Tesla Inc.: The Research of the Firm, Industry, and the Environment

📄 Words:	2845
📝 Subject:	Business Analysis Case Study
📑 Pages:	10
💼 Companies:	Tesla

Introduction

Tesla Inc. is an American corporation focusing on the manufacturing and distributing of electric vehicles, clean energy devices, and innovative technologies. It also designs energy storage, such as solar panels, solar roof tiles, and supporting services. The effective management, promotion activities, and focus on popular market segment created the basis for the fast company’s rise and its becoming one of the leaders in the sphere. In 2020, Tesla managed to become a top firm in selling battery electric vehicles, plug-in electric cars, with a market share of 16% and 23% of the whole electric battery market (Tesla, Inc., 2020). This progress contributed to the significant rise in income and revenue, proven by the company’s financial reports. During the period of 3 years, Tesla had been demonstrating stable growth in the major showings, which transformed it into one of the most promising and attractive corporations for potential investors (Tesla, Inc., 2020). The corporation plans to continue focusing on innovations and to increase its presence in the market through an effective marketing strategy, creating new electric vehicles and broadening its target audience. It explains the growing investors and analysts’ interest in the corporation and its choice for the investigation.

Objective of the Paper

The central objective of the proposed paper is the in-depth analysis of Tesla Inc. It includes the research of the firm, industry, and the environment, which is vital for the enhanced vision of the current status and future opportunities of the corporation. The market analysis implies applying Porter’s 5 forces model, analysis of the closest competitors, and their discussion. Additionally, economic, political, and environmental factors are discussed to outline the major factors influencing the firm and its development. At the same time, the investigation of the financial aspect implies balance sheet, income statement, and cash flow analysis combined with the ratio calculation. Data acquired from this research creates the basis for discussing Tesla’s performance and concluding about its future, attractiveness for potential partners and investors, and recommendations. Following these objectives, the available tools for financial statement analysis are used, such as common-size statements and their interpretation. In such a way, the paper aims at generating the enhanced vision of the brand, its current performance and comparing results from the three years to outline regularities and tendencies needed for a better image.

Assumption of 2020 Results

One of the causes preconditioning the choice of Tesla is its success in developing the brand and stable growth. The 2020 results acquired from the annual report and 10-K form show that regardless of all challenges associated with the pandemic and restrictions, along with the crisis affecting the automobile industry, the corporation managed to demonstrate better results compared to the 2019 and 2018 years (Tesla, Inc., 2020). The firm reported that its revenue grew around $31.5 billion in 2020, 28% higher than in 2019, with the USA being the largest and strategically important market (Tesla, Inc., 2020). Additionally, Tesla’s net income was $721 million, while net income associated with noncontrolling interests reached about $141 million (Tesla, Inc., 2020). It shows that the brand remains stable and improves its performance, entering new markets and segments. Compared to previous years, Tesla also benefits from more diversified sources of income and enhanced cash flow (Tesla, Inc., 2020). Under these conditions, the 2020 results prove the effectiveness of the selected strategy and demonstrate the existence of a solid basis for future achievements.

Summary

Altogether, analysis of Tesla’s financial statements shows that in 2020 the firm managed to attain significantly better outcomes compared with the previous two years. The revenue, net income, and cash flow increased, which is reflected in the 10-K form (Tesla, Inc., 2020). Additionally, due to the growing presence in the market, the corporation managed to sell a larger amount of vehicles, batteries, and services, which positively affected its financial performance. Using the results of this investigation, it is possible to conclude about the growing attractiveness of the corporation for all groups of stakeholders. Moreover, potential investors can also be encouraged by the stable growth proven by official records. The clients also benefited from the diversification and increased quality of products, which was shown in the report. Tesla manages to struggle and overcome the closest rivals and introduce trends to the market, which positively influences its future opportunities and reduces the risks of failure. Under these conditions, it is possible to recommend observing the selected course and employing the same strategy as it leads to generating stable revenue and effective crisis management, which is vital regarding complex times of the pandemic and numerous restrictions.

