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Are Tesla Operating Expenses and Revenue Growing At The Same Rate?

A Tesla Model S cruising on a highway. Flickr Image.

As an investor myself, I am always interested in not only the operating expenses of a company but also would like to know how the operating expenses are performing with respect to revenue. There is a ratio that measures the performance of operating expenses with respect to revenue and is called the operating expenses to revenue ratio.

From this ratio, investor can find out whether operating cost is increasing or decreasing consistently with revenue or in opposite direction. Of course, the best scenario would be where operating cost is decreasing and sales is increasing. But this would not always be the case in real life example. It’s worst if both are going the other way around.

For Tesla, this ratio is a perfect metric to measure the operating cost against revenue because the company expenses have been rising significantly in the past 5 years. For this reason, it’s important to find out whether revenue is also growing at a faster rate or at least the same rate as the operating costs.

As a result, i have created the following graphs to show the total operating expenses of Tesla and how it’s stacking against sales.

Chart of Tesla Operating Expenses to Sales

tesla quarterly operating expenses to revenue ratio

Tesla quarterly operating expenses to revenue ratio

The plot above shows the quarterly operating expenses to sales ratio (in percentage) for the past 5 years.

On a quarterly basis, the percentage figure above is on a declining trend over the shown period. During 2015 and 2016, the ratio had been fluctuating between 38% to 44% before declining significantly to 24% in 3Q16 and bouncing slightly to the 30% range in 2017. After that, the ratio declined again to the lowest point at 14% in 4Q18 before rising slightly higher to 24% in 1Q19.

Overall the trend of operating expenses to revenue ratio is declining steadily. In other words, the declining trend shows that Tesla revenue is growing at a much faster pace than operating expenses. For that reason, the faster growth rate of the revenue has caused the percentage figure to decrease significantly over the shown period.

In addition, you can say that the company is efficiently controlling its operating expenses while at the same time growing revenue at a much higher rate. All in all, that is good news for investor.

Chart of Tesla Operating Expenses vs Sales Growth

tesla quarterly operating expenses vs revenue growth

Tesla quarterly operating expenses versus revenue growth

The plot above shows the relationship between operating expenses growth versus revenue growth for the past 5 years. There are two plots, one is showing revenue while the other is showing operating expenses.

From both plots above, revenue is growing at a much faster rate than operating expenses.

From a spreadsheet calculation which i did not show here, the average revenue growth from quarter to quarter is 13% while the average growth for operating expenses from quarter to quarter is 8%.

As a result, revenue is growing sequentially at almost twice the rate of operating expenses for the past 5 years.

Chart of Tesla Quarterly Operating Income

tesla quarterly operating income

Tesla quarterly operating income

How did Tesla fair when it comes to operating income? With operating expenses topping $1 billion USD and still growing at a steady rate of 8%, can Tesla generate positive operating income?

Unfortunately, the answer is no. From the plot above, the company operating incomes had been in the negative territory in most of the quarters shown. The company managed to achieve positive operating income only in 3 quarters (3Q16, 3Q18 and 4Q18) out of the 17 quarters shown in the chart.

In 3Q18 and 4Q18, Tesla managed to generate a positive operating income of $400 million. According to the company, that was a significant achievement and the results were primarily due to the record deliveries of Model 3 in both of that quarters.

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References:

1. All financial information in this article was obtained from Tesla Investment Guideline.

2. Featured image was obtained from Automotive Rhythms and voyagevixen2.

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