Will Tesla Go Out Of Business In 2025?

Tesla’s sales gallery. Source: Flickr

Will Tesla (NASDAQ:TSLA) go out of business in 2025? It is a question that is often pondered by investors and Tesla’s vehicle owners.

Investors are particularly concerned about Tesla’s liquidity and the company’s cash flow. On the other hand, Tesla’s vehicle owners are worried about their vehicles if Tesla stops making them.

There are a few things that can topple Tesla. The most obvious one is debt. As of fiscal year 2023, Tesla has over $3 billion of debt and leases, according to this article: Tesla total debt.

Tesla will go bankrupt if it can’t repay or service the debt. Other reasons that may trigger Tesla’s bankruptcy include business deterioration, loss of competitiveness, outdated technology and lawsuits.

While these reasons are valid to some extent, they are difficult to measure and quantify. However, we can analyze the company’s balance sheets to assess the likelihood of Tesla going out of business.

This article delves into the subject of Tesla’s potential bankruptcy and explores the company’s short-term liquidity. Let’s get started!

Investors interested in Tesla’s other statistics may find more insights on these pages: Tesla return on equity, Tesla vs General Motors in assets turnover, Tesla revenue breakdown.

Please use the table of contents to navigate this page.

Definitions

To help readers understand the content better, the following terms and glossaries have been provided.

Prepaid Expenses: Prepaid expenses are expenses that have been paid for in advance but have not yet been used or consumed. These expenses are initially recorded as assets on a company’s balance sheet and are gradually expensed over time as they are used up or consumed.

Examples of prepaid expenses include prepaid rent, insurance premiums, and prepaid advertising fees. By recording these expenses as assets, companies can better match their expenses with the period in which they are used or consumed, which can improve the accuracy of their financial statements.

Receivables: Receivables refer to the money owed to a company by its customers or clients for goods or services that have been provided but not yet paid. They are considered assets on a company’s balance sheet since they represent the amount of cash the company expects to receive in the future.

Accounts receivable is the most common type of receivable, which is created when a company extends credit to its customers and invoices them for payment at a later date. Other types of receivables include notes receivable, which are formal agreements to pay a certain amount of money at a future date, and advances or deposits received from customers.

Deferred Revenue: Deferred revenue, also known as unearned revenue, refers to the money received by a company for goods or services that have yet to be delivered or performed.

In a balance sheet, deferred revenue is listed as a liability because it represents an obligation to provide products or services in the future. Common examples include subscription services, advance ticket sales, and prepaid memberships.

Deferred revenue is important because it provides a snapshot of the company’s future obligations and ensures that revenue is recognized in the correct accounting period.

Customer Deposits: Customer deposits represent funds that customers have paid to a company in advance of receiving goods or services.

These deposits are considered liabilities because they reflect an obligation for the company to deliver the promised goods or services in the future. Examples include deposits for custom-made products, advance payments for construction projects, or prepayments for events.

Customer deposits are important because they show the amount of money the company has received but has yet to earn by delivering goods or services.

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Uncovering Tesla Financial Health

One effective way to evaluate Tesla’s financial health is to review the company’s balance sheets. By doing so, investors can quickly identify Tesla’s total commitments that are due within a year from the date the balance sheets are prepared.

By comparing Tesla’s payments due with its short-term liquidity, investors can determine whether the company has sufficient cash position to meet its obligations.

If there is a significant difference between the commitments and the available cash, this could be a warning sign of financial trouble. In such cases, investors should examine the company’s financial reports more closely to understand how it plans to meet its obligations.

In the following discussions, we will take a closer look at Tesla’s balance sheets to determine whether the company is in a precarious financial situation or whether it is financially stable.

Let’s get started!

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Tesla Commitments In 2025

The following table depicts Tesla’s short-term commitments that come due in 2025:

Tesla’s current liabilities

Tesla’s current liabilities, or short-term commitments, are the company’s contractual obligations that need to be fulfilled within a year from the date of the balance sheets. In this case, the date of the balance sheets is 30 Sept 2024.

As per the date of the balance sheets, Tesla is required to settle the total short-term commitments by September 30, 2025. These commitments encompass a mix of cash payments and product deliveries.

For instance, deferred revenue and customer deposits require the company to deliver products, while other commitments such as payments to suppliers, employees, and creditors, are cash-related.

Based on the table above, Tesla’s total short-term commitments amounted to approximately $30.6 billion for the fiscal year 3Q 2024. Again, this amount is due by Sept 30, 2025, which include cash payments and product deliveries.

