Brief Overview of the Company
Founded in 2003 in Silicon Valley by a group of engineers, Tesla Motors is focused on designing, developing, manufacturing, and selling high-performance fully electric cars that are more efficient relative to gasoline-powered cars (Tesla Motors, Inc, About Tesla, 1). Tesla is recognized as an exemplary carmaker with a focus on technology and design, as well as energy innovation.
Ford Motor Company
Henry Ford established the company in 1919 in Delaware. The company, which is one of the largest automakers, made the first acquisition of a Michigan—based firm also known as Ford Motor Company, which was incorporated to produce and sell vehicles manufactured by Henry Ford. Ford Credit provides “auto finance to customers” (Ford Motor Company, FORM 10-K Annual Report 2014, 1).
Tesla currently concentrates across North America, Europe, and the Asia Pacific using a direct sales model.
Ford’s major markets include “North America, South America, Europe, Middle East & Africa, and the Asia Pacific” (Ford Motor Company, FORM 10-K: Annual Report 2013, 1).
The CEO, Elon Musk, and other Silicon Valley engineers who support a culture innovation lead Tesla. Conversely, Executive Chairman, William Clay Ford leads the company, and he is assisted by several other directors.
Major geographical/industrial segments
Ford deals in automobile manufacturing and sales. It also has a financing subsidiary referred to as Ford Credit to finance a motor vehicle purchase.
Tesla only has one line of business that manufactures and direct sales to consumers. In the recent past, the company has also ventured into power back business. The company also accepts leasing.
It is generally acknowledged that the global automotive industry is experiencing slightly stronger growth noted in demands. Nevertheless, significant uncertainty remains in the future (Hirsh et al. 1). For instance, the global markets show elements of unevenness. The industry executives and professionals are optimistic that the US market would grow with increased sales volumes. The European markets’ outlook is weak while sales in emerging economies such as Russia and South American countries could decline. The declining growth in China will also affect the largest auto market while India also demonstrates similar trends.
Tesla and Ford have had no merger and acquisition activities in the recent past. Regulations for gasoline vehicles have changed to account for emissions. Conversely, regulations for the electric vehicle industry and other sources of energy have not been fully developed, and they continue to evolve. Thus, Tesla and Ford face risks related to changes in new laws.
Auditors & Auditing Report
Tesla and Ford work with PricewaterhouseCoopers LLP as their independent registered public accounting firm.
The Audit Committee is made up of four directors who have all met the independence standards required by the NYSE Listed Company rules, SEC regulations, and the companies’ governance rules. The Audit Committee must work within the written charter certified by the Board of Directors.
The Audit Committee is responsible for selecting the companies’ independent registered public accounting firm, which must be ratified by shareholders during annual meetings.
Tesla and Ford management teams are responsible for internal controls of the organizations and financial reporting processes. On the other hand, PricewaterhouseCoopers LLP, as the independent registered public accounting firm, is responsible for conducting independent audits of Ford and Tesla consolidated financial data and internal control over the financial reporting and provision of opinions. The PricewaterhouseCoopers must consider the levels of conformity of those audited financial statements based on the US generally accepted accounting principles and the efficacy of both firms’ internal control over their financial reporting processes.
The companies’ Audit Committees are responsible for monitoring their firms’ financial reporting practices and then reporting t the Boards of Directors on their findings.
Management Report and Management Discussion and Analysis
Both companies recognize their major sources of revenues sales of vehicles, accessories, and parts. Ford also recognizes revenues generated from its credit department while any sales and marketing incentives are viewed as reductions to revenues.
The companies have also recognized their management opportunities, risks, and challenges. For instance, Ford has classified its costs and expenses into costs of sales and selling, administrative, and other expenses for clarity of management. On the other hand, Tesla focuses on its increasing operating expenses while providing a thorough selling, general, and administrative (SG&A) expenses that majorly relate to personnel and facilities costs at its Tesla stores, marketing, sales, executive, finance, human resources, information technology, and legal organizations, as well as litigation settlements and fees for professional and contract services.
In addition, these companies recognize a wide range of factors that affect their business, including trade policies, economic factors, profitability, sales trends for specific models, price pressures, changes in supporting industries such as the energy industry, and currency rate volatility among others.
The management teams of Ford and Tesla recognize that the applied critical accounting policies reflect significantly a larger extent of judgment and complexity, which they believe can expressively assist users to comprehend and assess the consolidated financial statements and operations.