Firm, Industry, and Environment

Description of the Company

Focusing on the company, it is vital to admit several critical aspects influencing its performance. First of all, the firm is headed, represented, and promoted by a charismatic leader Elon Musk (Tesla, Inc., 2020). The corporation functions regarding his vision of a hybrid car and energy storage vital for the future. The given model influences the products the company manufactures and distributional channels and promotional campaigns. At the same time, there is a Board of Directors also influencing the decision-making, choice of strategies, and other vital aspects of the firm’s work, such as strategies and finances (Tesla, Inc., 2020). The given approach to distributing powers ensures the increased objectivity of judgments and the ability to make correct decisions in demanded terms. However, the founder and the most influential person, Elon Musk, remains the person holding the most power in his hands, which might also influence the company’s functioning and stimulate the emergence of some disputable decisions. For this reason, it is possible to conclude that the company’s management depends on the course selected by its leader and his team. At the moment, it focuses on using innovations as a competitive advantage to overcome rivals and conquer the market of electric vehicles.

Competitive Environment

The competitive environment where Tesla operates can also be described as a sophisticated one. The market is characterized by several corporations also focusing on producing batteries and electric vehicles, which makes the position of the company more vulnerable. Applying Porter’s 5 forces model, the following peculiarities of the competitive environment are acquired:

Threat of new entrants	Moderate. The time of entry to the market of electric vehicles is high, meaning that no new offerings will emerge in the near future. Moreover, established actors benefit from the economies on the scale, while new entrants cannot benefit from this factor. Additionally, the cost of manufacturing and the final product is high, meaning significant investment is needed.
Bargaining power of buyers	Significant. Low switching costs mean that buyers benefit from reduced barriers to buying cars from other providers (Singh, 2020). Additionally, the price for vehicles offered by Tesla remains high, while competitors might offer new products characterized by different pricing strategies. For this reason, the given factor causes a significant influence on the work of the company.
Bargaining power of suppliers	Moderate. Numerous brands want to cooperate with Tesla because of its image and potentially high income (Singh, 2020). At the same time, the brand also buys components from many sources, meaning that the work of its supply chain depends on the stable cooperation and availability of demanded goods. For this reason, the bargaining power of suppliers remains a moderate factor affecting Tesla.
Threat of substitution	Moderate. Electric vehicles become more popular with clients, meaning that multiple companies start to offer their services. Low switching costs increase rivalry and competitiveness, meaning that customers might look for new options that can be more appropriate (Singh, 2020). It means that Tesla should consider this factor in planning its activities.
Competitive rivalries	Strong. Tesla is not the only player in the market as there are other corporations with a more established resource base (Singh, 2020). Additionally, giants such as BMW or General Motors also try to present their electric vehicles to the public, which increases competitiveness in the market.

Altogether, it is possible to conclude that the competitive environment is complex, and Tesla should employ effective strategies to consider all factors influencing the market at the moment.

Economic Climate

The economic climate related to the work of the company can be described as positive. Currently, the market is recovering from the aftermath of the COVID 19 pandemic (Singh, 2020). The crisis caused by it influenced all industries, including the electric vehicles sector; however, it demonstrates stable growth. For Tesla, it means the opportunity to generate revenue and show even better results compared to previous years. The effective strategies combined with the use of innovations and unusual approaches to advertising contributed to the positive image of the brand (Singh, 2020). Furthermore, the interest in alternative transport and green energy sources continues to grow, which means additional benefits for companies operating within this sector. In 2020, consumers spent $120 billion on electric cars’ purchases, 50% higher than in 2019 (Singh, 2020). It means that the market continues to grow and attract new potential buyers and actors (IEA, 2021). This tendency is beneficial for Tesla, which might take advantage of the developing sector and increase the production of vehicles and batteries. The given outlook also indicates the emergence of new opportunities for other companies trying to enter this market. It means that the rivalry will grow and become severer.