In summary, Tesla has a significant obligation to deliver a combination of cash and products, which is estimated at $30.6 billion as of 30 Sept 2024. This pament is due by 30 Sept 2025.

Does Tesla have the cash to cover the payments due? We will find out.

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Non-Cash Commitments

Tesla’s deferred revenue and customer deposits

Some of Tesla’s short-term commitments are not delivered in the form of cash. These include deferred revenue and customer deposits. The definitions of these terms are available here: deferred revenue and customer deposits.

While these are liabilities for Tesla, they do not require cash payment by the company. In fact, Tesla has already received the cash upfront for these liabilities.

Therefore, it is important to note that Tesla’s actual short-term liabilities are slightly less than the figures shown. To account for this, we may exclude these non-cash liabilities from the total obligations.

After making this adjustment, Tesla’s total short-term liabilities amounted to $26.6 billion as of 3Q 2024. Therefore, the total amount due by 30 Sept 2024 may amount to just $26.6 billion, about $4 billion off the total obligations of $30.6 billion

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Cash Vs Liabilities

Tesla’s cash vs total short-term liabilities

The table above compares Tesla’s combined cash and short-term investments with the total current liabilities for the fiscal year 3Q 2024.

As of 3Q 2024, Tesla’s cash and cash equivalents together with short-term deposits totaled US$ 33.6 billion. On the other hand, Tesla’s total short-term commitments totaled US$ 30.6 billion, which was slightly smaller than the combined cash and short-term investments.

Therefore, Tesla’s cash and short-term investments alone are sufficient to meet the total short-term commitments that come due before Sept 30, 2025.

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Other Liquid Assets

Tesla’s current assets

Tesla’s liquid assets, apart from cash and short-term deposits, include accounts receivable and inventory, as shown in the table above. The definitions of these items are available here: prepaid expenses and accounts receivable.

These liquid assets are expected to be converted into cash within a year and can be as helpful as cash and cash equivalents. They can potentially help Tesla cover a portion, if not all, of its short-term commitments.

With the accounts receivable included, Tesla’s total liquid assets (including cash and investments) amounted to $36.9 billion as of fiscal year 3Q 2024, as depicted in the table above.

Therefore, Tesla should have sufficient liquidity to satisfy its total short-term commitments of $30.6 billion due over the next year.

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Liquid Assets Vs Current Liabilties

Tesla’s liquid assets vs total short-term liabilities

Tesla’s total liquid assets amounted to approximately $37 billion as of the 3Q 2023 balance sheets, taking into account the cash, accounts receivable, and short-term investments.

Meanwhile, the company’s total current liabilities were $31 billion. Therefore, Tesla should be able to easily fulfill its future commitments when the liquid assets significantly exceed the short-term liabilities.

In fact, if Tesla opted to pay off its total current liabilities, it would still have a surplus of $6 billion in liquid assets. In summary, Tesla’s financial condition is in good standing and should easily survive 2025.

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Liquid Assets Vs Adjusted Commitments

Tesla’s liquid assets vs adjusted short-term liabilities

As discussed in this section: non-cash commitments, some of Tesla’s short-term liabilities are non-cash, meaning that the company is not required to settle them with cash.

Therefore, after adjusting for these non-cash items, Tesla’s total short-term liabilities amounted to lesser amount, notably at $26.6 billion versus the full amount of $30.6 billion, as depicted in the table above.

With a lesser amount of liabilities, Tesla’s liquid assets, which include cash, short-term investments, and accounts receivable, would have an even greater margin.

For instance, Tesla would have a surplus of $10.4 billion in liquid assets after fully settling the current liabilities.

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Conclusion

Again, will Tesla possibly go out of business in 2025? Based on the analysis conducted and all financial information up to 3Q 2024, it is unlikely that Tesla will go out of business in 2025.

This is because the company’s available liquid assets reported in fiscal 3Q 2024 were more than sufficient to cover the upcoming liabilities right up to 3Q 2025 or 30 Sept 2025.

However, this scenario will only remain valid for as long as Tesla’s operations are not significantly affected in the next 12 months. For example, if one of the Gigafactory is blown up or the company experiences a drastically deteriorated business condition, Tesla could suffer a disruption in cash flow conversion which may cause a liquidity crunch.

In that case, Tesla may go bankrupt by 2025. But for now, there is no need to worry as Tesla’s financial health is solid and in good shape.

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References and Credits

1. All financial figures presented in this article were obtained and referenced from Tesla’s annual reports published in this page: Tesla Financial Reports.

2. Flickr Images.

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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.

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