Tesla Ratio

Introduction

In this section, we conduct a ratio analysis for Tesla Motor Inc. for the years 2011 to 2013 and compared it to its competitor GM and the automotive industry as a whole. Various ratios were analyze to evaluate the effectives of Tesla’s performance in the context of its stated goals and strategy. Specially, the sustainable growth rate framework for financial ratio analysis were used to evaluate Tesla’s ratios in a comprehensive manner.

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Operating Return on Assets: NOPAT/Sales * Sales/Net Assets

Operating asset turnover measures the extent to which a company is able to use its operating assets to generate sales. Tesla’s operating return on assets for the three year period 2013, 2012 and 2011 were -4.8 percent, -93.1 percent and -86.0 percent, respectively. As can been seen from Tesla’s operating ROA, all forms of return on assets were negative. One explanation for this negative performance was the production of Model S. As highlighted in Tesla’s Management Discussion and Analysis, Significant construction activity took place in the period of 2010 to the first half of 2013 as the company readied the Tesla Factory to begin production of the Model S. Sales did not picked up until 2013 which decreased the negative ROA from -93.1 percent to -.4.8%.  On the other hand, Tesla’s major competitor GM (Chevy Volt) reported a 7.1% operating ROA for the year 2013 indicating GM was much more profitable. GM’s management was more efficient in using its assets to generate earnings. This is also the year GM introduced the Chevrolet Spark EV, which boosted sales.

Net Operating Profit Margin:

Gross Profit Margin

Tesla gross profit margin for the period 2013, 2012 and 2011 were 22.7 percent, 7.3 percent and 30.2 percent, respectively. As previously stated, sales picked up in 2013 and was primarily driven by the commencement of Model S deliveries in Europe and China. The higher gross profit margin in 2013 of 22.7 percent compared to 7.3 percent in 2012 is also due to higher vehicle production volume, manufacturing and supply chain efficiencies and component cost reductions contributed to the year-over-year increase in gross profit percentage. When compared to Tesla’s competitor GM, GM reported a gross profit percentage of 13.2 percent for 2013, an improvement to 2012. In GM’s management discussion and analysis, the company stated that automotive costs of sales decreased primarily due to decreased in impairment charges, decreased costs related to wholesale volumes and listed various reasons.

Selling, General, and Administrative Expenses/Sales

As previously mentioned, Tesla follows a differentiation strategy and in order to compete on the basis of quality, the company invested heavily in selling, general, and administrative (SG&A) expenses. Tesla’s SG&A as a percentage of sales for 2013, 2012 and 2011 were 14.2, 36.4, and 51.0 percent, respectively. The SG&A for the year 2011 and 2012 were significantly higher than the year 2013 because the company was still attempting to build a brand image in those years thus creating a larger SG&A expenses. Tesla also has a global customer support infrastructure and hence contributes to its high SG&A. In addition, during 2013, the company significantly increased their sales and service footprint both in North America and Europe, as well as opened their first store in China, all of which contributed to the higher SG&A in 2011 and 2012. SG&A in 2013, for Tesla’s competitor GM is 8%. It will probably take years for SG&A for Tesla to come in line with its competitor, but the market price for Tesla seems to depend upon that happening. The uniqueness of Tesla's business model could drive a lower SG&A than its automotive competition. Sales costs per vehicle should be lower due to its online approach to sales. Further, its plan to retail its cars with small, no inventory stores and create demand without spending on advertising could keep selling costs low.