Other Factors

Other factors that might influence the company’s position include governmental regulations and labor relations. Looking back to the previous years, it is possible to admit that no critical alterations in governmental regulations related to electric car manufacturers. Currently, the federal government offers specific tax credits and incentives for purchasing hybrid and electric vehicles (Singh, 2020). There is a tax credit of about $7,500 for buying a new electric car (Singh, 2020). It results in the increased attractiveness of this product for customers and also creates the basis for the growing demand for batteries and cars. Companies such as Tesla and G.M benefit from this support as it establishes new options for their fast development and rise (IEA, 2021). Additionally, the focus on using innovations and automation helps to avoid issues in labor relations, which also helps to standardize some approaches and attain better outcomes. In such a way, the existing external factors can be viewed as beneficial for Tesla, which is evidenced by its ability to increase revenue and generate stable income bigger than in previous years. It also introduces new opportunities for the company to hold its leading positions and enter new regions.

Financial Aspect

Balance Sheet

The financial analysis of Tesla Inc. presupposes focusing on the three years, 2020, 2019, and 2018 to compare its results and conclude about the company’s current state. The 10-K form provided by the corporation is used to acquire necessary numbers and investigate them. The first step includes the balance sheet analysis using the common size statement (see Table 1 in Appendix). The percentage is acquired by determining the relative percentage of the numeric value provided in the report (Alexander, 2018). The assets analysis shows that in 2020, cash and cash equivalents reached 37,1%, compared to 18,27% in 2019 and 12,39% in 2018 (Tesla, Inc., 2020). It proves Tesla’s success and its annual growth. Moreover, by the end of 2020, its current assets comprised 51,23% of the total income, while in 2019 and 2018, the numbers were 35,28% and 27,93% correspondingly (Tesla, Inc., 2020). At the same time, solar energy systems showed some decline, as in 2020 they comprised 11,47% of total assets, while in 2019, the number was 17,89% and in 2018 21,09% (Tesla, Inc., 2020). It demonstrates that the brand focuses on manufacturing and distributing electric vehicles as the more attractive and promising option. Non-current assents also reduced, indicating a reduction in a long-term investment.

Income Statements

Income statement analysis is also performed using the 10-K form provided by Tesla. Table 3 (see in Appendix) shows that the increase in automotive revenues is acquired. In 2020, Tesla acquired 86,36% of total revenues through direct sales and leasing (Tesla, Inc., 2020). In 2019, automotive sales comprised 81,18%, while in 2018 the number was 82,16% (Tesla, Inc., 2020). The data proves the effectiveness of the strategy used by the corporation and its ability to overcome the financial crisis and employ effective strategies to attract new clients. At the same time, the revenue associated with services sales reduced to 7,31% compared to 9,06% in 2019 (Tesla, Inc., 2020). This shift indicates the focus on distributing cars instead of providing services and associated goods to clients. The energy generation and storage field shows an insignificant rise, 6,32% in 2020, compared to 6,23% in 2019 (Tesla, Inc., 2020). However, the level of 2018 (7,25%) is not attained (Tesla, Inc., 2020). At the same time, the company managed to reduce its operating expenses up to 14,7% and cost of research and development compared to previous years (Tesla, Inc., 2020). Altogether, these numbers acquired from the income statement analysis show that Tesla managed to demonstrate better results compared to previous years and overcome the crisis.

Cash Flow Analysis

The cash flow analysis is another potent tool that might help to determine the current state of the company and its performance. For Tesla, it proves that the corporation became more successful in 2020 compared to previous years. The net income in 2020 comprises $862 million, which is higher than in 2019 ($775 million), however, lower than in 2018 ($1063 million) (see Table 4 in Appendix) (Tesla, Inc., 2020). The numbers show that the company recovered from the decrease in its performance observed in 2019 and started to function more effectively, which is reflected by its net income statement. Net cash provided by operating activities also grew and is estimated at $5081 million, which is much higher than in the previous year (Tesla, Inc., 2020). In such a way, data about Tesla’s cash flow shows that the corporation has a stable position and resources sufficient for continuing its development and struggling with rivals.

