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5 Years Analysis of Tesla Total Assets

Tesla Model S new delivery. Source: Flickr

The assets of a company is one of the most important items in the balance sheet. The reason is that the assets owned by a company represent resources that generate future economic benefits for the company. That future economic benefits can be in the form of monetary benefit such as cash. Other than cash, an asset can also help to increase the value of a company in the form of capital gain or reduce future expenses of a company.

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 assets because the company is an automaker which we all know, relies heavily on assets to make money.

As an investor myself, I will usually find out the types of assets the company has and how efficient the company is in using these assets to generate revenue. Other than the types of assets and assets use efficiency, I will also look into the trend of the assets and find out whether the assets have increased or decreased in value over time.

In line with the growth of the company, the assets should expand along. If there is a drastic decline in assets value, investors should find out whether there is a sale of assets or impairment has occurred. This is an important analysis that most investors have often overlooked.

In this article, we will look at Tesla total assets and analyze what makes up the company total assets as well as the efficiency of management in using these assets to generate sales by measuring the asset turnover ratio.

Tesla Total Assets

Tesla total assets

Tesla total assets

The first thing to look at when analyzing Tesla assets is to look at the overall assets of the company. The chart above shows Tesla quarterly total assets in monetary value over the previous 5 years from 2015 to 2019.

As mentioned in prior paragraphs, the trend of the assets is an important analysis that investors should not miss. As seen from the chart above, the trend indicates that Tesla total assets have been on an upward direction from 2015 to 2019.

In 1Q 2015, Tesla total assets was only a little over $5 billion but the amount of total assets has reached nearly $35 billion as disclosed in the 4Q 2019 quarterly filing. Over the 5-year period, Tesla total assets have increased by as much as 700%, representing an average growth rate of roughly 35% per quarter.

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 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 largely due to the acquisition of SolarCity. In the same quarter, Tesla consolidated the assets from SolarCity into its own balance sheet, thus the significant increase in total assets of the company.

Overall, the long-term trend highlights that Tesla total assets are growing. When we see such trend occurs, we should expect the same to happen to the company sales or revenue. In this aspect, we will look at the company asset turnover ratio shortly.

Before that, I want to point out again that the growth of total assets at this pace should be viewed as a positive development for both Tesla and shareholders.

Breakdown of Tesla Total Assets

Before going into Tesla asset turnover ratio, we will first take a look at what constitutes Tesla total assets.

Tesla total assets Q4 2019

Tesla total assets Q4 2019

The snapshot above shows Tesla total assets extracted from the balance sheet in the latest quarterly filing dated Dec 31st, 2019.

As seen from the snapshot above, Tesla total assets are divided into two major components, namely current and long-term assets.

As of Q4 2019, Tesla total assets was $34.3 billion. Of that amount, $12.1 billion was current assets, and the rest was long-term assets which totaled $22.2 billion. This composition shows that Tesla long-term assets made up the bulk of the company assets, at roughly 65%.

Analyzing the total assets alone does not tell us much about the quality of the assets and what really happens to those assets over a period of time. As such we will dig deeper into detail of the current and long-term assets in the following discussion.

Tesla Current Assets

Tesla current assets Q4 2019

Tesla current assets Q4 2019

The snapshot above shows Tesla current assets in the balance sheet extracted from the Q4 2019 quarterly filing.

As the above snapshot shows, Tesla total current assets was $12 billion as of Q4 2019. Out of that amount, roughly $6 billion was cash and cash equivalents, making it the largest component in current assets. In terms of percentage, cash and cash equivalents made up slightly more than 50% of total current assets in Q4 2019.

The second largest component in current assets was inventory, at roughly $3.5 billion. This asset class made up nearly 30% of Tesla current assets.

When both cash and inventory are combined, together they made up more than 80% of Tesla total current assets. This number is sort of expected as Tesla is a capital-intensive automaker which needs large amount of working capital to operate its business.

Other than cash, Tesla carried a big inventory, to the tune of 30% of current assets based on the Q4 2019 filing, to generate sales. This situation was more apparent when Model 3 was introduced about 2 years ago. Model 3 is specifically designed for mass manufacturing and targeted for the mass market.

Therefore, Tesla needs to carry a large inventory of Model 3 in order to instantly deliver the vehicles to customers who make purchases. This scenario is different from Model S and Model X in which these vehicles are only going into production after order confirmations are received. Therefore, this explains the reason that Tesla has such a large inventory in it current assets.

Tesla current assets

Tesla current assets

The chart above represents Tesla quarterly total current assets for the past 5 years from 2015 to 2019.

As you can see from the chart, Tesla current assets have increased tremendously over the 5-year period. In Q1 2015, Tesla carried only $3 billion of current assets in its balance sheet. The situation changed dramatically in Q4 2019 when total current assets ballooned to slightly more than $12 billion. The latest figure represents a 400% growth when compared to the same quarter 5 years ago.

