Question

tsla-10k 20181231.htm Page 77 of 180 Tesla, Inc. Consolidated Statements of Operations (in thousands, except per share data) Year Ended December 31, 2017 2018 2016 $ $ $ 17,631,522 883,461 18,514,983 1,555,244 1,391,041 21,461,268 8,534,752 1,106,548 9,641,300 1,116,266 1,001,185 11,758,751 5,589,007 761,759 6,350,766 181,394 467.972 7,000,132 13,685,572 488,425 14,173,997 1,364,896 1,880,354 17,419,247 4,042,021 6,724,480 708,224 7,432,704 874,538 1,229,022 9,536,264 2,222,487 4.268,087 481,994 4,750.081 178.332 472,462 5,400,875 1.599,257 1,378,073 2,476,500 834,408 1,432,189 Revenues Automotive sales Automotive leasing Total automotive revenues Energy generation and storage Services and other Total revenues Cost of revenues Automotive sales Automotive leasing Total automotive cost of revenues Energy generation and storage Services and other Total cost of revenues Gross profit Operating expenses Research and development Selling, general and administrative Restructuring and other Total operating expenses Loss from operations Interest income Interest expense Other income (expense), net Loss before income taxes Provision for income taxes Net loss Net loss attributable to noncontrolling interests and redeemable noncontrolling interests in subsidiaries Net loss attributable to common stockholders Net loss per share of common stock attributable to common stockholders Basic Diluted Weighted average shares used in computing net loss per share of common stock Basic Diluted 1,460,370 2,834,491 135,233 4,430,094 (388,073) 24,533 (663,071) 21.866 (1,004,745) 57,837 (1,062,582) 3,854,573 (1.632,086) 19,686 (471,259) (125,373) (2,209,032) 31.546 (2,240,578) 2.266,597 (667,340) 8,530 (198.810) 111,272 (746,348) 26,698 (773,046) (86,491) (976,091) S (279,178) (98,132) (674,914) $ (1,961,400) (5.72) $ (5.72) S (11.83) $ (11.83) $ (4.68) (4.68) 170,525 170,525 165,758 165,758 144,212 144,212 The accompanying notes are an integral part of these consolidated financial statements.

a.) comment on the trend in total revenue. Is it increasing or decreasing during the three year period?

b.) how has the gross profit percentage changed over the three year period?

c.) Comment on the ratio of total operating expenses to operating revenues over the three year period.

d.) Comment on individual revenue & expenses items that had significant percentage changes ( changes as a percentage of total revenue or total expenses) over the three years.

e.) Comment on the overall trend in operating income & net income as a percent of sales over a three year period.

f.) Comment on the significance of these changes. do they indicate a positive or negative trend for Tesla? Explain

g.) comment on anything else that might be relevant.

Answer 1

1. The total revenues of the Company have shown a continuous positive trend as it is increasing year on year for the periods 2016 to 2018.The key trends as evident from the revenue items are as under:

1. Automotive revenues have witnessed exponential increase of approximately 200% from 2016 to 2018.
2. While the revenues from leasing activity in 2018 have declined year on year in comparison to 2017, the revenue from Sales have almost doubled, showing that the market has increased confidence in the automobiles produced by the Company. It is a very good sign for the future.
3. Energy generation revenues which increased 500% year on year in 2017 as compared to 2016 has grown by 40% in 2018 indicating that company’s share in the market has stabilized and revenue growth would remain steady, if other factors remain the same.
4. Service and other income growth are in synergy with the Sales revenue.

2. The gross profits of the Company have increased year on year, however the proportion of increase has been lesser than the increase in revenues in the same period. On analysis of the same, the following points are noted

1. Almost all of the gross profit can be attributed to the automotive sales.
2. Energy generation and storage has achieved the breakeven levels and is sustainable.
3. The Services segment is eating up about 10% of the gross profits as evidenced from the figures of 2018 and 2017.Moreover the quantum of loss is increasing with the increase in revenue. The Company should review the operations in this segment if this trend continues.

    

     (‘c)      The ratio of operating expenses to gross profit for the periods in the report is as under:

                        2016 – 142% of gross profits

                        2017 – 173% of gross profits

                        2018 - 110% of gross profits

            On analysis, it is evident that the operating revenues have increased sufficiently but the Company has not been able to generate operating profits The research and development and the selling, general and administrative expenses increased by approximately 100% in 2017 when compared with 2016 figures. However, they have stabilized in 2018 as the increase is not significant. The reason for a such big increase in 2017 could be that the company expanded its operations, keeping the future operations in mind, and as result the fixed costs of the company increased in 2017.

    (d)   Revenue Items

           

1. Automotive Sales have shown approximately 60% year on year growth in 2016 & 2017 and 100% year on year growth in 2017 & 2018 periods. This shows that the market has higher confidence in the company’s automobiles and the product penetration is increasing exponentially.
2. Automotive leasing has declined in the year 2018, which if analyzed with the figures of sales, can mean that customers are more eager to buy the company’s automobiles instead of leasing. This is a very healthy sign for the future revenue prospects.
3. Energy generation and Service revenues after a very high year on year growth in 2017 have stabilized in 2018.

Expense Items

1. The growth trends in automotive costs of revenue has increased in the proportion of increase in revenues.The Margin % in this segment has remained the same for the three years in 23% to 25% range.
2. The energy generation and storage costs are being covered by the revenues generated. However, the Margin% in 2018 has dropped to 13% in 2018 when compared to 2017 when it was 22%. The company should analyze the controllable as well as uncontrollable reasons for the same.
3. The service and other costs are eating into the margins generated by the automotive segment. The trend which should worry the company is that the losses in this segment are increasing with the increase in revenues.

(e)        The operating income have remained steady in the range of 19% to 23 % during the period 2016

            To 2018. The net income/(losses) have shown fluctuations, it was (10%) in 2016, (14%) in 2017

            and (2%) in 2018.

            The increase in the net losses in 2017 can be attributed to increased investment in Research and

            development (increased by 65% in 2017) and increase selling, general and administrative

             expenses (increase by 73% in 2017) which can be due to expansion of operations as is evident

            from the revenue levels.

            The figures of 2018 show that the company’s increased expenses in the year 2017 have paid off

            and the increased revenues have almost compensated the increase in operating expense and the

            trend of increasing revenues would result in net incomes in the coming years.

(f)         The trends clearly show that company’s plans have paid off and the significant investments it

            made in the year 2017 to generate higher revenues have been successful. The trends are

            positive and Tesla can look forward to good growth in revenues and incomes in the coming years.

(g)        The significant increase in the interest expense which has increased from $ 198,810 in 2016 to

            $ 663,071 indicates that a major part of the expansion has been financed through borrowings and             at current levels the interest coverage is negative. The company should streamline its leverage

            levels,else it could have a negative effect on the future viability of the operations which are

            showing consistent positive trends.