Excel Project - Decoding Tesla's Decade: An In-Depth Financial Analysis (2009-2023)
Abhishek Mishra
Data Analyst @ Genpact | Ex TCS | Power BI | Python | SQL | Advance Excel
Dashboards:
Introduction
Tesla, the EV pioneer, has disrupted the industry with bold innovation and rapid growth. This analysis delves into its financial health, evaluating past performance, current position, and future prospects to answer: Is Tesla a sustainable investment?
Project Background
Tesla, founded in 2003, started with high-end electric sports cars. It expanded to affordable models and energy storage. Despite growth, challenges like production delays and competition persist.
Analysis Goals and Objectives
This financial analysis aims to:
1. Uncover Tesla's Growth Potential: - Uncover drivers and predict future trajectory.
2. Evaluate Financial Health: - Assess profitability, efficiency, and stability.
3. Investigate Investment Potential: - Analyze cash flow, valuation, and risk & opportunity.
4. Offer Actionable Recommendations: - Suggest strategies for improved performance and shareholder value.
Data Source and Collection
This financial analysis utilizes data primarily from two sources:
Macrotrends.net: Financial statements & pre-calculated ratios (2009-2023)
Tesla Investor Relations: Cross-checking & additional details
Financial Health & Trends Analysis
Goals: Assess Tesla's growth potential, profitability, liquidity, and efficiency.
1. Revenue and Growth:
Is Tesla experiencing sustainable and healthy revenue growth?
Understanding growth component:
Revenue = money earned from selling goods or services (gross income).
Analyze Y-o-Y and Q-o-Q Growth in Revenue
Calculating year-over-year & quarter-over-quarter Growth:
Annual Sheet:
(1) Add a "Y-o-Y Growth" column next to "Revenue".
(2) In the first cell enter Growth formula (select Revenue cell in Excel):
=((Revenue in Current Year / Revenue in Previous Year) – 1) * 100
(3) Copy formula down for all YoY Growth cells.
(4) Create "Year" column with formula:
=YEAR(A2).
Quarter Sheet:
(1) Add a "Q-o-Q Growth" column next to "Revenue" and apply the same Growth formula.
(2) Add a "Financial Quarters" column with formula:
="Q"&INT((MONTH(A2)-1)/3)+1&" "&YEAR(A2)
?? Graph Plotting:
?? Observation & Interpretation:
? Strong growth: 54% average annual increase (2010-2023).
? Early volatility: Rapid ups and downs in early years.
? Maturation: Consistent 50% annual growth (2014-2020).
? Recent slowdown: Growth averaging 47% (2021-2023),?competition and saturation loom.
? High quarterly volatility: Ups and downs even during overall growth.
? Seasonality: Stronger sales in the Q4 (product launches,?holiday shopping).
? Key takeaway: Tesla's impressive growth faces challenges in a crowded market.
CAGR for revenue
Compound annual growth rate: Measures average annual revenue growth, indicating sales trends.
CAGR = ((Ending Value / Starting Value)^(1/Number of Years) - 1) * 100%
For 5-year CAGR (2019-2023):
Revenue in 2019(SV) = 24,578 million
Revenue in 2023(EV) = 96,773 million
Number of Years (n) = 5
CAGR = ( ( (EV / SV) ^ (1/n) ) - 1) * 100
=(((96773/24578)^(1/5))-1)*100
= 31.5%
For 3-year CAGR (2021-2023):
CAGR =(((96773/53823)^(1/3))-1)*100
= 21.6%
For 10-year CAGR (2014-2023):
CAGR =(((96773/3198.356)^(1/10))-1)*100
= 40.6%
?? Interpretation:
? Tesla has experienced significant revenue growth over the past decade,?with an average annual growth rate of 40.6%.
? Recent growth has slowed down slightly,?with a 3-year CAGR of 21.6%.
? However,?the 5-year CAGR of 31.5% suggests that growth momentum remains strong.
2. Profitability:
How effectively is Tesla converting revenue into profit?