Ratio Calculation of Financial Statements

The balance sheet provided by the company also allows to calculate ratios helping to analyze Tesla’s performance. The price to sales ratio in 2020 is 24,23, which is a result evidencing the stable development of the firm (Tesla, Inc., 2020). The price to cash ratio in 2020 comprised 128.60, according to the provided financial statement. Additionally, the liquidity ratio can be acquired to determine the functioning of the company. It is calculated by dividing current assets by current liabilities (see Tables 5,6,7 in Appendix). In 2020, the current ratio was 1.88, which is higher compared to 2019, and 2018 (1.13 and 0.83 correspondingly) (Tesla, Inc., 2020). The data analysis also shows that the cash ratio demonstrated a significant increase. In 2020, it constituted 1.36, while in 2019, it was 0.59, and in 2018, 0.37 (Tesla, Inc., 2020). It also evidences the stable growth of the company and its success in the analyzed year. In such a way, using these results, it is possible to conclude that the ratio calculation proves the company’s growth and its ability to overcome the crisis by using effective strategies and tools to support its development. Tesla remains a corporation with stable financial showings and opportunities for further evolution.

Summary and Conclusion

Altogether, the provided report outlines several vital aspects related to the functioning of Tesla. First, the market is characterized by a high level of rivalry because of the growing interest in electric vehicles and sources of energy. Porter’s 5 forces analysis shows that the corporation faces several challenges such as strong competitive rivalries or bargaining power of buyers, which should be given specific attention. At the same time, the overall conditions of the industry can be viewed as favorable and can be employed by the brand to create the basis for its further evolution. The growing popularity of environmentally friendly and innovative cars introduces new chances for Tesla to become even more popular among potential customers. Effective management, combined with positive tendencies in the industry, also contribute to the accumulation of financial strength and its employment to overcome crisis or hard times associated with the pandemics and its effects on all spheres of human activity and business.

The financial analysis of Tesla also proves its profitability and shows that in 2020, the company managed to improve its results. Cash flow analysis, income statement, and balance sheet provide numbers outlining the current performance of the corporation. Comparing them to previous years, it is possible to conclude that the strategy used by Tesla is effective and helps the brand to remain popular among clients. The financial ratios were also higher in 2020, meaning that regardless of all challenges linked to the pandemic and restrictions associated with it, the brand survived and achieved even better performance. Under these conditions, it is possible to conclude that Tesla is a corporation that can be attractive for investing or acquiring its shares. The financial data proves its stability and perspective for further collaboration with the firm. For this reason, it is possible to conclude that Tesla is a strong brand with multiple opportunities to overcome rivalry and hold leading positions in the electric vehicles market.

References

Alexander, J. (2018). Financial planning & analysis and performance management. Wiley.

IEA. (2021). Trends and developments in electric vehicle markets. Web.

Singh, A. (2020). Electric vehicle market. Allied Market Research. Web.

Tesla, Inc. (2020). Form 10-K. Web.

Appendix

Table 1. Common Size Balance Sheet

Tesla Inc.
Common-Size Balance Sheet: Assets
	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Cash and cash equivalents	37,17%	18,27%	12,39%
Accounts receivable, net	3,62%	3,86%	3,19%
Inventory	7,86%	10,35%	10,47%
Prepaid expenses and other current assets	2,58%	2,80%	1,88%
Current assets	51,23%	35,28%	27,93%
Operating lease vehicles, net	5,93%	7,13%	7,03%
Solar energy systems, net	11,47%	17,89%	21,09%
Property, plant and equipment, net	24,44%	30,30%	38,10%
Operating lease right-of-use assets	2,99%	3,55%	—
Intangible assets, net	0,60%	0,99%	0,95%
Goodwill	0,40%	0,58%	0,23%
Other assets	2,95%	4,28%	4,68%
Non-current assets	48,77%	64,72%	72,07%
Total assets	100,00%	100,00%	100,00%

