Will Tesla (NASDAQ:TSLA) possibly go out of business by the end of 2023 or maybe 2024?
That’s a question that is often pondered by both investors and Tesla’s vehicle owners.
Investors are concerned about Tesla’s liquidity and the company’s cash flow, particularly during the age of the COVID-19.
On the other hand, vehicle owners are worried about what might happen to their vehicles if Tesla does go out of business.
There are a few things that can topple Tesla.
The most obvious one is debt.
As of 4Q 2022, Tesla has more than $2 billion in both debt and leases in its balance sheets, according to this article: Tesla debt load.
Tesla will certainly go bankrupt if it can’t pay or service its 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Other reasons that may trigger Tesla’s bankruptcy include business deterioration, loss of competitiveness, outdated technology and lawsuits.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 degree, they are difficult to measure and quantify, especially from the perspective of the company’s balance sheets.
How To Uncover Tesla’s Financial Health
One simple and effective approach that can be used to quickly evaluate Tesla’s business condition is to go through the company’s balance sheets.
For example, through the balance sheets, investors can find out about Tesla’s total commitments that will come due within a year from the date the balance sheets were created.
Once these commitments are known, investors can compare these commitments with Tesla’s short-term liquidity and quickly find out if the company’s cash was sufficient to cover these commitments.
If the numbers don’t match up or the difference is huge, for instance, the commitments are vastly greater than the cash on hand, then it may be a red flag.
In this case, investors should dig deeper into the financial reports and find out how the company is going to satisfy all the commitments that come due within a year.
That said, in the following discussions, we are going to dive deep into Tesla’s balance sheets and find out whether the company is on the brink of a financial disaster or the other way around.
Let’s take a look!
Tesla’s Commitments That Come Due In 2023
From Tesla’s balance sheets, we can find out about the company’s short-term commitments.
The following snapshot depicts Tesla’s short-term commitments as disclosed in the 4Q 2022 balance sheets:
Tesla’s current liabilities
|As at 31 December|
|Accrued liabilities and other||$7,142||$5,719|
|Current portion of debt and finance leases||$1,502||$1,589|
|Total Current Liabilities||$26,709||$19,705|
The short-term commitments or more specifically, current liabilities, are a snapshot of Tesla’s short-term liabilities at the time the balance sheets were prepared.
In Tesla’s case, the balance sheets were dated Dec 31, 2022, meaning that these short-term liabilities will come due within a year from Dec 31, 2022.
Therefore, between Dec 31, 2022, and Dec 31, 2023, Tesla is required to satisfy all current liabilities that are shown on the balance sheets as shown in the snapshot above.
That said, some of these commitments require Tesla to pay cash while others, such as deferred revenue and customer deposits, require the company to deliver products.
Therefore, not all commitments are created equal as some are cash-related while some are not.
Additionally, some of the commitments do not even come from customers as Tesla may have outstanding payments for its own employees, suppliers, and creditors.
All told, based on the table above, Tesla’s total short-term commitments came to about $27 billion as of fiscal 4Q 2022.
This figure concludes that Tesla is required to deliver a combination of cash and products that are estimated to cost $27 billion between Dec 31, 2022, and Dec 31, 2023.
Tesla’s Adjusted Current Liabilities
Tesla’s deferred revenue and customer deposits
|As at 31 December|
As mentioned in prior discussions, some of Tesla’s short-term commitments are non-cash.
For example, deferred revenue and customer deposits are the two liabilities that do not involve cash.
Instead, Tesla has already received cash upfront for these liabilities.
Therefore, Tesla’s realistic short-term liabilities are slightly less than the figures shown.
To account for only cash-related liabilities, we will do some adjustments by having these non-cash liabilities excluded from the total current liabilities.
After doing the adjustments, Tesla’s total short-term liabilities came to about $24 billion for fiscal 4Q 2022.
Can Tesla Meet Its Commitments?
The chart above compares Tesla’s cash and cash equivalents with the adjusted current liabilities for the fiscal quarter 4Q 2022.
According to the chart, Tesla has total cash and cash equivalents of $16 billion as of fiscal 4Q 2022.
On the other hand, Tesla’s total short-term commitments came to about $24 billion as shown in the chart above.
Therefore, Tesla’s total cash is lower than the total adjusted current liabilities.
In fact, Tesla’s cash alone is not sufficient to meet its short-term liabilities that will come due by Dec 31, 2023.
In other words, with all the available cash, Tesla cannot meet its short-term commitments that come due within a year.
Tesla’s Other Liquid Assets
Tesla’s current assets
|As at 31 December|
|Cash and cash equivalents||$16,253||$17,576|
|Accounts receivable, net||$2,952||$1,913|
|Prepaid expenses and other current assets||$2,941||$1,723|
|Total Current Assets||$40,917||$27,100|
Aside from cash, Tesla’s liquid assets are made up of other assets such as short-term investments, accounts receivable and inventory as shown in the snapshot above.
These are liquid assets that are expected to be converted into cash in a year.
Therefore, they are as handful as cash and cash equivalents and they certainly can help Tesla to cover a portion, if not all, of the short-term commitments.
Therefore, if we account for these liquid assets excluding inventory and prepaid expenses, Tesla’s total liquid assets would be much greater and would come to about $25 billion as of fiscal Q4 2022.
At this level of liquid assets, Tesla’s total liquid assets would be more than sufficient to satisfy its adjusted short-term commitments.
Tesla’s Liquid Assets Vs Current Liabilties
The chart above shows Tesla’s total liquid assets comparison with the adjusted current liabilities.
According to the chart, Telsa’s total liquid assets came to about $25 billion after accounting for cash, accounts receivable and short-term investments.
On the other hand, Tesla’s adjusted current liabilities totaled only $24 billion.
Therefore, Tesla can more than satisfy its future commitments with its massive liquid assets.
In fact, Tesla will have a surplus of $1 billion in liquid assets if the company decided to pay off the adjusted current liabilities.
In short, Tesla’s financial health is intact.
Again, will Tesla possibly go out of business in 2023?
Based on the analysis above, the answer is not likely since the company’s available liquid assets reported in fiscal 4Q 2022 were more than enough to cover the coming liabilities.
This scenario will remain so provided that Tesla’s operations would not be severely affected in the next 12 months.
If one of Tesla’s Gigafactory was blown apart by terrorists, then it would be a different story.
In that case, Tesla’s operations would be disrupted and its cash flow conversion cycle would be severely affected.
Therefore, Tesla may go under if the terrorist-attack scenario does play out.
However, for now, Tesla’s financial health remains as solid as a rock and there is nothing to be worried about.
References and Credits
1. All financial figures in this article were obtained and referenced from Tesla’s quarterly and annual reports which are available at Tesla SEC Filings.
The content in this article is for informational purposes only and is neither a recommendation nor a piece of financial advice to purchase a stock.
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