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Tesla’s Cash Flow And Cash On Hand Reach Record Highs

Tesla Gigafactory Shanghai. Source: Tesla Q3 2019 Update Letter

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 conversion rate.

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

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 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 has said 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 Q4 2020 financial statement:

Tesla total cash - 2020 4Q

Tesla total cash – 2020 4Q

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 $17 billion as of fiscal Q2 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.

Basically, Tesla’s automobile business is an asset-heavy operation that requires lots of cash or working capital to operate.

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 means 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.

Tesla cash and cash equivalents Q4 2020

Tesla cash and cash equivalents Q4 2020

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

Tesla's cash on hand with bitcoins

Tesla’s cash on hand with bitcoins

* 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 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 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 6 months ended on June 30, 2021, Tesla’s bitcoins carrying value was only $1.31 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 $50 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 2Q 2021, Tesla’s bitcoin fair market value was $1.47 billion, about $160 million higher than the $1.31 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 ($16.6 billion + $1.47 billion) as of fiscal 2Q 2021 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.
* 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 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 2Q 2021, Tesla’s net cash from operations broke all prior records and clocked in at $9 billion USD on a TTM basis.

Year over year, Tesla’s net cash from operations grew more than 200%, suggesting that the company has been printing cash.

Tesla’s Cash Conversion Rate

Tesla's cash conversion rate

Tesla’s cash conversion rate

* Cash conversion rate is calculated by the author based on the ratio of Tesla’s TTM operating cash flow to TTM net income.
* 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.

Tesla’s cash conversion rate as shown in the chart above hovers at around 6X on average, indicating the company’s powerful cash conversion capability.

At this conversion ratio, Tesla is capable to convert $1 dollars of net income to $6 dollars of net cash from operations.

While Tesla’s cash conversion rate has dropped slightly to 4X as of fiscal 2Q 2021, this ratio was still relatively high compared to other companies that operate in the same industry.

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 Tesla’s quarterly net cash from operating activities and capital expenditures obtained from the company’s consolidated cash flow statements.
* 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.

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 covers its business operations and CAPEX.

Prior to generating positive free cash flow, Tesla had burned a 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 totalling 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 2Q 2021, the highest record the company has ever reported.

Year over year, Tesla’s 2Q 2021 free cash flow amount represents a growth rate of more than 300%.

In short, all hope is not lost for Tesla as the company is a cash cow now.

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.
* 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.

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 in 2Q 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

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 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.

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 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:

Tesla cash flow from financing activities - Q4 2020

Tesla cash flow from financing activities – Q4 2020

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 sore 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.

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 2021 2Q, Tesla’s total cash position, including cash and restricted cash, stood at $16.7 billion.

In the same quarter, Tesla’s bitcoin valuation carried a fair market value of nearly $1.5 billion.

Therefore, Tesla’s cumulative cash reserves came to slightly more than $18 billion as of 2Q 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 generating 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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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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