Understanding Key components:
? Cost of Goods Sold: Direct costs to produce goods/services (materials, labor).
? Gross Margin: profit you make from selling a product after subtracting the cost of producing it.
? Operating Expenses: Indirect costs to run the business (marketing, admin).
? Operating Margin: Profit after deducting operating expenses.
? EBITDA: Earnings before taxes and loan interest are deducted.
? EBITDA Margin: EBITDA as % of revenue.
? Net Income: Profit after deducting all expenses from revenue.
? Net Profit Margin: Net Income as % of revenue.
Analyze trends in gross margin,?operating margin,?EBITDA margin,?and net profit margin.
Add new columns and use formulas to calculate ratios:
Gross Margin = (Revenue - Cost of Goods Sold) / Revenue
Operating Margin = (Revenue - Operating Expenses) / Revenue
EBITDA Margin = EBITDA / Revenue
Net Profit Margin = Net Income / Revenue
Result:
Visualization:
?? Trend Summary:
Profitability trending positive: gross margin up, operating margin strong, EBITDA positive. Recent dip in gross/EBITDA, but net profit stable suggesting good cost management. Overall, significant profitability improvement and strong cash flow generation, but recent fluctuations require monitoring.
3. Liquidity and Solvency:
Does Tesla have enough cash and resources to meet its obligations?
Understanding key terms
? Liquidity: Ability to cover short-term obligations with assets.
? Solvency: Ability to cover long-term obligations with assets.
? Current Assets: Assets expected to be converted to cash or used up within a year.
? Inventory: value of goods or materials held for sale.
? Current Liabilities: debts or obligations that are due within one year.
? Current Ratio: company's short-term liquidity.
Current Ratio = Current Assets / Current Liabilities
? Quick Ratio: Measures immediate liquidity
Quick Ratio = (Current Assets - Inventory) / Current Liabilities
? Debt-to-Equity Ratio: debt reliance vs. shareholder investment. It is calculated as Total Debt / Total Equity.
3.1 ?Trends of current ratio,?quick ratio,?and debt-to-equity ratio.
?? Observation and Interpretation:
Tesla's liquidity & solvency have significantly improved (high current/quick ratios & lower debt-to-equity), but slight debt increase in 2023 warrants monitoring.
3.2? Analyze trends in working capital and cash flow.
Understanding key terms:
? Working Capital: Money available for daily business operations. Current Assets - Current Liabilities
? Cash Flow: Movement of cash in/out of a business.
? Cash Flow from Operating Activities: Cash from core business operations.
? Cash Flow from Investing Activities: Cash from buying/selling assets.
? Cash Flow from Financial Activities: Cash from financing actions.
? Net Cash Flow: Sum of cash flows from all three activities.
3.2.1 Working Capital Analysis:
Working?Capital = Total?Current?Assets ? Total?Current?Liabilities
?? Observations:
? Highly volatile: Swings between large positive and negative values throughout history.
? Recent growth: Significant increase in recent years, reaching a peak of 20,868 in 2023.
? Possible reasons for growth: Increased sales, higher inventory, customer advances.
3.2.2?? Cash Flow Analysis:
Organize the Cash Flow components.
Graph Plotting:
?? Observation and Interpretation:
Tesla's cash flow generation has improved significantly, enabling self-funded growth. Continued monitoring of investments and cash allocation remains important.
4. Efficiency:
How efficiently is Tesla managing its assets and generating returns?
Understanding key terms:
? Inventory turnover ratio: how often a company sells its entire inventory and replaces it with new stock in each time frame.
? Receivables turnover ratio: Shows how efficiently a company collects payments from customers.
? Asset turnover ratio: It measures how much revenue a company is making for every dollar it invests in assets like equipment, inventory, and property.
4.1? Analyze Trends:
?? Observation & Interpretation:
Tesla's efficiency has significantly improved, particularly in asset and inventory management. Continued monitoring of receivables turnover trends is advised.
4.2? Analyze Correlations:
CORREL function to calculate the correlation coefficient between pairs of ratios.