Consolidated statements of operations

Table 2. Consolidated Statement of operations

Revenues	2020	2019	2018
Automotive sales	26,184	19,952	17,632
Automotive leasing	1,052	869	883
Total automotive revenues	27,236	20,821	18,515
Energy generation and storage	1,994	1,531	1,555
Services and other	2,306	2,226	1,391
Total revenues	31,536	24,578	21,461
Cost of revenues
Automotive sales	19,696	15,939	13,686
Automotive leasing	563	459	488
Total automotive cost of revenues	20,259	16,398	14,174
Energy generation and storage	1,976	1,341	1,365
Services and other	2,671	2,770	1,880
Total cost of revenues	24,906	20,509	17,419
Gross profit	6,630	4,069	4,042
Operating expenses
Research and development	1,491	1,343	1,460
Selling, general and administrative	3,145	2,646	2,835
Restructuring and other	—	149	135
Total operating expenses	4,636	4,138	4,430
Income (loss) from operations	1,994	(69	(388
Interest income	30	44	24
Interest expense	(748	(685	(663
Other (expense) income, net	(122	45	22
Income (loss) before income taxes	1,154	(665	(1,005
Provision for income taxes	292	110	58
Net income (loss)	862	(775	(1,063
Net income (loss) attributable to noncontrolling interests and redeemable noncontrolling interests in subsidiaries	141	87	(87
Net income (loss) attributable to common stockholders	721	(862	(976

Less: Buy-out of noncontrolling interest	31	8	—
Net income (loss) used in computing net income (loss) per share of common stock	690	(870	(976
Net income (loss) per share of common stock attributable to common stockholders (1)
Basic	0.74	(0.98	(1.14
Diluted	0.64	(0.98	(1.14
Weighted average shares used in computing net income (loss) per share of common stock (1)
Basic	933	887	853
Diluted	1,083	887	853

Table 3: Common size income statement

Tesla Inc.
Common-Size Income Statement
	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Automotive sales	83,03%	81,18%	82,16%
Automotive leasing	3,34%	3,54%	4,12%
Automotive revenues	86,36%	84,71%	86,27%
Energy generation and storage	6,32%	6,23%	7,25%
Services and other	7,31%	9,06%	6,48%
Revenues	100,00%	100,00%	100,00%
Automotive sales	-62,46%	-64,85%	-63,77%
Automotive leasing	-1,79%	-1,87%	-2,28%
Automotive cost of revenues	-64,24%	-66,72%	-66,04%
Energy generation and storage	-6,27%	-5,46%	-6,36%
Services and other	-8,47%	-11,27%	-8,76%
Cost of revenues	-78,98%	-83,44%	-81,17%
Gross profit	21,02%	16,56%	18,83%
Research and development	-4,73%	-5,46%	-6,80%
Selling, general and administrative	-9,97%	-10,77%	-13,21%
Restructuring and other	—	-0,61%	-0,63%
Operating expenses	-14,70%	-16,84%	-20,64%
Income (loss) from operations	6,32%	-0,28%	-1,81%
Interest income	0,10%	0,18%	0,11%
Interest expense	-2,37%	-2,79%	-3,09%
Other income (expense), net	-0,39%	0,18%	0,10%
Income (loss) before income taxes	3,66%	-2,71%	-4,68%
Provision for income taxes	-0,93%	-0,45%	-0,27%
Net income (loss)	2,73%	-3,15%	-4,95%
Net (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests in subsidiaries	-0,45%	-0,35%	0,40%
Net income (loss) attributable to common stockholders	2,29%	-3,51%	-4,55%

Common size automotive sales=automotive salesX100%÷total revenues=83,03%

(Same formula applied to other numbers)

