Tesla Inventory Levels And Inventory Turnover Ratio

A Tesla sale office. Flickr Image.

This article covers the statistics of Tesla’s inventory, which include the total inventory, inventory breakdown, inventory ratios, days of sales, etc.

For your information, Tesla’s inventory is an important asset and has been on the rise.

As of 3Q 2023, Tesla’s inventory represents over 30% of its current assets, making it the 2nd largest asset after cash and cash equivalents.

Tesla’s inventory generates substantial future economic benefits for the company. As such, investors should pay attention to this asset class.

A bloating inventory will hurt the company’s financial health, but a properly managed one will bring immersed advantages.

Let’s get started!

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What Makes Up Tesla’s Inventory

Tesla Inventory Components ($ Millions)

	Fiscal Year
	2023 Q3	2022	2021	2020	2019
Raw Materials	$5,817	$6,137	$2,816	$1,508	$1,428
Work In Progress	$2,246	$2,385	$1,089	$493	$362
Service Parts	$1,108	$842	$575	$434	$406
Finished Goods	$4,550	$3,475	$1,277	$1,666	$1,356

As shown in the table above, Tesla’s inventory consists of the following items:

• 1. Raw materials
• 2. Work in progress
• 4. Service parts
• 3. Finished goods

The finished goods is among the largest component, accounting for 40% of the total inventory level.

Tesla defines its finished goods inventory as vehicles in transit to fulfill customer orders, new vehicles available for sale, used vehicles, and energy products available for sale.

However, in recent years, Tesla’s raw materials have grown much faster and surpassed the finished goods inventory by a huge margin.

As of 3Q 2023, the raw material inventory reached nearly US$6 billion, making it the largest inventory component.

Tesla’s substantial inventory of raw materials can be a double-edged sword, with potential benefits and drawbacks for the company.

The advantage of keeping a large raw material inventory is that it can protect against inflation and shortages.

However, the downside is that it can negatively affect the company’s financial stability if the inventory is not sold quickly enough.

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Inventory Levels

Tesla quarterly inventory

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As of 3Q 2023, Tesla’s total inventory topped a record high of more than $13 .7 billion, up 33% over the same quarter a year ago.

Tesla’s robust inventory growth indicates the company’s prosperous business outlook, which is a promising development for its shareholders.

The company’s expanding inventory suggests that it is scaling up its production and sales, and is well-positioned to meet the growing demand for its products in the market.

In short, Tesla does not build out its inventory to such a massive scale for no reason.

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Inventory YoY Growth Rates

Tesla inventory YoY growth rates

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As shown in the chart above, Tesla’s inventory growth has been the most robust in recent years or during the post-pandemic periods.

After 2021, Tesla’s inventory growth rates have consistently been in the mid-single digits, with some even reaching triple digits, indicating strong production and sales growth in the post-pandemic period.

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Inventory By Components

Tesla inventory breakdown

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Of all the components, the raw materials and total finished goods account for the largest portion, at US$5.8 billion and US$5.7 billion, respectively, as of 3Q 2023.

A primary concern is that both inventory components have significantly increased in post-pandemic periods.

For example, Tesla’s total finished goods in 3Q 2023 grew by over 100% year-on-year.

The work-in-progress was among the smallest portion, topping only US$2.2 billion as of Q3 2023.

Is Tesla facing an inventory glut and having difficulty clearing its products as its raw materials and finished goods inventory rises?

On the other hand, is Tesla anticipating a surge in product demand and increasing its raw materials and finished goods inventory?

We may find the answers in the ratios.

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Inventory By Components In Percentage

tesla-inventory-breakdown-in-percentage

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From the percentage perspective, Tesla’s raw materials accounted for 42% of its total inventory, while total finished goods accounted for 41% in 3Q 2023.

The work-in-progress inventory made up only 16% of total inventory as of 3Q 2023, the lowest among all components.

Therefore, raw materials and total finished goods comprised roughly the same portions.

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Total Inventory To Current Assets Ratio

Tesla total inventory to current assets ratio

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Tesla’s total inventory made up about 30% of its current assets in fiscal 3Q 2023, only slightly above the level a year ago.

Compared to historical results, Tesla’s latest ratio was much lower, indicating little concern with the rising inventory.

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Total Inventory To Revenue Ratio

Tesla total inventory to revenue ratio

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Tesla’s total inventory accounted for only 14% of its total revenue as of fiscal 3Q 2023, roughly in line with the level recorded a year ago.

Over the years, the proportion of inventory to revenue has progressively decreased, a positive indication of an improving business prospect.

Similarly, the ratio was at a record low as of 2023, suggesting little concern with the rising inventory.

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Inventory Turnover Ratio

Tesla inventory turnover ratio

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Tesla’s inventory turnover ratio is derived from the following equation:

Inventory turnover ratio = TTM Cost of goods sold / Closing inventory

In 2022, Tesla experienced a decline in its product clearance rate, which resulted in a lower inventory turnover ratio.

However, by 2023, the product clearance rate improved significantly, causing the inventory turnover ratio to bounce back.

As of 3Q 2023, Tesla’s inventory turnover ratio reached 5.61X, roughly in line with the result a year ago but a significantly higher ratio than the historical average.

Therefore, Tesla’s inventory clearance rate should be acceptable at the latest ratio.

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Days Sales In Inventory

Tesla days of inventory

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The days of inventory ratio is the number of days it takes for a company to sell its entire inventory.

It is calculated by dividing the average inventory by the cost of goods sold and represents how efficiently a company manages its inventory.

As of 3Q 2023, Tesla’s inventory days were 65, roughly in line with the figure a year ago, but was significantly lower than the historical average.

In short, Tesla’s inventory days were acceptable at the latest level despite having a considerably higher inventory.

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Finished Products Inventory Days

Tesla finished goods inventory days

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If we focus only on Tesla’s finished goods inventory, the company clears them much faster.

For example, in 3Q 2023, Tesla delivered its finished products in only 27 days compared to 65 days for the total inventory.

Despite the higher inventory days in 2023 than in 2022, the figure is manageable and is much lower than the historical highs.

Again, There is little concern about Tesla’s increasing finished product inventory. The latest inventory day results are still relatively low by all measures.

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Conclusion

Tesla’s inventory management strategy is vital to its financial performance.

From the results of several ratios, they were acceptable and manageable compared to historical results despite the surging inventory levels, particularly in raw materials and finished products.

Therefore, the increasing inventory is a positive sign of business growth and definitely not a sign of an inventory glut.

In short, Tesla’s efficient inventory management ensures that the company can meet the growing demand for its products in the market while maintaining its financial stability.

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References and Credits

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

2. Featured images in this article are used under a Creative Commons license and sourced from the following websites: 8000vueltas and e-connected.

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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.

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