=CORREL(Table2[Asset Turnover],Table2[Inventory Turnover Ratio])
=CORREL(Table2[Asset Turnover],Table2[Receivable Turnover])
=CORREL(Table2[Inventory Turnover Ratio],Table2[Receivable Turnover])
Result table:
Visualization:
?? Observation and Interpretation:
Efficient asset utilization is closely tied to effective inventory management and receivables collection, with potential areas for improvement identified in operational processes.
Investment and Valuation Analysis
Goals: Understand Tesla's cash flow generation and intrinsic value.
1. Free Cash Flow and Valuation:
Is Tesla generating sufficient cash flow to justify its current market valuation?
Understanding key terms:
? Valuation: Assessing the worth of an asset or company.
? Capital Expenditures: Investments in assets.
? Free Cash Flow (FCF): It's essentially the "extra" cash the company has available for paying dividends, debt repayment, or further investment and share buybacks.
? Outstanding Shares: Total number of shares of a company's stock.
? Free Cash Flow Per Share: It reflects the cash available to each shareholder.
? Price-to-Free Cash Flow (P/FCF) Ratio: Stock Price vs. Future cash flow.
Analyze trends in FCF/share and P/FCF to assess the company's ability to generate sustainable cash flow.
P/FCF is calculated using FCF/Share from the dataset and historical stock prices from 2010 to December 2022.
P/FCF = Market Price Per Share / Free Cash Flow Per Share
Result :
Trend Visualization:
?? Observation and Interpretation:
Tesla's cash flow generation and valuation have improved, but recent fluctuations require monitoring and further analysis to understand the underlying factors and potential risks.
2. Discounted Cash Flow (DCF) Analysis:
What is the intrinsic value of Tesla based on its future cash flow potential?
Understanding Key terms:
? Return On Equity: ROE shows how effectively a company uses its shareholders' equity to generate profit.
? Debt/Equity Ratio: Indicates proportion of debt financing relative to equity.
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To do a DCF calculation, we need two main things:
2.1 Estimating Future Cash Flows:
Revenue Forecast :
Calculate Growth Rates = (Revenue in Current Year / Revenue in Previous Year) – 1
Project Future Years = Revenue in Last Year * (1 + Median Growth Rate)
Net Income Forecast :
Growth Rate = ((Current Year Net Income - Previous Year NI) / Previous Year NI) * 100
Forecasted Net Income = Previous Year's Net Income * (1 + Median Growth Rate)
Cost of Goods Sold Forecast:
Growth Rate =((Current COGS - Previous COGS) / Previous COGS) * 100
Forecasted COGS = Previous Year's COGS * (1 + Growth Rate)
Operating Expenses Forecast:
=FORECAST.ETS(F69,J55:J68,F55:F68)
Free Cash Flow Per Share Forecast:
=FORECAST.LINEAR(F69,K55:K68,F55:F68)
Net Cash Flow Forecast:
Growth Rate = ((NCF of current year - NCF of previous year) / NCF of previous) * 100
Forecasted NCF = Previous Year's NCF * (1 + Median Growth Rate)
Return on Equity Forecast:
=FORECAST.ETS(F69,M55:M68,F55:F68)
Debt/Equity Ratio Forecast:
=FORECAST.LINEAR(F69,N55:N68,F55:F68)
Forecasted Values:
2.2 Calculate the Discount Rate:
Determining the appropriate discount rate using the Weighted Average Cost of Capital (WACC) method.
WACC is the average rate a company pays its investors to finance assets, considering both debt and equity costs.
WACC % = E / (E + D) Cost of Equity + D / (E + D) Cost of Debt * (1 - Tax Rate)
Calculate Cost of Equity:
Estimate the cost of equity using the Capital Asset Pricing Model (CAPM).
Cost of Equity = Risk-free Rate of return + Beta * (Expected Market Return - Risk-free Rate of return)
Cost of Equity = 4.062% + 1.83 * 6% = 15.042%
Return investors expect to earn about 15% by investing in Tesla’s stock. It's like the "price" the Tesla pays to use funds provided by shareholders.
