Tesla Vs GM In Asset Turnover Ratio

GM vs Tesla. Flickr Image.

Tesla (NASDAQ: TSLA) and General Motors (NYSE: GM) are automakers with very large asset bases. When you look at their financial statements, you will find that their total assets consist of mostly long-term assets.

For example, Tesla’s ratio of long-term assets to total assets was about 54% as of 2Q 2023 and the ratio was even higher for GM at 61%. In other words, these companies rely on a large number of long-term assets to generate sales.

On top of that, an equally large number of current assets are also present in the balance sheet of these automakers. Current assets such as cash and cash equivalents are huge in the balance sheets and they are used mainly as working capitals during the normal course of the business operations.

Additionally, both Tesla and GM have a reasonably low asset turnover ratio, notably at less than 100%. The reason for the low asset turnover ratio is due to the large asset base of these automakers.

A low asset turnover ratio usually indicates that a company is operationally asset-heavy. In this aspect, both Tesla and General Motors rely heavily on current and long-term assets to produce sales. In general, an asset-heavy company needs to invest continuously in assets, including properties, plants, and equipment, to generate sales.

In this article, we will compare the asset turnover ratios of both Tesla and General Motors and find out how they stack up to each other in terms of assets. Since both Tesla and GM operate on a different business model, a retail-based for Tesla and a wholesale-based for GM, we will see if the different business models will affect the asset turnover ratio between the two companies.

Before we start to look at the asset turnover ratio of Tesla and GM, we will run through the asset part of their balance sheet to get an idea of what makes up their current and long-term assets.

Tesla Total Assets

Tesla’s total asset

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As of 2Q 2023, Tesla’s total asset came in at $91 billion. Of this amount, $37 billion, or 54% was long-term assets.

Tesla’s long-term assets mostly consist of properties, plants, and equipment. For example, the property, plant, and equipment alone accounted for half the total amount at $26 billion as of 2Q 2023.

Tesla’s operating leased vehicles and solar energy systems are long-term assets that generate leasing income. These types of assets are a big deal for the company. As of 2Q 2023, they accounted for more than $10 billion in value.

Under the current assets, Tesla’s total cash totaled more than $20 billion after taking into account the cash on hand, investments, and bitcoin holdings.

On the other hand, Tesla’s inventory contributed $14 billion in asset value.

Tesla’s huge cash piles, large inventory, and $26 billion worth of property, plant, and equipment all indicate an asset-heavy business model for the company.

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General Motors Total Assets

GM’s total asset

As of Q2 2023, GM’s total assets came in at $276 billion. Of this amount, $169 billion, or 61% was long-term or fixed assets. From a comparison perspective, GM’s total assets were slightly higher than Tesla’s figure.

GM’s long-term assets were primarily made up of fixed assets such as properties, plants, and equipment. As of 2Q 2023, the value of GM’s property, plant, and equipment alone was valued at $48 billion.

Aside from buildings and equipment, General Motors also has leased assets such as the equipment on operating leases which provides long-term economic benefits for the company, including leasing income. This type of asset was valued at $32 billion as of fiscal 2023 2Q.

One unexpected item within the long-term assets category was the deferred income taxes which were valued at more than $20 billion.

Over at the current assets, GM’s cash balances (inclusive of marketable securities) together with inventories totaled as much as $51 billion as of 2Q 2023.

Since GM also provides financial services such as loans to customers and dealerships, some portions of the current and long-term assets are also comprised of receivables such as the GM Financial receivables. This type of asset was worth nearly $80 billion as of Q2 2023.

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What Is Asset Turnover Ratio

After checking out the assets of both automakers, we know that both companies rely on a large asset base to operate their businesses. For example, GM’s total assets were worth $276 billion while Tesla’s total assets were valued at $91 billion as of 2Q 2023.

Having a larger asset base does not necessarily mean that one company is better than the other if it can’t efficiently utilize its assets. If a company under-utilizes its assets, it simply means an inefficient business operation.

To measure how efficient Tesla and GM are in utilizing their assets, we turn to the asset turnover ratio. Therefore, the asset turnover ratio is simply a measurement of asset utilization efficiency.

Here is the equation of the asset turnover ratio:

Asset Turnover Ratio = Total Sales/Revenues By TTM / Total Assets (or Long-term Assets)

A company with a high asset turnover ratio is capable of generating more revenue than a company with a low asset turnover ratio for the same amount of assets.

A word of caution, the asset turnover ratio is only meaningful when it’s used to compare companies of the same type and within the same industry. Otherwise, it’s pointless when you compare a company in the auto manufacturing industry with that of the software industry. A software company is likely to operate with much fewer assets than a car manufacturer.

Nevertheless, what we are doing in this article is comparing both Tesla and General Motors which operates in the same industry but with a different business model. For your information, Tesla runs a retail-based business model whereas GM runs a wholesale-based business model.

Theoretically, GM should have a higher asset turnover ratio compared to Tesla since GM does not have to own or lease a bunch of retail stores like what Tesla does.

So, let’s take a look at the asset turnover ratio of both companies!

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Total Asset Turnover Ratio

Total asset turnover ratio

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The formula that I used to measure the total asset turnover ratio of both companies is shown below:

Total asset turnover ratio = TTM revenue / Quarterly closing total assets

Over at the chart, both Tesla and GM have relatively low asset turnover ratios, and this is not unexpected as both companies operate an asset-heavy business model.

However, Tesla has much better asset utilization than GM does. As of 2Q 2023, Tesla’s ratio came in at 98% compared to GM’s ratio of 62% measured in the same quarter.

What is impressive is that Tesla’s asset turnover ratio has significantly improved over the years while GM’s ratio has remained roughly the same in the same periods.

In addition, Tesla had a lower asset turnover ratio compared to GM. Over the years, Tesla has been getting more efficient in asset utilization and it has overtaken GM since 2018.

Tesla has achieved an incredible feat despite owning or leasing significantly more retail stores.

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Long-Term Asset Turnover Ratio

Long-term asset turnover ratio

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The formula that I used to measure the long-term asset turnover ratio of both automakers is shown below:

Long-term asset turnover ratio = TTM revenue / Quarterly closing long-term assets

Long-term assets primarily represent fixed or physical assets such as properties, equipment, and leased vehicles for both Tesla and General Motors.

With that said, the long-term asset turnover ratios of both Tesla and GM have the same trend as that of the total asset turnover ratio.

As seen in the chart, Tesla’s long-term asset turnover ratio also has significantly improved and overtaken that of General Motors since fiscal 2018.

As of fiscal 2023 Q2, Tesla’s long-term asset turnover ratio reached a staggering 180% while that of GM clocked only 100%.

Again, Tesla has much better asset utilization than GM does.

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Ratio Of Long-Term Asset To Total Asset

gm-vs-tesla-long-term-asset-to-total-asset-ratio

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Tesla had a higher ratio in the early years but it had slowly declined. Since fiscal 2020, Tesla’s long-term asset to total asset ratio of roughly 55% has been lower than that of GM, indicating that the company has probably reduced its long-term asset base.

On the other hand, GM’s ratio of long-term assets to total assets has remained about the same at 60%.

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Conclusion

All in all, Tesla is simply much better than GM in asset usage despite operating a retail-based model as opposed to GM’s wholesale-based model.

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References and Credits

1. All financial figures presented in this article were obtained and referenced from the respective companies’ SEC filings, earnings reports, news releases, shareholder presentations, quarterly and annual reports, etc., which are available in General Motors Investor Relations and Tesla Investor Relations.

2. Pixabay Image.

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Disclosure

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