The assets owned by a company represent resources that generate future economic benefits for a company. That future economic benefits can be in the form of monetary benefits such as cash.
Other than producing cash, an asset can also help to increase the value of a company in the form of capital gain. Additionally, some assets help to reduce the future expenses of a company such as a piece of equipment that reduces manpower.
With that said, the assets of a company should not be overlooked when it comes to analyzing the balance sheet. It’s no exception for Tesla (NASDAQ:TSLA). In fact, it’s even more critical to dig into the detail of Tesla’s assets because the company relies heavily on assets to generate sales revenue.
As an investor myself, I will usually try to find out the types of assets that the company owns and how efficient it is using these assets to generate sales or revenue.
Moreover, I will also look into the trend of the assets and find out whether the company has consistently acquired more of the assets over time.
In line with the growth of the company, the assets should expand when the company grows. If there is a drastic decline in asset value, investors should find out the reason. Some of the reasons can be due to a sale of the assets or the assets may have suffered from an impairment charge.
In this article, we will take an in-depth view of Tesla’s assets and analyze what makes up the company total assets. In this aspect, a breakdown of the company’s assets will be studied upon.
Additionally, we will also look at Tesla’s assets efficiency in revenue generation by studying the asset turnover ratio.
Without hesitation, let’s get started!
Tesla Total Assets
The first thing to look at when analyzing Tesla’s assets is to look at the overall assets of the company. The chart above shows Tesla quarterly total assets disclosed in the balance sheets over the previous 5 years from 2015 to 2020.
As mentioned in prior paragraphs, the trend of the assets is an important aspect of balance sheet analysis. As seen from the chart above, the trend of the asset plot indicates that Tesla’s total assets have been trending upward.
As of 2Q 2020, Tesla’s total assets reached an all-time high at slightly over $38 billion.
The most significant growth in assets occurred in 4Q 2016 when Tesla added more than $10 billion in total assets within a single quarter. As seen from the chart, Tesla’s total assets doubled in value from about $12 billion in 3Q 2016 to $24 billion in Q4 2016.
The reason for the 2X growth in total assets in 4Q 2016 was mainly due to the acquisition of SolarCity. In the same quarter, Tesla consolidated the assets from SolarCity into its own balance sheet, and thus, resulting in a significant increase in total assets of the company.
Overall, the long-term trend highlights that Tesla’s total assets are growing. The growth of the company’s assets has been a result of the expansion of the business.
The uptrend may bode well for Tesla’s shareholders but it still depends on the assets utilization ratio which we are going to see in the subsequent discussion.
Breakdown of Tesla Total Assets
Let’s take a look at what constitutes Tesla’s total assets.
The snapshot above shows Tesla’s total assets extracted from the balance sheet dated June 30, 2019.
As of 2Q 2020, Tesla’s total assets were valued at $38.1 billion. Of that amount, $15.3 billion was current assets while long-term assets contributed about $22.8 billion. This composition shows that Tesla’s long-term assets made up the bulk of the company assets, at roughly 60%.
Tesla’s Current Assets
The snapshot above shows Tesla’s current assets in the balance sheet extracted from the 2Q 2020 quarterly filing.
From the snapshot, the bulk of Tesla’s current assets were cash and cash equivalents, at $8.6 billion in 2Q 2020.
At this amount, the cash and cash equivalents were easily the biggest components of the current assets, constituting 56% of total current assets.
Tesla’s inventory, at roughly $4 billion, was the next biggest item in the current assets.
Together, both cash and inventory alone made up over 80% of the company’s current assets.
The composition shows that Tesla runs heavily on working capital, cash in particular, and keeps a large inventory.
Chart of Tesla’s Current Assets
The chart above represents Tesla’s quarterly total current assets from 2015 to 2020.
As you can see from the chart, Tesla’s current assets have increased tremendously over the 5 years.
As of 2020 2Q, Tesla’s current assets reached an all-time high of $15.3 billion, with more than half of it coming from highly liquid assets such as cash and cash equivalents.
When Tesla expands its businesses, it needs more current assets such as working capital to deal with the expanding operations. For instance, the company needs more cash to pay for the growing workforce and invest more in raw materials for the expanding inventory.
The growth in current assets was particularly obvious in 2020, possibly due to the COVID-19 outbreak, causing the company to stash cash in preparation for the worst scenario.
Tesla’s Long-Term Assets
According to the Q2 2020 quarterly filing, Tesla long-term or non-current assets was roughly $22.8 billion, making up about 60% of the company’s total assets.
Of all the assets in this category, the largest component was the Property, Plant and Equipment and it was valued at slightly over $11 billion as of Q2 2020.
The second-largest component in long-term assets was the Solar Energy System which was valued at $6 billion.
The Solar Energy System is a tangible asset that generates recurring leasing revenue for Tesla.