The growing current assets is expected and is in line with the growth of the company. When Tesla expands its business, it needs more current assets or working capital to deal with the expanding operations. For instance, the company certainly needs more cash to pay for the growing workforce and invest more in raw materials for the expanding inventory.

In summary, the bulk of the growth in current assets has been largely due to the growth in cash and inventory which can be seen from these articles: Tesla cash on hand and Tesla inventory management.

Tesla Long-Term Assets

Tesla long-term assets q4 2019

Tesla long-term assets Q4 2019

According to the Q4 2019 quarterly filing, Tesla long-term or non-current assets was roughly $22 billion, making up about 65% of Tesla total assets. Of all the assets in this category, the largest component was the Property, Plant and Equipment and it was valued at slightly more than $10 billion as of Q4 2019.

The second largest component in long-term assets was the Solar Energy System which was valued at $6 billion as of Q4 2019. The Solar Energy System is a type of fixed or hard asset which is in the same category as the Property, Plant and Equipment. The only difference is that the Solar Energy System is a type of fixed asset that generates recurring leasing revenue for Tesla.

The third largest component, also a fixed or hard asset, was the Operating Lease Vehicles and it was valued at $2.4 billion as of Q4 2019. Similarly, the Operating Lease Vehicles is also a type of fixed asset that generates recurring leasing revenue for the company.

When you combine the top 3 largest assets in this category, you have roughly $19 billion of fixed assets and this alone makes up more than 85% of Tesla total long-term assets. As you can see, Tesla most valuable long-term assets come mainly from fixed or hard assets that either directly generates recurring income for the company or produces goods that can be sold later.

In short, Tesla long-term assets have been mostly made up of quality fixed or hard assets that generate valuable economic benefits for the company in the long-run.

Tesla long-term assets

Tesla long-term assets

The chart above recorded Tesla quarterly long-term assets over a 5-year period from 2015 to 2019.

As seen from the chart, Tesla long-term assets had been slightly more than $5 billion in 2015 and 2016 but had suddenly more than doubled in Q4 2016 alone. This scenario was due to the acquisition of SolarCity that occurred in the same quarter in which the company consolidated all the assets from SolarCity.

From 2016 onward, Tesla long-term assets had been rising steadily and reached a record value of $22 billion as of 4Q 2019. As mentioned in prior paragraphs, Tesla long-term assets are mostly made up of quality fixed assets that generates sales or produces goods.

Again, the incredible growth of long-term assets in the company balance sheet bodes well for stockholders and should be viewed as a positive development for Tesla.

Tesla Fixed Assets

Tesla fixed assets q4 2019

Tesla fixed assets Q4 2019

Since Tesla long-term assets consist of mostly fixed or hard assets, it’s worth taking a deeper look into the company fixed assets over a period of time to see how this asset class has changed.

Moreover, the fixed assets are also the most powerful assets that Tesla has as they generate incredible long-term economic benefits for the company. Without them, the company can literally stop functioning. In addition, I am pretty certain that the company revenues are derived entirely from these assets alone.

To make long story short, let’s have a quick look at the snapshot above. Tesla fixed assets come largely from just a few items in the balance sheets and they are Operating Lease Vehicles, Solar Energy System, Property, Plant and Equipment and lastly the Operating Lease Right of Use Assets.

Together, these fixed assets made up more than 90% of Tesla long-term assets and close to 60% of the company total assets in the latest quarter of 4Q 2019. With such a large percentage in the balance sheet, these assets will have a very dramatic impact on the company revenue.

Tesla fixed assets

Tesla fixed assets

Let’s take quick look at Tesla fixed assets over a period of 5 years from the chart above.

Based on the chart, the trend of Tesla fixed assets follows almost exactly the trend of Tesla long-term assets where the plot has been growing over the shown period. The reason being that the company long-term assets consist almost entirely of fixed assets.

Over time, the trend of the plot above should grow when the company expands its operations. The uptrend is telling us that the company is growing. When the asset expands, so will sales and revenue. Therefore, it’s highly encouraged that investors keep track of this asset class over time.

Investors should pay attention to any dramatic decline or drop in Tesla fixed assets. Should there be any contraction in the value of fixed assets in the balance sheets, investors should investigate the reason behind.

For instance, you may notice that there is a slight decline in fixed assets in 1Q 2018 from prior quarter. The plunge was actually quite significant from $21 billion to $19 billion in a single quarter. The drop represents close to a 10% contraction of assets from the prior quarter. This kind of decline warrants investors to further investigate the balance sheet by digging into detail the components of the fixed assets.

Upon investigation, the cause of the decline was largely due to the drop in value for Operating Leased Vehicles from $4.1 billion to $2.3 billion. When an incident like this occurs, investors should ask themselves what exactly happens to this asset and why it drops in values.

Further investigation revealed that there was an adoption of new accounting standard for Revenue from Contracts with Customers starting Jan 1st, 2018 which had affected the Operating Leased Vehicles asset, causing this asset class to be reclassified to accumulated deficit in the balance sheet.