Comparative Common Size Income Statements and Balance Sheet
|Tesla||December 31, 2014||December 31, 2013|
|Total current assets||$ 3,198,657||$ 1,265,939|
|Total assets||$ 5,849,251||$ 2,416,930|
|Total current liabilities||$ 2,107,166||$ 675,160|
|Total liabilities||$ 4,879,345||$ 1,749,810|
|Total stockholders’ equity||$ 911,710||$ 667,120|
|Total liabilities and stockholders’ equity||$ 5,849,251||$ 2,416,930|
|Ford||(in millions)||(in millions)|
|Total assets||$ 208,527||$ 202,179|
|Total liabilities||$183,353||$ 175,703|
|Total equity||$ 24,832||$ 26,145|
|Total liabilities and equity||$ 208,527||$ 202,179|
Both companies have recorded growths in their balance sheet statements. From the above financial information, it can be observed that Tesla has more than doubled its balance sheet within the last one fiscal year (between 2013 and 2014). For instance, the company noted a large increment in the size of total assets from $ 5,849,251 $ to $ 2,416,930 (Tesla Motors, Inc., FORM 10-K: Annual Report 2014, 89).
On the other hand, Ford has also continued to grow. Although the company has the largest balance sheet, its growth rate is rather slow relative Tesla. For instance, the size of total assets of Ford increased marginal from $ 202,179 to $ 208,527 in the same fiscal period (Ford Motor Company, FORM 10-K Annual Report 2014, 109).
|Ford||December 31, 2014 |
|December 31, 2013 |
|Total revenues||$ 144,077||$ 146,917|
|Total costs and expenses||$ 140,637||$ 141,439|
|Net income||$ 3,186||$ 7,175|
|Net income attributable to Ford Motor Company||$ 3,187||$ 7,182|
|Tesla||Absolute figures||Absolute figures|
|Total revenues||$ 3,198,356||$ 2,013,496|
|Total operating expenses||$ 1,068,360||$ 517,545|
|Net loss||$ (294,040 )||$ (74,014 )|
Ford did note a decline in total revenues between fiscal year 2013 and 2014 from $ 146,917 to $ 144,077. At the same time, the company also noted a negligible decline in total costs and expenses at $ 140,637 from $ 141,439. On the same note, Ford also noted a decline in net income from $ 7,182 to $ 3,186 between the fiscal year 2013 and 2014. These figures could reflect the uncertainties in the auto industry (Ford Motor Company, FORM 10-K: Annual Report 2013, 100).
Conversely, Tesla total revenues increased from $ 2,013,496 in the fiscal year 2013 to $ 3,198,356 in the fiscal year 2014. The company also doubled its total operating expenses from $ 517,545 to $ 1,068,360 in the same period. Consequently, Tesla net loss grew from $ (74,014) in the fiscal year 2013 to $ (294,040) in the fiscal year 2014. Overall, the company is still in the loss-making bracket.
Gross profit margin
Gross Profit Margin = Gross Profit / Net Sales = ____
30,067 / 413,256 = 0.0727 = 7.28%
456,262 / 2,013,496 = 0.2266 = 22.67%
881,671 / 3,198,356 = 0.2756 = 27.57%
For the last three years, Tesla has recorded an impressive growth in gross profit margin ratios. The company ratios have increased from 7.28% in 2012, 22.67% in 2013 and 27.57% in 2014. These increments can be attributed to increased total revenues and related gross profits.
7,638 / 133,559 = 0.05718 = 5.72%
7,040 / 146,917 = 0.0479 = 4.78%
4,342 /144,077 = 0.0301 = 3.01%
Fluctuations in total revenues, particularly declines have led to low gross profit margins for the company. Perhaps Ford is not currently managing its inventory effectively.
Net profit margin
= Net Income (Loss) /Net Sales = _____
-396,213 / 413,256 = -0.95875 = -95.88%
-74,014 / 2,013,496 = -0.0367589506013421= -3.68%
-294,040 / 3,198,356 = -0.0919 = -9.2%
Tesla currently does not make any profits from every dollar invested after recovering all expenses. Instead, the net profit margins have declined significantly from -95.88% to -9.2%.
5,612 / 133,559 = 0.042 = 4.2%
7,175 / 146,917 = 0.0488 = 4.9%
3,186 /144,077 = 0.0221 = 2.21%
The company makes marginal earnings from every dollar invested at a low rate that has declined from 4.2% in 2012 to 2.21% in 2014.
Return on assets
Net Income (Loss) /Total Assets = _____
-396,213 / 1,114,190 = -0.3556 = -3.56%
-74,014 / 2,416,930 = -0.0306 = -3.06%
-294,040 / 5,849,251 = -0.0503 = -5.03%
Tesla cannot currently use its available assets to generate profits.
7,175 / 202,179 = 0.03545 = 3.55%
3,186 /208,527 = 0.01527 = 1.53%
Ford can use its assets to generate profits, although the ratios are low.
