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Tesla Debt To Equity Ratio, Capital Structure And Leverage

A Tesla factory in Fremont, CA. Source: Flickr

This article presents the debt-to-equity ratio and capital structure of Tesla (NASDAQ: TSLA).

The debt-to-equity ratio determines the extent of debt financing relative to equity. It is used to evaluate the leverage of a company and assess its financial risk.

On the other hand, the capital structure assesses how a company finances its operations, whether through debt, equity, or a combination of both.

Ideally, a company’s capital structure should be balanced between debt and equity, such that the debt-to-equity ratio is 1:1.

However, most companies have an unbalanced debt structure – having either too much debt or too much equity financing.

Excessive debt may increase default risk, while too much equity financing may dilute ownership and be more costly.

That said, we will explore how Tesla’s debt leverage looks and how it funds its operations, whether by debts, equity, or equally both.

Let’s look at more details, starting with the table of contents below.

Debt To Equity Ratio

As explained earlier, the debt-to-equity ratio is a measure for evaluating the debt leverage of a company.

When evaluating a company’s debt leverage, the debt-to-equity ratio shows the number of times the debt exceeds its equity.

A high debt-to-equity ratio typically suggests that a company has taken on a significant amount of debt in relation to its equity.

That said, the equation to calculate the debt-to-equity ratio is as follows:

Debt To Equity Ratio = Debt / Equity

The debt and equity can easily be obtained from a company’s balance sheets.

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Debt To Assets Ratio

The debt-to-assets ratio is a financial metric that assesses the proportion of a company’s assets financed by debt.

It measures the extent to which a company relies on borrowed funds to finance its operations and evaluates the capital structure of the company.

That said, the equation to calculate the debt-to-assets ratio is as follows:

Debt To Assets Ratio = Debt / Total Assets

Again, the debt and total assets can easily be obtained from a company’s balance sheets.

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Tesla’s Equity

Tesla’s total equity consists of shareholders’ equity and minority interest equity.

Two types of equities appear in the balance sheets because Tesla is a holding company of multiple subsidiaries.

Tesla’s balance sheet is consolidated with the assets and liabilities of all subsidiaries.

The consolidation has led to minority interests because Tesla does not own 100% of some subsidiaries.

The following snapshot illustrates Tesla’s non-controlling or minority interest in the balance sheet.

Tesla minority interest

Tesla minority interest

(click image to expand)

The reason for Tesla’s minority interest is because of the way the company’s ownership is structured.

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Tesla’s Debt

Tesla’s debt consists of interest-bearing borrowings and leases.

Interest-bearing borrowings refer to various forms of debt financing, such as issued bonds, credit and loan facilities, asset-backed notes, and cash-equity debt.

On the other hand, leases include operating leases and finance leases.

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Total Debt – With Leases

tesla-debt-with-leases

tesla-debt-with-leases

(click image to expand)

* Leases include operating and finance leases.
* Tesla’s fiscal year begins on Jan 1 and ends on Dec 31.

With leases included, Tesla’s debt reached US$8.7 billion as of 3Q 2023, a significantly higher number compared to the US$6.4 billion measured a year ago.

Although debt had decreased after peaking at over $16 billion in fiscal year 2020, it began to rise again in 2023.

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Total Debt – Without Leases

tesla-debt-without-leases

tesla-debt-without-leases

(click image to expand)

* Tesla’s fiscal year begins on Jan 1 and ends on Dec 31.

Without leases, Tesla’s debt is considerably lower.

As of 3Q 2023, Tesla’s debt reached US$3.7 billion, up by a massive 54% year-over-year.

Despite hitting $13 billion in fiscal 2020, Tesla’s debt had dramatically decreased, primarily driven by the company’s aggressive debt repayments.

However, Tesla’s debt rose again as of 3Q 2023 after reaching a record low of US$1.5 billion in 2Q 2023.

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Debt To Equity Ratio – With Leases

tesla-debt-to-equity-ratio-with-leases

tesla-debt-to-equity-ratio-with-leases

(click image to expand)

* Ratio comes from the author’s calculation.
* Tesla’s fiscal year begins on Jan 1 and ends on Dec 31.

Tesla’s debt-to-equity ratio has considerably declined since 2015, even with leases included in the debt.

As shown in the chart above, Tesla’s debt-to-equity ratio reached only 0.2X as of 3Q 2023, roughly in line with the quarter a year ago but far lower than in 2015.

The latest figure indicates that Tesla’s debt was only a fraction of the company’s equity.

Therefore, Tesla’s debt was not a concern, and its leverage was insignificant.

