Running head: TESLA ANNUAL REPORT 1

Tesla Annual Report

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Institution

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TESLA ANNUAL REPORT 2

Tesla Annual Report

Introduction
Tesla, Inc. was incorporated in 2003 as Tesla Motors Inc. The company designs develop,
manufactures and sells electric vehicles. The company also deals in energy storage systems by
installing, operating and maintaining solar and energy storage products. Currently, the company
produces and sell three electric vehicles including the Model S sedan, the Model X sports utility
vehicle(SUV) and the Model 3 sedan.According 2017 financial report, the company posted a
second-quarter earnings revenue to approximately $ 4 billion.
Reviewing the company rate of revenue and sales growth
The company line of operations includes the production of electric vehicles and solar
related products. The growth in the company revenue can be analyzed using the vertical and the
horizontal analysis. The horizontal analysis uses the previous year sales data as the basis of
comparison. On the other hand, the vertical study compares the movement in the various
financial ratios and their reflection in the growth in the Tesla Inc. profitability. First, the
company growth in revenue is analyzed using the data from the operations statements as
presented in table 1.
Table 1: Tesla Inc. growth ratio
Item 2017 2016 Change(2017/2016)
Total revenue 11,758,751 7,000,132 68%
Gross profit 2,222,487 1,599,257 39%
Loss from operations (1,632,086) (667,340) 145%
According to the presentation in the table, the company had a tremendous increase in the
total revenue realized in 2017 compared to 2016. The Tesla Inc. revenue increased by 68%
indicating a net positive growth in the company sales. The rise in the level of sales is due to the
increase in the production capacity of model X cars to 100,000 in the financial year ended 2017.
On the other hand, the company introduced the expensive model 3 sedan in 2017 which
significantly boosted the level of sales (USSEC, 2017). Precisely, Tesla Inc. produced above
1,000 model 3 during the same year signifying a further strength in its revenue.
The increase in the gross profit is also evidenced by the growth in the company sales.
Mostly, the gross profit shows the firm’s revenue after removing the cost of goods sold during
the financial year. For the fiscal year ending 2017, the Tesla Inc. presented a massive growth in
the Gross profit margin of approximately 39%. The increase is due to the rise in the new product
lines. Tesla, Inc. has been experiencing a high level of loss from operations for the successive
three years from 2015 through the financial year ending 2017. For instance, a considerable loss
margin of 145% was expressed in 2017 compared to financial that ended 2016. The losses are
due to a higher level of research and development budget by the company in its quest to
introduce further differentiated products in the market. As a matter of advice, the Tesla
management should find a way of reducing costs from operations to report a net profit.
Tesla Inc. Performance.
Tesla Motors seems to be performing dismally due to the high level of operating loss
over the past three years of operation. However, the performance on the sales of the company
appears to be on the right track. For instance, the automobile sales for the company increased by
$ 2.95 billion during the financial year ended December 31, 2017, compared to the year ended
December 31, 2016. The growth in sales was due to the increase in the company delivery of
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model s and model x by approximately 80,060 vehicles(USSEC, 2017). Moreover, the sale of the
newly introduced model 3 of roughly 1,764 units also contributed to the increased sales.
Automotive leasing revenue also increased by 344.8 million (by approximately 45%), the
growth was due to the increase in the number of the vehicles under the leasing programs in 2017
compared to the financial year ended 2016. Furthermore, the company in the fiscal year 2017
recognized an increased of 23.4 million automotive leasing program with a resale value
guarantee payoff as compared to the financial year ended 2016 (USSEC, 2017). Thus, the
increase in the vehicle leasing program is a sign that Tesla, Inc. is performing within the required
margin.
Another notable factor in the company revenue and sales growth is the increase in the
service and other related income. The revenue segment recorded approximately 533.2 Million in
earnings which was nearly 114% above that of 2016. According to the management report, the
increase in the revenue was as a result of the rise in the value of the company resale and the trade
in program(USSEC, 2017). Tesla Inc. also acquired Grohmann engineering Inc. on January 3,
2017. From the acquisition, firm generated revenue amount equivalent to $ 41.1 million.
Why the investors should be concerned with the company performance.
Yes, as an investor in the company, I should be concerned about the company
performance as it directly affects the level of the returns to the shareholders. Above all, the
company consecutive net loss from operations should keep the investors worried because the
trend has been persistence for the past three consecutive years. For instance, Tesla Inc. recorded
a considerable loss of $ (1,632,086) during the financial year ended December 31, 2018. During
the period the company declared no dividend, thus stipulating no earning to the shareholders
(USSEC, 2017). Another concern to the investors should be the high costs of long-term debt
accumulated by the company. Debts worsen the financial performance of companies in that most
of their earnings are used to settle the existing liability obligation instead of declaring the
dividends to shareholders.
Balance sheet and the statement of cash flows.
Tesla’s Inc. balance sheet provides a snapshot of the firm’s financial health. Balance
reports the total asset owned by the company and the amount it owes the stakeholders as
represented by the company liability. The difference between the Assets and the firm’s liabilities
represent the firm's net assets (the shareholders' equity). According to the financial report for the
year ending 2017, The horizontal analysis of the key balance sheet items is presented in table 3.
The company Assets is composed of the machinery, equipment, vehicles, office furniture,
Building and computer equipment, and software. Table 3 shows an increase in the value of
current assets by 5% while the total assets increased by 26% for the financial year ending 2017
and 2016 respectively(USSEC, 2017). Also, the firm’s presented an increase in liabilities by
approximately 37%.
Tesla Inc. capitalization structure is represented by the relationship between its total
shareholders' equity and the Total liabilities. The company recorded a decline in common stock
by 11% between 2017 and 2016 hence stipulating a declining trend in financial performance.
Again, the company had a higher level of total liability compared to shareholders equity
presenting a capital composition which is composed of more Liabilities as compared to common
stock(USSEC, 2016). Higher debt to equity ratio shows that the firm is highly geared and
therefore not in good financial health.
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Table 2: Tesla Inc. Changes in Current assets