The following snapshot shows the changes to Operating Lease Vehicles as a result of the adoption of new revenue standard.

Tesla operating lease vehicles Q1 2018

Tesla operating lease vehicles Q1 2018

Although the fixed asset Operating Lease Vehicles has declined substantially, there is really nothing to worry about as the decline has nothing to do with impairment or sales of assets. It’s merely a matter of accounting policy change which should not affect the fundamental operations of the company.

In summary, it’s important for investors to find out the root cause should there be a plunge in not only total assets but specifically any asset class in the company balance sheet. An impairment of assets will have a severe effect on the income statement as it will reduce net income dramatically.

Meanwhile, a sale of assets may indicate a change of strategy or something more serious is lurking such as the lack of cash. For now, none of this has occurred to Tesla.

Tesla Asset Turnover Ratio

To analyze how efficient Tesla management is in utilizing the company assets to generate revenues, we will look at the Asset Turnover Ratio. Specifically, we will look at the long-term asset turnover ratio which measures only the long-term assets utilization efficiency. Here is the equation for the long-term asset turnover ratio:

Tesla Long-Term Assets Turnover Ratio = (Revenue / Long-Term Assets) x 100%

Why only long-term assets? While measuring the total assets may look more informative and useful in our analysis, the long-term asset ratio is more focus on the asset classes that relates directly to revenue generation. As mentioned in prior discussion, long-term assets represents resources that generate immerse economic benefits in the long run whereas short-term assets are merely working capitals that feed into the long-term assets to keep them running. In this context, using the long-term assets is far more targeted when finding out asset use efficiency.

The following chart recorded Tesla quarterly long-term asset turnover ratio over a 5-year period from 2015 to 2019.

Tesla long-term asset turnover ratio

Tesla long-term asset turnover ratio

According to the chart, Tesla long-term asset turnover ratio has been steadily rising since 4Q 2016 after trending down substantially in 2015. The drastic drop in the ratio in 4Q 2016 was again due to the acquisition of SolarCity in which Tesla has added a significant amount of assets in the same quarter.

However, the ratio began its meteoric rise from end of 2016 to 2019, indicating that the company was growing its revenue at a tremendous pace with respect to long-term assets. Explosive growth in the ratio was seen by the end of 2018 at more than 30% per quarter when Tesla recorded peak sales of Model 3 before the ratio tapered down slightly afterward.

By 4Q 2019, Tesla long-term asset turnover ratio was seen rising again to new high at close to 35%, indicating that the company growth momentum did not just stop in 2018.

At an asset turnover ratio of 35%, what the figure means is that Tesla managed to generate a quarterly sales return of $0.35 for every $1.00 of long-term assets. Comparing this figure with that of General Motors (NYSE:GM), Tesla asset use has been far more efficient than that of GM which was only at 20% in 4Q 2019.

You can find out GM long-term asset turnover in this article: GM total debt. Please scroll to the bottom for GM asset turnover ratio chart on that page.

Conclusion

Tesla has increased its total assets from just $6 billion in Q1 2015 to over $34 billion in Q4 2019. Since assets represent future economic benefits to the company, the growth in total assets also means that Tesla’s revenue will grow in line with the expansion of total assets. This scenario is reflected in the growth of Tesla asset turnover ratio which hit record high at 35% as of Q4 2019.

The majority of Tesla total assets are composed of long-term assets. In Q4 2019, long-term assets made up roughly 65% of the company total assets. When we broke down the long-term assets into components, we saw that most of Tesla long-term-assets are made up of fixed or hard assets such as Property, Plant and Equipment, Operating Lease Vehicles and Solar Energy System. When you combine these fixed assets, they made up more than 85% of total long-term assets, showing that the company long-term assets are mostly composed of valuable assets that generates long-term economic benefits for Tesla.

While Tesla current assets may not make the cut as the largest component in total assets, its importance cannot be overlooked. Basically, current assets work as working capital that keeps the company’s operations running. From the Q4 2019 balance sheet, we saw that most of Tesla current assets are made up of cash and inventory. This composition makes sense as the company needs large amount of working capital to support its asset-heavy operations. Moreover, Tesla current assets have grown by more than 300% over the 5-year period which has been in line with the growth of the company as a whole.

Lastly, we have seen that Tesla asset turnover ratio reached new high in Q4 2019 at 35% and the respective upward trend has actually started few years back in Q4 2016. Since then, the rise of asset turnover ratio has been unstoppable especially after the delivery of Model 3 came in full throttle during 2018. For perspective, Tesla assets usage is far more efficient than that of GM. As of Q4 2019, GM asset turnover ratio was only 20% compared to Tesla’s 35%.

References and Credits

1. Financial figures in all charts and images were obtained from Tesla Earnings Releases.

2. Featured images in this article are used under creative commons license and sourced from the following websites: Neeta Lind 1 and Neeta Lind 2.

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