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 operate and 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 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’s 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!
Chart of 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’s 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.
According to the chart, the trend of the asset plot indicates that Tesla’s total assets have been trending upward over the last 5 years.
As of 4Q 2020, Tesla’s total assets reached an all-time high at slightly over $50 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, resulting in a significant increase in the total assets of the company.
Overall, Tesla’s total assets have been growing on a long-term basis. The growth of the company’s assets has been a result of the expansion of the business.
In other words, Tesla has been adding assets to its balance sheets all these years, and the kind of assets can range from tangible or physical assets such as factories, offices and equipment to intangible assets, including digital assets such as bitcoins.
The expansion of assets should bode well for Tesla’s shareholders but it still depends on the assets utilization ratio which we are going to see in subsequent discussions.
Breakdown of Tesla Total Assets
In this section, 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 Dec 31, 2020.
As of 4Q 2020, Tesla’s total assets were valued at $52 billion based on the snapshot above.
Of that amount, $26.7 billion was current assets while long-term assets contributed about $25.4 billion.
This composition shows that Tesla’s total assets were almost equally divided between current and long-term assets.
Tesla’s Current Assets
The snapshot above shows Tesla’s current assets in the balance sheet extracted from the 4Q 2020 annual filings.
From the snapshot, the bulk of Tesla’s current assets were mostly cash and cash equivalents, making up more than 70% of the current assets at $19.4 billion as of 4Q 2020.
At this ratio, the cash and cash equivalents were easily the biggest component of the 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 nearly 90% of Tesla’s total current assets.
The composition shows that Tesla needs a large cash position as working capital, and keeps a huge 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 4Q, Tesla’s current assets reached an all-time high at $26.7 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 cash to deal with the expanding working capital requirement.
For instance, a growing workforce, an expanding inventory and an increasing list of Gigafactory certainly require a much bigger working capital.
The growth in current assets was particularly obvious in 2020, possibly due to the COVID-19 outbreak, which then resulted in Tesla stashing cash in preparation for the worst scenario.
Tesla’s Long-Term Assets
According to the Q4 2020 quarterly filing, Tesla long-term or non-current assets was roughly $25.4 billion, making up about 49% of the company’s total assets.
Of all the assets in this category, the largest component went to the Property, Plant and Equipment which was valued at nearly $13 billion as of Q4 2020.
The Solar Energy System took the 2nd place and 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 $3 billion, is another tangible or fixed asset that produces recurring leasing revenue for Tesla.
These are high-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 $25 billion as of 2020 4Q, an all-time high as well for the company.
At this point, we have noticed that Tesla has grown its current assets at a much faster rate than its non-current assets, suggesting that the company has been expanding its working capital all this while.
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 6 years.
This category of assets relates mostly to Tesla’s Giga factories, buildings and machinery where the company uses to produce cars and batteries.
According to the chart, Tesla’s property, plant and equipment reached nearly $13 billion in 4Q 2020, a new high for the company.
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 $3.1 billion in Q4 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.
However, the Model S/X is considered a premium model that is not targeted for mass-market adoption.
As such, the leasing market is limited for Model S/X.
Tesla’s Solar Energy Systems
Similarly, the Solar Energy System is another type of fixed or hard asset that generates 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 another type of cash-producing asset that may provide hints about where Tesla’s energy unit is heading in the future.
Accordingly, Tesla’s solar energy systems assets have declined in the last 3 years after reaching its peak in 1Q 2018 at nearly $6.4 billion.
As of 2020 4Q, Tesla’s solar energy systems have declined to only $6 billion in value.
The decline in value for this asset has mainly been attributed to the depreciation charge against this asset type all these years.
Additionally, Tesla may have not been able to meaningfully grow this asset type, possibly due to the unprofitable operations.
For whatever reasons, the declining assets may indicate a weakening solar energy generation 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 a significant amount of assets were added to Tesla’s balance sheets.
However, the ratio began its meteoric rise from 2016 to 2020, hitting peak figures in 2019 at nearly 80%.
Since then, the asset turnover ratio began to decline slightly and reached 60% as of 2020 Q4.
At a ratio of 60%, Tesla generates about $0.60 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 $52 billion in 2020 4Q.
The expansion of Tesla’s businesses globally has made the growth of the company’s total assets possible in the last several years.
Tesla’s long-term assets consist of mostly cash-generating assets such as operating leased vehicles and solar energy systems, which provide the company with stable leasing revenue in the long run.
On the other hand, Tesla’s current assets type was mostly in cash or highly liquid assets such as cash and cash equivalents.
As of 4Q 2020, Tesla’s long-term and current assets have reached all-time highs at $25.4 billion and $26.7 billion, respectively.
From the asset turnover ratio, Tesla uses its assets quite efficiently, judging from the improving ratio which reached 60% in 4Q 2020.
From 2019 to 2020, the expanding asset base coupled with the improving asset turnover ratio has turned Tesla’s stock into a multi-bagger stock where the company’s market valuation reached nearly $800 billion as of Feb 2021.
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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