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Debt To Equity Ratio – Without Leases

tesla-debt-to-equity-ratio-without-leases

tesla-debt-to-equity-ratio-without-leases

(click image to expand)

* Ratio comes from the author’s calculation.
* Tesla’s fiscal year begins on Jan 1 and ends on Dec 31.

Without including leases, Tesla’s debt-to-equity ratio is significantly lower.

As seen in the plot, Tesla’s debt-to-equity ratio reached only 0.lX as of 3Q 2023, a record low since 2015.

Again, the modest debt-to-equity ratio indicates that Tesla’s debt was not a concern and leverage was not an issue.

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Total Liabilities To Equity Ratio

Tesla total liabilities to equity ratio

Tesla total liabilities to equity ratio

(click image to expand)

* Ratio comes from the author’s calculation.
* Tesla’s fiscal year begins on Jan 1 and ends on Dec 31.

Tesla’s total liabilities stood at only 0.7X or 70% of its equity as of 3Q 2023, a record low since 2015.

The latest ratio indicates that Tesla has moderate leverage for its total liabilities, and there is no need for concern regarding its liabilities.

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Long-Term Liabilities To Equity Ratio

Tesla long-term liabilities to equity ratio

Tesla long-term liabilities to equity ratio

(click image to expand)

* Ratio comes from the author’s calculation.
* Tesla’s fiscal year begins on Jan 1 and ends on Dec 31.

Tesla’s long-term liabilities include long-term debt, operating leases, deferred revenue, warranty reserve, etc.

All told, Tesla’s long-term liabilities were only 0.2X or 20% of its equity, a moderately low ratio.

Again, the latest ratio indicates that Tesla has moderate leverage for its long-term liabilities, and there is no need for concern regarding its long-term liabilities.

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Total Debt To Assets Ratio

Tesla total debt to assets ratio

Tesla total debt to assets ratio

(click image to expand)

* Ratio comes from the author’s calculation.
* Tesla’s fiscal year begins on Jan 1 and ends on Dec 31.

Another ratio worth looking at is Tesla’s debt-to-asset ratio, as presented in the chart above.

The debt-to-asset ratio evaluates Tesla’s debt structure or capital structure.

Tesla’s latest debt-to-asset ratio came in at only 9.3%, up slightly from the same quarter a year ago but considerably lower than in 2015.

This ratio indicates that Tesla’s debt, including leases, comprised only 9% of the company’s assets.

Simply put, Tesla’s debt-funded assets comprise only a tiny portion of its total assets.

Tesla used to have a high debt-to-assets ratio, topping as much as 60% in 2015. However, this ratio has significantly declined over the years.

Tesla’s declining ratio indicates a shift from debt financing to equity financing.

In short, Tesla now uses less debt and prefers equity-based financing, primarily driven by its surging profitability and massive cash flow.

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Total Liabilities To Assets Ratio

Tesla total liabilities to assets ratio

Tesla total liabilities to assets ratio

(click image to expand)

* Ratio comes from the author’s calculation.
* Tesla’s fiscal year begins on Jan 1 and ends on Dec 31.

As shown in the plot above, Tesla’s capital structure was 42% liabilities and 58% equity as of 3Q 2023.

Again, Tesla used to have a high total liabilities to assets ratio, totaling as much as 90% in 2015.

At a ratio of 90%, Tesla’s capital structure was almost entirely funded by liabilities, accounting for 90% of the total assets.

However, the ratio has significantly declined over the years and reached only 42% as of 2023 Q3, a record low since 2015.

The latest ratio indicates a nearly balanced capital structure between debt and equity.

When Tesla’s share price surged, and profit rose, it slowly restructured its capital to equity-based instead of debt-based, as it was cheaper and less risky to fund its expansion using its funds.

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Conclusion

Tesla has shifted from debt to using its funds for expansion due to surging profitability and massive free cash flow.

Additionally, Tesla was modestly leveraged, as total debt comprised less than 10% of the total assets and accounted for only 20% of equity.

Please leave your comments below.

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References and Credits

1. All financial figures presented in this article were obtained and referenced from Tesla’s SEC filings, investor update letters, quarterly and annual reports, etc., which are available in Tesla Investor Relations.

2. Featured image was used under Creative Common Licenses and obtained from mangopulp2008 and Maurizio Pesce.

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Disclosure

References and examples such as tables, charts, and diagrams are constantly reviewed to avoid errors, but we cannot warrant the total correctness of all content.

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 provide a link back to this article from any website so that more articles like this can be created in the future.

Thank you!

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{ 2 comments… add one }
  • Anna December 18, 2020, 7:21 am

    Hello!
    Just wondering how did you calculate total debt to equity ratio as I am slightly confused looking at tesla’s financial statements. Thank you!

    • cckean December 18, 2020, 9:42 am

      Just take the total debt and divide it over the total equity.

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