Similarly, the Operating Lease Vehicles, valued at around $2.5 billion, is another tangible or fixed assets that produce recurring leasing revenue for Tesla.
These are quality long-term assets that provide immersed economic benefits for the company in the long-run.
Chart of Tesla’s Long-Term Assets
The chart above shows Tesla’s quarterly long-term assets from 2015 to 2020.
The long-term assets may have grown at a slightly lower rate than the current assets.
Nevertheless, Tesla’s long-term assets reached $22.8 billion as of 2020 2Q, an all-time high as well for the company.
Tesla’s Property, Plant and Equipment
In terms of hard or fixed assets such as property, plant and equipment, these assets have also been growing tremendously in the last 5 years.
This category of assets relates mostly to Tesla’s Giga factories and machinery where the company uses to produce cars and batteries.
According to the chart, Tesla’s property, plant and equipment reached $11 billion in 2Q 2020, a new high since 2019.
The decline in these assets values in 1Q 2019 was mainly due to the re-classification of assets where a portion of the hard assets was being moved to right-of-use assets under the operating lease accounting standard.
In short, it’s good to see that this category of assets growing at a healthy rate. It indicates that Tesla has been investing in factories, and thus, the expansion of the businesses.
Tesla’s Operating Leased Vehicles
Tesla’s operating leases vehicles are another category of long-term assets that relate to the company’s leasing revenue.
In this aspect, Tesla is the lessor whereas its customers are the lessees. Tesla leases its vehicles such as the Model 3 and collects recurring leasing revenue from these leased assets.
There was a sudden decline in the asset values in 1Q18. The decline was attributed to the change in accounting standards in which a portion of this asset was re-classified to revenue immediately upon the adoption of the new standards.
From 2018 to 2020, the operating leased vehicles’ assets increased slightly and reached a new high of $2.52 billion in Q2 2020.
The increase in this asset category means that Tesla’s leasing revenue will also be increasing. However, the rate of increment in this asset was sort of low, which explains the slower rate of increase in the leasing revenue.
Tesla’s leasing business hasn’t been able to take off as expected. Understandably, Tesla has only started the leasing of Model 3 in 2Q 2019. Prior to Model 3, there was literally nothing to lease except for Model S/X.
Tesla’s Solar Energy Systems
Similarly, the Solar Energy System is another type of fixed or hard assets that generate recurring leasing revenue for Telsa.
This category of assets has to do with Tesla’s solar energy generation systems that were built and then leased to its customers under the Power Purchase Agreement (PPA).
Again, the solar energy system is cash-producing assets that may provide hints about where Tesla’s energy unit is heading.
Accordingly, Tesla’s solar energy systems assets have declined in the last 3 years after reaching its peak in 1Q 2018 at $6.4 billion.
As of 2020 2Q, Tesla’s solar energy systems declined slightly to $6.1 billion on a sequential and year-over-year basis.
The declining assets may indicate a weakening energy business and thus, a possible declining energy leasing revenue in the future.
Tesla’s Asset Turnover Ratio
The asset turnover ratio measures the company asset utilization efficiency. The higher the ratio, the better the asset usage is.
Here is the equation that is used to calculate the asset turnover ratio:
Assets Turnover Ratio = (Trailing 12-Months Revenue / Total Assets) x 100%
The following chart shows Tesla’s asset turnover ratio from 2015 to 2020 on a quarterly basis.
According to the chart, Tesla’s asset turnover ratio has steadily risen since 4Q 2016 after trending down substantially in 2015. The declining ratio in 2016 was largely due to the acquisition of SolarCity in which Tesla has added a significant amount of assets.
However, the ratio began its meteoric rise from 2016 to 2020, hitting peak figures in 2019 at nearly 80%.
After that, the asset turnover ratio began to decline slightly and reached around 70% as of 2020 Q2.
At 70%, Tesla generates $0.70 dollar of sales for every $1 dollar of assets, which in my opinion is pretty good.
Comparing this figure with that of General Motors, Tesla’s result was much better off. For your information, GM’s asset turnover ratio was between 50% and 60%.
Tesla’s total assets have been on a rise, reaching an all-time high at $38 billion in 2020 2Q.
The growing asset base has been due to the increases in both current and long-term assets.
Tesla’s long-term assets consist of mostly cash-generating assets such as the operating leased vehicles and solar energy systems, which provide the company with stable leasing revenue in the long run.
From the asset turnover ratio, Tesla uses its assets quite efficiently, judging from the improving ratio which reached 70% in 2Q 2020.
From 2019 to 2020, the expanding asset base coupled with the improving asset turnover ratio has turned Tesla’s stock into a multi-badger stock where the company’s market valuation is on its way to the $500 billion thresholds.
References and Credits
1. Financial figures in all charts on this page were obtained and referenced from annual and quarterly filings available in Tesla Earnings Releases.
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