Return on equity
= Net Income/Stockholder’s Equity = _____
-74,014 / 667,120 = -0.11095 = -11.1%
-294,040 / 911,710 = -0.3225148347610534 = -32.25%
The stockholders’ equity increased in the last two fiscal years. Currently, shareholders should not expect returns from their investments.
7,175 / 202,179 = 0.03545 = 3.55%
3,186 /208,527 = 0.01527 = 1.53%
Ford has low ratios, which are not good for potential investors.
For Ford, income statements format/presentation focuses on two critical core business areas, namely Automotive and Financial Services for revenues. In addition, costs and expenses, automotive interest expense, net income, and net income attributable to Ford Motor Company, as well as earnings per share are also included.
Tesla recognizes its two major sources of revenues as automotive sales and development services. The company also accounts for total operating expenses, net loss, and related net loss per share of common stock, basic and diluted.
Current ratio = current assets/current liabilities
2,416,930/ 1,749,810 = 1.38
5,849,251/4,879,345 = 1.2
Tesla can meet is short-term obligations.
202,179/175,703 = 1.15
208,527/183,353 = 1.137
Ford can meet is short-term obligations.
Quick ratio = (current assets – inventories) / current liabilities
Tesla can meet its short-term obligations through its very liquid assets.
202,179- 7,708 = 194471
208,527-7,866 = 200661
200661/183,353 = 1.09
Ford can meet its short-term obligations through its very liquid assets.
Operating cash flow to current debt ratio
Cash Flow to Debt Ratio = Operating Cash Flow/Total debt
7,738+ 3,352= 11090
13574/183,353 = 0.074
Ford has adequate capacity to meet its total based on operating cash flow.
Tesla cannot use its operating cash flow to meet its total debts.
Ford relies on two major sources of cash flows from operating activities, namely automotive and Finance services. The company has positive net incomes from both divisions, and it has been able to control declines related to accounts receivable, inventories and other services. On the other hand, Tesla negative values from related to net losses affect its net cash flows from operating activities. Besides, The company also deals with huge inventories and operating lease vehicle, foreign currency transaction losses, account receivables and other prepaid expenses, as well as asset depreciation.
Accounts receivables turnover
216.3 /[226,604,000/2] 113302000
Tesla is not usually engaged in account receivable because payments are always made before the vehicle delivery. Nevertheless, amounts may be due from commercial financial institutions based on specific financial arrangements with customers and financing bodies.
Ford lacks credit sales. Instead, the company refers to credit losses. Ford considers accounts uncollectible after 120 days delinquent.
2440 /1448.5 = 1.68
355/1.68 = 211 days
The company needs to turn more of its inventories into sales to generate more revenues
135,782/7,866 = 17.26
Ford seems to be turning its inventory fast into revenues.
Days in inventory
Ford: 1/17.26*365 = 21 days
Tesla: 1/3.35*365 = 109 days
Accounts payables turnover
Accounts payables turnover
365/2.127= 172 days
Tesla could be taking longer to pay its suppliers and other parties.
32,888/3114.5 = 11
365/11= 33 days
Ford frequently pays its suppliers.
Fixed asset turnover
These companies do not sufficiently use their fixed assets to generate revenues.
Revenue Recognition Methods
Revenues are recognized when they are risk-free. Operating leases are recognized during the lease period while interests are recognized, but uncollectible accounts are discarded.
Tesla’s revenue is recognized when “(i) persuasive evidence of an arrangement exists; (ii) delivery has occurred and there are no uncertainties regarding customer acceptance; (iii) fees are fixed or determinable, and (iv) collection is reasonably assured” (Tesla Motors, Inc, FORM 10-K: Annual Report 2014, 49).
Tesla’s valuation is based on the low costs or market costs (Tesla Motors, Inc, FORM 10-K: Annual Report 2013, 51). Conversely, Ford conducts regular inventory audits based on dealers’ risks rating and Ford’s security position and onsite vehicle audit is only performed if need be.
Tesla uses the straight-line method for a given period for useful lives of the assets while Ford focuses on residual values noted each month and provides quarterly figures.
The companies believe that these provisions are adequate to enhance revenue recognition, inventory management, and control of depreciation.
Ford Motor Company. Ford Motor Company: FORM 10-K Annual Report 2014. Washington, DC: Securities & Exchange Commision, 2014.Print.
FORM 10-K Annual Report 2013. Washington, DC: Securities Exchange Commission, 2014. Print.
Hirsh, Evan, Arjun Kakkar, Akshav Singh and Reid Wilk. 2015 Auto Industry Trends. 2015. Web.
Tesla Motors, Inc. About Tesla. 2015. Web.
Tesla Motors, Inc. FORM 10-K: Annual Report 2013. Washington, D.C: EDGAR Online, Inc., 2014. Print.
FORM 10-K: Annual Report 2014. Washington, D.C: EDGAR Online, Inc, 2015. Print.