Tesla Motors Annual Analysis - Essay Example

 TESLA MOTORS FINANCIAL ANALYSIS Introduction The following is an analysis of the financial reports from the world’s largest designer, developer, manufacturer and seller of high-performance fully electric cars and advanced electric vehicle powertrain components. Tesla Motors follows a step by step analysis the standing of Tesla Motors, a publicly traded company. Its gives an overview of the companies incentives and/or investment risks. The sole aim of purpose of this report is to analyze the financial statements of Tesla Motors. Auditors PricewaterhouseCoopers, LLP the accounting and auditing firm that performed the 2013’s audit of Tesla Motors. PwC is a multinational, the world’s largest, professional services network. It operates more than 157 countries and employs more than 184,000 people to help in performing its multi-faceted services. The global dynamic of PwC allows it to be a fair and qualified auditor for Tesla motors, a company that has international locations and sales. Their vast knowledge enables them to ensure that Tesla Motors is operating according to the US and international standards. In this 2013 financial audit of Tesla Motors, PricewaterhouseCoopers validates that Tesla Motors has represented themselves efficiently, accurately and correctly in their financial statements and that the company is actually in accordance with the Generally Accepted Accounting Principles, GAAPs. However, PwC stated that the company failed to maintain stringent controls over its financial reporting. This resulted from a material weakness in their non-cash expenditure reports in their consolidated cash flow statements. It normally occurs when the internal controls of the company put in place to help detect irregularities in financial reporting fails to point out the material misstatement in a timely manner. PwC’s opinion regarding the company’s financial records reassures both the current and prospective investors that the data provided is an accurate picture of the company’s realities as whole. PricewaterhouseCoopers has done this in a precise, clean and easy to understand way. Extraordinary Events Extraordinary events are able to affect the financial standing of any given company because they are unforeseen and unplanned expenses. Natural disasters or things outside the company’s control can cost the company without it being able to plan or cater for the expenses. In the 2013 annual report, Tesla Motors did not report any extraordinary events that affected their financial standing. However, in the notes to financial statements, the company indicated that it has subsequent events, law suits as a result of environmental liabilities and assertion of intellectual property infringement claims by third parties against them in the form of letters. This may have adverse material effects and impacts on their brand, operations, cash flows, prospects and financial standing or position. Trends in Assets and Liabilities The two years presented indicates a continued growth and expansion for Tesla Motors over the period. These expansions are both globally as well as nationally as shown by the trends in the company’s assets and liabilities. Despite the economic hardships experienced in the past ten years, the company increase has been steady. Due to the company’s global expansion and acquisition of new-retail locations, there has been a steady increase in its assets. As the assets increases, liabilities also increase, however, the company’s assets are larger that its liabilities are hence making it to be in good financial standing. The company is therefore capable of meeting their bills and to continue in this trend. Largest Assets Assets basically make a company is able to pay its bills, and they range from actual or liquid cash to anything tangible that is capable of being exchanged for cash readily. The Tesla Motor’s largest asset is cash and cash equivalents. Their 2013’s cash and cash equivalents accounted for more than $845 million. They further explain in the accompanying notes that “We currently invest excess cash primarily in money market funds” (pg. 100). The second largest asset is property, plant and equipment. It was calculated as just above $738 million after taking their accumulated depreciation, calculated using straight-line method, into account. The third largest asset in 2013 for the company was operating lease vehicle. It was valued as just over $382 million less accumulated depreciation for the 2013 reporting period. These items show inconsistent increasing trend. Largest Liabilities Liabilities are those debts that are incurred by the company in return for the goods and services; they are the company’s bills. According to Tesla Motor’s 2013 financial statements, their largest liabilities are accounts payable and convertible debt, less current portion. The amount reported for convertible debt is $586,119,000and the amount of accounts payable is $303,969,000. Tesla Motor’s third largest liability is its resale value guarantee. The total value of resale value guarantee for the 2013 reporting period is $236,299,000 (pg. 91). Stocks Wal-Mart offers only common stock. Common stock is usually a security representing a corporation’s ownership (Common stock, 2013). The company has no issued and outstanding preference share. The company had its Initial Public Offering in 2010 and authorized 2 Billion shares with a par value of $0.001. By December 31, 2013, Tesla Motors Company had 123,090,990 shares issued and outstanding. Tesla Motors began selling common stock in June 2010 for $19.20 per share. At the end of 2013 accounting period, the shares were being sold for $151.12 per share. Multiple-step income statement Tesla Motors utilizes a multiple-step to value it income. This is evidenced by their use of separate different expenses or incomes instead of simply grouping them together into one lump sum. This method tends to make the trends much easier to see in different areas of the company, for instance, general revenue from sales, operating expenses and taxes. Separately reported items one item that the company has reported separately is the income from automotive sales. The bulk of the automotive sales are from the sales of the tesla roadster, model S, destination charges, accessories, vehicle options and vehicle service as well as the sales of regulatory credits. In addition, it comprises revenue