Calculate Cost of Debt:
Cost of debt = Latest TTM Interest ÷ Avg. Debt (1-year, quarterly)
Trailing twelve months (TTM) Interest Expense as of Dec 2023 was $156 Million.
Total Debt : $6978.6 Million.
Cost of Debt = 156 / 6978.6 = 2.2354%
Tesla pays on its debt about 2% interest rate to borrow money from lenders.
Calculate Weight of Equity and Debt:
We calculate the weight of equity and debt to see how a company's assets are funded.
weight of equity = E / (E + D)
= 608072.034 / (608072.034 + 6238.8)
= 0.9898
weight of debt = D / (E + D)
= 6238.8 / (608072.034 + 6238.8)
= 0.0102
?? Equity represents about 99% of the company's funding, while debt makes up only about 1%.
Tax shield benefits:
Tax Rate = Income Tax Expense ÷ Pre-Tax Income
= Recent TTM (Trailing Twelve Months) Tax Expense ÷ recent TTM Pre-Tax Income
= TTM Tax Expense $-5,001 Million ÷ Pre-Tax Income $9,973 Million
= -5001 / 9973
= -50.15%
which is less than 0%. Therefore, Tax Rate set to 0%. It means Tesla does not pay taxes on its earnings.
Tesla's WACC is calculated as:
WACC = E / (E + D) * Cost of Equity + D / (E + D) * Cost of Debt * (1 - Tax Rate)
= 0.9887 * 15.054% + 0.0113 * 2.2354% * (1 - 0%)
= 14.91%
?? Tesla's WACC of 14.91% represents the overall return Tesla needs to provide to its investors, considering the money it borrows and the money invested by shareholders.
Reference Link : Gurufocus
2.3 Calculate Present Value Factor
Apply the discount to each year’s cash flow. The discount factor for each year is calculated as follows:
Present Value Factor = 1 ÷ (1 + discount rate) raised to the power of the number of discount years.
= 1 / (1 + discount rate) ^ discount years
= 1 / (1 + r) ^ n
For the years 2023 to 2027 using a WACC of 14.91% ( 0.1491 in decimal form)
PVF_2024 = 1 / (1 + 0.1491)^1 = 0.87163
PVF_2025 = 1 / (1 + 0.1491)^2 = 0.75878
PVF_2026 = 1 / (1 + 0.1491)^3 = 0.66009
PVF_2027 = 1 / (1 + 0.1491)^4 = 0.57390
PVF_2028 = 1 / (1 + 0.1491)^5 = 0.49888
?? Interpretation:
Due to a 14.91% discount rate, $1 received in 2024 is worth $0.87 today. This value decreases further for later years, reaching $0.50 for $1 received in 2028.
2.4 Discount Future Cash Flows:
Discounted Cash Flow = Future Cash Flows * Present Value Factor
Result:
2.5 Calculate Intrinsic Value:
To calculate intrinsic value, we'll sum the present values of future cash flows.
Ensuring all values have the same unit (e.g., convert to USD) before summing by following method.
Weighting Factors: We'll weigh or assign weighting factors to each element based on its importance, totaling 100%
Next, we'll assign weights to each yearly value.
Weighted Value = Present Value * Weighting Factor
= PV Revenue value 25%, PV Net Income 20% etc.
Below is the weighted value of each forecasted year:
Calculate the DCF for each year:
For example, to calculate the DCF for 2023:
DCF_2023 = Present Value of Revenue_2023 + PV of Net Income_2023 + ... + PV of Debt/Equity Ratio_2023
Result:
This represents the intrinsic value of Tesla based on its future cash flow potential.
2.6 Intrinsic value per share:
Divide the total weighted value for that year by the total number of shares outstanding.
Intrinsic Value per Share = Total Weighted Value for 2023 / Shares Outstanding
We need a ‘Shares Outstanding’ of future years. For that I forecasted it using below formula.
