A Real Take On Tesla’s Finances — Good, Bad, & Unknown

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There are clearly Tesla followers (and, extra importantly, shareholders) who will attempt to spin any information as optimistic for Tesla. It occurs always, and it’s fairly annoying when it’s clearly false and unrealistic. On the flip facet, I’ve lined Tesla intently for 13 years, which suggests I’ve lined the dramatic successes of the corporate that many individuals mentioned have been unimaginable, lies, and so on. Many individuals who ridiculed Tesla, Elon Musk, and their plans are nonetheless doing so prominently as we speak — regardless of being so mistaken prior to now.

With Tesla at a really fascinating level in its evolution, I need an sincere and full tackle its monetary state of affairs, and I really feel like that’s very onerous to get. On this piece, I’m going to attempt to present that at a high-level view, protecting good and dangerous issues from Tesla’s This autumn 2024 shareholder letter and name, and in addition protecting some unknowns. I’m positive I’ll miss issues, so be at liberty to chime in with your personal notes down within the feedback.

Tesla Good Information Financially

These are some key items of excellent information for the corporate:

• COGS got here down considerably for Tesla automobiles. Effectively, they got here down considerably in Q3, however then dropped even additional in This autumn.
• Regardless of some challenges, Tesla nonetheless made $8.4B non-GAAP internet earnings in 2024 and $2.6B in This autumn. The corporate is making some huge cash.
• It achieved an working money circulate of $14.9B in 2024 ($4.8B in This autumn) and free money circulate of $3.6B in 2024 ($2.0B in This autumn). The corporate continues to usher in money.
• Tesla’s Bitcoin investments have been useful, including $600 in internet earnings on account of the value of bitcoin rising. (However, notably, that accounts for a couple of quarter of Tesla’s GAAP internet earnings and has nothing to do with Tesla’s enterprise operations — it’s additionally a newly allowed accounting trick.)
• Power era and storage income grew 113% (and, actually, power storage income in all probability grew greater than that, however I’ll come again to the main points of that matter one other day). It grew from $1.438 billion in This autumn 2023 to $3.061 billion in This autumn 2024.
• “Services and other” income rose 31%.
• “Net cash provided by operating activities” rose by 10%.
• “Cash, cash equivalents and investments” rose by 26%.
• Income from automotive regulatory credit rose from $433 million in This autumn 2023 to $692 million in This autumn 2024.

Tesla Unhealthy Information Financially

Initially, I feel we’ve to acknowledge that most individuals care about Tesla’s funds simply because they care concerning the inventory value, and the inventory value relies on huge, huge development. So, saying that the corporate is worthwhile is de facto not sufficient to be a “good news story” with regard to TSLA. Tesla must be exhibiting robust, fast development — or, at the very least, that must be what’s forecast — to justify the extraordinarily excessive market cap. On that notice, Elon Musk mentioned on the convention name that he thought Tesla would possibly someday be value as a lot as the following 5 most dear firms mixed. I feel most individuals, even many or most Tesla followers, would deem {that a} loopy thought, however it’s now within the public file.

Listed below are some downers from the newest Tesla report:

• 8% lower in automotive income in This autumn 2024 versus This autumn 2023 — from $21.6 billion to $19.8 billion.
• 6% lower in automotive income in 2024 versus 2023 — from $82.4 billion to $77 billion.
• 6% lower in gross revenue in This autumn 2024 versus This autumn 2023 — from $4.44 billion to $4.18 billion.
• 1% lower in gross revenue in 2024 versus 2023 — $17.66 billion to $17.45 billion.
• An 18% improve in working bills in 2024 mixed with a 20% lower in earnings from operations. (Be aware that Tesla talked about this in the important thing bullet factors as “- increase in operating expenses driven by AI and other R&D projects.”
• Web earnings attributable to widespread stockholders (GAAP) decreased 53% in 2024, making 2024 Tesla’s worst 12 months on this regard since 2021.
• Free money circulate decreased 18% in 2024.

Tesla remains to be closely depending on its automotive enterprise, and its auto gross sales have been down in 2024. There’s no method that was going to look good financially. Nevertheless, it reportedly regarded worse than Wall Road anticipated — I assume because of the numerous incentives (like sponsored financing) Tesla was offering with a view to attempt to promote extra vehicles.

The Unknown

Tesla remains to be pitching a development story, in fact. If it wasn’t, the inventory value would completely collapse. However we don’t know the way a lot any of the corporate’s plans are literally going to work and result in development. Listed below are some massive unknowns that can both assist or harm Tesla financially within the coming 12 months and past:

• “Full Self Driving” turning into robotaxi prepared — will Tesla’s method to FSD, which has missed targets for 7 yearslastly obtain its goal, unsupervised robotaxi-capable self-driving? That’s the trillion-dollar query, once more. Some consider, some no longer do.
• A lower-cost Tesla mannequin (or two) is meant to be unveiled later this 12 months. That would jack up gross sales. The draw back there, although, is that it might be a low-margin car; it might steal gross sales from Tesla’s higher-cost, higher-margin automobiles, really hurting Tesla financially; it’s not anticipated to be all that low cost — about $30,000 after incentives (which presumably includes the $7,500 US EV tax credit), or not a lot decrease than the bottom Mannequin 3.
• Tesla’s power storage enterprise might proceed rising robust, after reaching greater than ⅛ of Tesla’s automotive income complete in 2024.
• Robots. Are they going to genuinely be a viable product, and a top-selling product for Tesla?
• AI providers. Is Tesla going to launch some new, high-profit AI providers?
• Even when Tesla makes a transition to robots and AI, will it achieve this shortly sufficient if auto gross sales decline?
• Additionally, how a lot will the corporate present an “increase in operating expenses driven by AI and other R&D projects” earlier than Tesla can really capitalize on that with robotaxi-capable vehicles and better FSD gross sales?
• Elon Musk has upset many shoppers and throughout the US and Europe resulting from his far right-wing political involvement. That doesn’t appear to have hit Tesla gross sales an excessive amount of in 2024, however will 2025 present an even bigger drop in gross sales in consequence? Now we have to attend to see.

To my eyes, Tesla is teetering on a knife’s edge. It wants auto gross sales to rise or at the very least maintain for lengthy sufficient that they fund different new features of the enterprise, and it’s not clear in any respect (regardless of what Elon Musk would possibly say) how lengthy that can take. It’s additionally not clear in any respect how a lot Tesla’s auto enterprise will really develop, stagnate, or decline in 2025 resulting from various essential issues. So, ultimately, I discover it a really onerous firm to forecast. It’s in no way on the stage it was 5 or 10 years in the past when clear, strong, robust vehicle gross sales development was clearly coming.