Item 2017 2016 % Change
Total Assets 28,655,372 22,664,076 26%
Current Assets 6,570,520 6,259,796 5%
Current Liabilities 7,674,670 5,827,005 32%
Total Liabilities 23,022,980 16,750,167 37%
Total Equity 4,237,242 4,752,911 -11%
Statement of financial position ratios such as current ratio, working capital ratio, and the
quick ratio can also be used to analyze the financial performance of the firm for the fiscal year
ending 2017 and 2016. Table 4, shows the computation of these ratios and their respective trend
over the past three years.
Table 3: Tesla Inc. Liquidity Ratios
Item 2017 2016 % Change
Current Assets 6,570,520 6,259,796 5%
Current Liabilities 7,674,670 5,827,005 32%
Inventory 2,263,537 2,067,404  9%
Current ratio 0.8561306 1.0742733 -20%
Quick ratio 0.5611946 0.7194763 -22%
Working capital (1,104,150) 432,791 -355%
According to the presentation in table 4, Tesla current is computed as current assets
divided by current liabilities. The company recorded a current ratio of 0.85 and 1.07 for the
financial 2017 and 2016 respectively. The data shows a decrease in the current ratio by
approximately 20% thus a favorable performance to the company between the two financial
periods. However, for the two years, the firm’s current ratio is low hence indicating that the level
of the current liabilities is higher than the current assets. The trend in the current ratio stipulate
that the Tesla cannot comfortably meet its short-term financial obligation and therefore, has
feeble financial health. Lastly, the firm for the financial year ended 2017 had negative working
capital of $ ( 1,104,150), showing the company did not have enough resources to finance its
current operational activities. Negative working capital, in this case, dictates a poor cash flow
management by the company.
The accounting Firm
Tesla financial report for the period ended December 31, 2017, was Audited by
PricewaterhouseCoopers LLP. The Accounting firm commented on Tesla’s financial report by
giving their opinion on the financial statements and the International control over financial
reporting. According to the accounting firm, the company financial statement presented its
Fairview and in all material respects the financial position of the company. The audit also issued
unqualified report meaning that no reservations were found that could prevent the company from
operating as a going concern. In addition to qualification, the Auditor pointed out that reports
were prepared in conformity with the Generally Accounting Principles of the United States of
America. The auditor maintained that the company International Control system was kept
adequately as per the guidelines of the COSO’s 2013 Integrated International control framework.
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References
United States Security Exchange Commission (2017). Tesla, Inc. Financial Report for the year
ended December 31, 2017. Retrieved on 04 November, 2018 from
https://www.sec.gov/Archives/edgar/data/1318605/000156459018002956/tsla-
10k_20171231.htm
United States Security Commission (2016). Tesla, Inc. Financial Report for the financial year
ended December 31, 2016. Retrieved on 04 December, 2018 from
https://www.sec.gov/Archives/edgar/data/1318605/000156459017003118/tsla-
10k_20161231.htm