Table 4: Cash flow

Tesla Inc.
Cash Flow Statement
Dollars in millions
	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Net income (loss)	862	(775)	(1 063)
Depreciation, amortization and impairment	2 322	2 154	1 901
Stock-based compensation	1 734	898	749
Amortization of debt discounts and issuance costs	180	188	159
Inventory and purchase commitments write-downs	202	193	85
Loss on disposals of fixed assets	117	146	161
Foreign currency transaction net (gain) loss	114	(48)	(2)
(Gain) loss related to SolarCity acquisition	—	—	—
Non-cash interest and other operating activities	228	186	49
Operating cash flow related to repayment of discounted convertible senior notes	—	(188)	—
Accounts receivable	(652)	(367)	(497)
Inventory	(422)	(429)	(1 023)
Operating lease vehicles	(1 072)	(764)	(215)
Prepaid expenses and other current assets	(251)	(288)	(82)
Other non-current assets	(344)	115	(207)
Accounts payable and accrued liabilities	2 102	646	1 723
Deferred revenue	321	801	407
Customer deposits	7	(58)	(97)
Other long-term liabilities	495	(5)	49
Changes in operating assets and liabilities, net of effect of business combinations	184	(349)	58
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities	5 081	3 180	3 160
Net cash provided by (used in) operating activities	5 943	2 405	2 098
Purchases of property and equipment excluding finance leases, net of sales	(3 157)	(1 327)	(2 101)
Maturities of short-term marketable securities	—	—	—
Purchases of solar energy systems, net of sales	(75)	(105)	(219)
Receipt of government grants	123	46	—
Purchase of intangible assets	(10)	(5)	—
Increases in restricted cash	—	—	—
Business combinations, net of cash acquired	(13)	(45)	(18)
Net cash used in investing activities	(3 132)	(1 436)	(2 337)
Proceeds from issuances of common stock in public offerings, net of issuance costs	12 269	848	—
Proceeds from issuances of convertible and other debt	9 713	10 669	6 176
Repayments of convertible and other debt	(11 623)	(9 161)	(5 247)
Repayments of borrowings issued to related parties	—	—	(100)
Collateralized lease borrowings (repayments)	(240)	(389)	(559)
Proceeds from exercises of stock options and other stock issuances	417	263	296
Principal payments on finance leases	(338)	(321)	(181)
Debt issuance costs	(6)	(37)	(15)
Purchase of convertible note hedges	—	(476)	—
Proceeds from settlement of convertible note hedges	—	—	—
Proceeds from issuance of warrants	—	174	—
Payments for settlements of warrants	—	—	—
Proceeds from investments by noncontrolling interests in subsidiaries	24	279	437
Distributions paid to noncontrolling interests in subsidiaries	(208)	(311)	(227)
Payments for buy-outs of noncontrolling interests in subsidiaries	(35)	(9)	(6)
Net cash provided by financing activities	9 973	1 529	574
Effect of exchange rate changes on cash and cash equivalents and restricted cash	334	8	(23)
Net increase (decrease) in cash and cash equivalents and restricted cash	13 118	2 506	311
Cash and cash equivalents and restricted cash, beginning of period	6 783	4 277	3 965
Cash and cash equivalents and restricted cash, end of period	19 901	6 783	4 276

Table 5. Liquidity ratios

Tesla Inc.
Liquidity Ratios
	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Current ratio	1,88	1,13	0,83
Cash ratio	1,36	0,59	0,37

Table 6. Current ratio calculation

Tesla Inc.
Current Ratio
	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Current assets	26 717	12 103	8 306
Current liabilities	14 248	10 667	9 992
Current ratio	1,88	1,13	0,83

Current ratio = Current assets ÷ Current liabilities= 26,717 ÷ 14,248 = 1.88
Current ratio = Current assets ÷ Current liabilities= 12,103÷ 10,667 = 1,13
Current ratio = Current assets ÷ Current liabilities= 8,306 ÷ 9,992 = 0,83

Table 7. Cash ratio calculation

Tesla Inc.
Cash Ratio
	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Cash and cash equivalents	19 384	6 268	3 686
Total cash assets	19 384	6 268	3 686
Current liabilities	14 248	10 667	9 992
Cash ratio	1,36	0,59	0,37

Cash ratio2020 = Total cash assets ÷ Current liabilities= 19,384 ÷ 14,248 = 1.36
Cash ratio2019 = Total cash assets ÷ Current liabilities= 6,268 ÷ 10,667 = 0,59
Cash ratio2018 = Total cash assets ÷ Current liabilities= 3 686 ÷ 9 992 = 0,37