Naxa Consultancy Group : Tesla Financial // Economic Aspect – Giorgio Castellini
Tesla financials accounting reports are one of the most illuminating demonstrations on how the company performed economically and financially the market over the years 2012-2016.
One of the most concerning datas that the Naxa Consultancy Group retrieved in this balance sheets is the continuous negative cash flow and EBI, that have always been closing negative over the past 6 years ( 2012-2016) , apart from 2013-2014, when the model X was launched for the mass market.(Author xxxxxx).
Although Tesla launched Model X in 2013 lowering down its pricing policy to attract more customers, the sales have been flat and did not follow a linear process as its Capital Expenditure , creating a continuous debt.( as reported in image of the academic paper xxx)
In fact ,apart from the poor flat B2C sales results over the years , one the great issues that affected the negative economic results ( gross profit) are the capital expenditure and operating expenses , which are the total cost of operations ( from buying , maintain and fix fixed assets and selling ).
The results of the subtraction of these two made us reckon that the production and the whole total sales process cost ( from production to sales) is too expensive to carry on as a sustainable independent business.
Although the company has been having a negative financial “momentum” from the B2C side, it has been backed up with many investments (28 until as today), either from private sources and governmental sources.
These investments definitely aid Tesla from the obvious and inevitable bankruptcy , and made kept the company moving further investing in its product research and development, within the acquisition of Solarcity in 2016 for 2.6 Billions.
The founding of this acquisition was caused by different factors: The social environmental aspect that led the governments to issue financial investments in large scale, and also the personality of a genius entrepreneur like Elon Musk , who has under his name many different companies ( Paypal , Spacex , Boring company etc…) , making the investors believe that he had the great picture of everything around him.
Musk over promises were continuously made to investors and clients, leading the company to a perpetual deficit. Investors were promised with more sales that did not occur, whilst clients with orders which were delayed for a couple of years. Nothing of this occurred.
The over promises made to the investors, and its clients, led the company to a perpetual economic deficit,
.Investors were promised with more sales and , and clients with orders,which were delayed for a couple of years. Unfortunately nothing of this occurred.
According to (Williams et al) the company managed to receive investments despite the negative financial results covering the current liabilities with its current assets.
The Working Capital ( C. assets – C. liabilities) has , in fact , been declining during the past years , even tough when assets were increasing exponentially year by year.
Financial Statement & Conclusion
In order to resolve these economical and financial issues, our consultancy Naxa group firmly considers in a reconstruction of the whole business supply chain. In order to compete with the mass market Tesla will need to drive this company into mass production in a much efficient way.
This could be done by opening factories in China ( where now Musk is buying a Gigafactory) that would definitely help the production in terms of : numbers , timings and costs. This would not only generate a decrease of production cost from the company , but it will create jobs towards the local Chinese community. Thus this could lead to a further evaluation and investment of the Chinese government. Moreover is the same business model retrieved from Apple ( Designed in California- assembled in China)
Another aspect apart from production that is the Capital Expenditures which needs to be reduced in order to generate a positive cash flow and EBI.
Lastly , from an administration point of view, we strongly advise put in charge , with the aid of the board, another CEO , that will focus on one single company direction , without carrying other projects and companies at the same time.This strategic move would help the company cash flow reducing the risk factors that thread today’s investors.