2021.
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
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.
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 has been raising 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:
In the snapshot above, Tesla raised as much as $5 billion of cash through common stocks issuance in Q4 2020.
In the same quarter, Tesla repaid some of the debts which amounted to about $2.3 billion.
In the end, the net cash raised in 2020 Q4 was about $2.7 billion.
Therefore, Tesla’s swelling cash holdings all these years had been partly attributed to the positive net cash from financing activities.
Of course, Tesla’s growing free cash flow also has been contributing to the company’s growing cash on hand.
That is not to say that Tesla has been relying on external capital injection to grow its cash on hand.
Tesla’s dependence on external capital had occurred in the past but definitely not now.
Although Tesla has been free cash flow positive, it still raises capital through 3rd-parties as shown in the chart above.
The good news is that Tesla has started to repay the capital back as of 3Q 2021 as reflected in the negative net cash from financing activities on a TTM basis.
As of 3Q 2021, Tesla has paid back as much as $1.3 billion USD on a TTM basis.
While this figure is relatively small compared to the capital injection which had one time reached a massive $10 billion USD, it is a good start for Tesla as it shows that the firm has the capability to repay its debt.
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 2021 3Q, Tesla’s total cash position, including cash and restricted cash, stood at $16.4 billion.
In the same quarter, Tesla’s bitcoin valuation carried a fair market value of nearly $1.83 billion.
Therefore, Tesla’s cumulative cash reserves came to slightly more than $18 billion as of 3Q 2021 after taking into account the bitcoin fair market value.
Tesla has been having positive free cash flow, driven primarily by record Model 3 and Y deliveries in recent fiscal quarters.
Although Tesla continued to generate positive free cash flow, the company still raised extra capital through external sources, including equity offerings and debt issuance as seen from the positive net cash from financing activities.
As a result, Tesla’s swelling cash stockpiles continue to soar, thanks to its growing free cash flow and external capital raised.
References and Credits
1. Financial figures in all charts were obtained and referenced from Tesla’s quarterly and annual filings available in Tesla Investor Relations.
2. Featured images in this article are used under creative commons license and sourced from the following websites: Marco Verch.
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