=FORECAST.ETS(N118,$O$103:O117,$N$103:N117)
Result :
Now apply the forecasted Shares Outstanding to calculate the Intrinsic value per share.
= Total Weighted Value / Shares Outstanding
Result:
2.7? Compare Intrinsic Value to Market Price:
Assess whether the stock is undervalued or overvalued.
Market Price: Given as $185 (as of February 2, 2024).
Difference = Intrinsic Value per Share - Market Price
Result :
2.8 ?? Interpretation: Tesla's stock appears overvalued compared to its intrinsic value, suggesting potential risks for investors.
Cost Analysis:
Can Tesla identify and control key cost elements to improve profitability?
1. Analyze trends in Cost components - COGS, R&D,?and SG&A expenses.
Gather cost Data:
Understand Cost Components:
? COGS includes direct costs associated with production, such as materials and labor.
? R&D (research & development) expenses represent investments in innovation and product development.
? SG&A expenses (Sales & Marketing, General & Administrative) encompass overhead costs related to sales, marketing, and administrative functions.
Calculate the % of revenue represented by COGS, R&D expenses, and SG&A expenses over time. Formula:
COGS % = (COGS / Revenue) * 100
R&D Expenses % = (R&D Expenses / Revenue) * 100
SG&A Expenses % = (SG&A Expenses / Revenue) * 100
Result:
?? Observation & Interpretation:
Tesla has achieved substantial cost management, particularly in R&D and SG&A. But further optimization, particularly in COGS, is crucial for long-term profitability.
2. Cost-Profit Correlation:
Identify Relevant Variables
Calculate Correlation Coefficients:
=CORREL(B2:B14, D2:D14)’
Preprocessing for Graph:
Use Min-Max Scaling to transform variables to a scale between 0 and 1 for better visualization of correlations. Formula:
Normalized Value = (Original Value?Min Value) / (Max– Min)
Min Value: =MIN(B2:B15)
Max Value: =MAX(B2:B15)
Normalized Value: =(B2 - $B$3) / ($B$16 - $B$3)
Normalized Data between 0 and 1:
Visualization:
?? Observation and Interpretation:
Net profit margin highly correlates with cost components (COGS, R&D, SG&A), while gross margin shows weaker connection, suggesting other factors influence it more.
Limitations and Assumptions
Historical Trend Projection: Relies on past trends to predict future performance.
Market Stability: Assumes stable market conditions for analysis validity.
Metric Interpretation: Simplifies complex financial data for analysis.
Correlation Implication: Assumes causation in correlated metrics.
Industry Factors: Generalizes findings without considering industry-specific nuances.
Financial Disclosure: Relies on Tesla's accurate financial reporting.
Economic Conditions: Assumes consistent economic environment for analysis.
Conclusion :
Strong Points:
Areas for Improvement:
Overall:
Recommendations:
Diversify Revenue Streams: Explore new products and markets to mitigate revenue growth slowdown.
Manage Seasonal Fluctuations: Stabilize financial performance by addressing quarterly seasonality.
Optimize Cost Management: particularly in COGS, to maximize profitability.
Invest in R&D: Maintain strategic investments in research and development for innovation.
Expand Market Reach: Focus on expanding the customer base and market presence.
Monitor Working Capital: Assess and manage working capital fluctuations for efficiency.
Risk Management in Cash Flow: Evaluate capital expenditure decisions for sustainable growth.
Enhance Investor Communication: Provide transparent updates to foster investor confidence.
Optimize Customer Payments: Efficiently manage customer advances and preorders for cash flow.
Scenario Planning for Valuation: Engage in scenario planning to understand valuation dynamics.
Github Repository
Find the detailed financial analysis files on GitHub
In conclusion, Tesla's financial analysis reveals robust growth, profitability, and efficiency. Despite challenges, its innovative approach and operational strengths position it well for the future. Ongoing monitoring and strategic adjustments will be crucial for sustained success.
Thank you for reading????