from the sales of electric vehicle powertrain systems and components. Automotive sales are reported as separate items because revenue is allocated to each element using a selling price hierarchy (pg. 96). The following table showing separately reported item is extracted from the company’s annual report for fiscal years 2011, 2012 and 2013 (pg. 76). Year Ended December 31,        2013      2012      2011   Vehicle, options and related sales    $ 1,952,684       $ 354,344       $ 101,708    Powertrain component and related sales      45,102         31,355         46,860                               Total automotive sales    $ 1,997,786       $ 385,699       $ 148,568                               Another separately reported item si other assets. The following table showing other asset is extracted from the company’s annual report for fiscal years 2012 and 2013 (pg. 106). (in thousands):        December 31, 2013      December 31, 2012   Emission permits    $ 13,930       $ 14,267    Debt issuance costs, net      7,315         —      Loan facility issuance costs, net      —           5,759    Other      2,392         1,937                      Total    $ 23,637       $ 21,963    According to notes to the financial statements, emission permits of the company relate to the operation of their Tesla Factory. It is, therefore, amortized over its useful life. Debt issuance costs relate to 1.50 percent convertible senior notes (pg. 106) which was actually issued in May 2013 according to note 6. The issuance costs of loan facility are associated with their DOE loan facility and were written-off to their interest expense in the accounting period which ended December 2013. Trend in net income Tesla Motors has continued to portray a consistent reduction in its losses over the last four years. In addition, the company has had a consistent and steady increase in total revenue which has resulted in the subsequent reduction in net losses. Its expansion to different parts has greatly contributed to its growth and reduction in net losses. At the end of accounting year 2013, the company had a net loss of $74 million down from $396 million in 2012, $254 million in 2011 and 154 million in 2010. Comprehensive income Comprehensive income refers to changes in the company’s income; whether negative or positive as a result of non-owner sources. Tesla Motors did report a comprehensive loss on their 2013 financial statements. The comprehensive loss comprises other comprehensive income (loss) and net loss. Other comprehensive losses (income) comprise unrealized losses and gains on marketable securities that are available for sale that were not included in the determination of net loss. The following table showing comprehensive income (loss) is extracted from the company’s annual report for fiscal years 2011, 2012 and 2013 (pg. 93). Tesla Motors, Inc. Consolidated Statements of Comprehensive Loss (in thousands)        Year Ended December 31,        2013      2012      2011   Net loss    $ 74,014       $ 396,213       $ 254,411                               Other comprehensive income (loss), net of tax:          Unrealized net loss on short-term marketable securities      —            (3 )  Reclassification adjustment for gain included in net loss      —         3         —                               Other comprehensive income (loss)      —         3         (3 )                             Comprehensive loss    $ 74,014       $ 396,210       $ 254,414                         Indirect method Tesla Motors uses the indirect method for reporting cash flows on their annual financial report. In an indirect method starts with net income (loss), and then makes adjustments all those transactions that are non-cash. It then adjusts from other cash-based transactions. Indirect method uses a series of deductions and additions to convert the accrual-basic net loss or income into cash flow (pg. 95). Trend from operations Tesla Motor’s operating incomes and costs have both increased for the company over the 2013 reporting period. The notes accompanying financial statement accompanying explains that the increase in the company’s expenses is due to its global expansion. The company’s total revenues have also increased as well however; the increase in revenue is less than that of expenses. This trend has been relevant for the three-year period (pg. 92). Investing activities The 2013 Tesla Motor financial statements list one major investment activity that took place during the 2013 reporting period. This activity primarily relates to the capital expenditures. During the reporting period, $264.2 million was used to purchase capital equipment while $18.5 was used to purchase additional land for their Fremont factory. These items are not itemized in the financial statements but are however included in the notes section (pg. 85-86). Conclusion In summation, Tesla Motors Company as a whole is in fact experiencing financial difficulty and hardship. The company has been making consistent losses over the past years. However, in the first quarter of 2013, the company reported profit in their ten-year history for the first time. The company’s stock has been consistently gaining value since the inception of Tesla Motor’s sales. The growth trend of the company has been on a constant increase also since it was incepted in 2003. This is evidenced by a consistent increase in total asset base and also by a reduction in the company’s losses and for the first time in ten years the company posted profits in their 2013’s first quarter. They continue to grow both on a global and national scale and do so successfully due to their reputation and experience as well as due its partnership with Toyota, that is well established Multinational Corporation in the automobile industry. This company however remains attractive to potential investors as a result of its continued growth and expansion even during the tough economic times it experiences. Works cited Baron, R. A. (2014). Essentials of Entrepreneurship: Evidence and Practice. Cheltenham: Edward Elgar Publishing. Spiceland, J. D., Sepe, J., & Nelson, M. (2013). Intermediate accounting (7th ed.). Boston: McGraw-Hill/Irwin. Tesla Motors 2013 Financial Statement. (2013). Tesla Motors_AR.pdf. Retrieved December 31, 2013, from http://www.sec.gov/Archives/edgar/data/1318605/000119312514069681/d668062d10k.htm Tesla motors. (2012). S.l.: Book On Demand Ltd. Read More