Tesla Inc.’s Prospective Analysis for Investors

Tesla Project

The report is based on whether the fund manager should invest $25 million in Tesla Inc, a leading electric vehicle manufacturing company. The report will analyze its business strategy while conducting an accounting and financial analysis. The report will be discussing the prospective analysis of Tesla Inc and how it expects to generate revenues over the next few years. It will conclude by making a recommendation on whether the fund manager should invest the $25 million or not.

Business Strategy Analysis

Tesla Inc is a global leader in the sustainable energy and electric car manufacturing industry. According to information on the company’s website, they have a mission of accelerating the adoption of sustainable energy. Therefore, the company has invested in electric and solar solutions which includes electric cars and smart and advanced solar roofing solutions. The company has grown a huge customer base in the highly competitive motor vehicle industry by building their business on the idea of an electric car which promotes the use of sustainable energy. Based on Porter’s model, Tesla Inc’s competitive strategy is mainly made up of differentiation. Tesla’s competitive strategy is based on differentiation which is achieved through research and development, production, personnel management, and quality management.

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While most car manufacturers have been slow to transition to electric cars, Tesla is wholly founded on the concept of providing fully electric cars. The collaboration between different parts mentioned allows the company to create a differentiated product and market approach (Liu, 2021). The main point of differentiation is the fact that the company has set itself as a leader in the integration of advanced technology that is environmentally friendly. Furthermore, proper research and development have allowed the company to shift focus on the development of self-driving cars as part of the differentiation strategy. Tesla has been able to employ a differentiation focus strategy by placing emphasis on the fact that they provide high-quality electric vehicles which are good for the environment.

Tesla Inc has invested heavily in production with the building of a mega factory where production of most components is done in-house. Production optimization and differentiation help the company to maintain high-quality products which are competitive. It is important to note that as the business grows its customer base, its attention is bound to shift to broad differentiation. The company is also able to undertake an intense recruitment process to improve its workforce. Through this process, the company develops a strategic internal competitive advantage. As a result, the company is differentiated in the fact that it is able to develop quality products that are unique in the market.

Accounting Analysis

Tesla is arguably one of the most recognizable brand names in the production of electric-powered cars. In 2020, it was reported that Tesla managed to deliver 499,500 cars to its customers, setting a new record in the process having produced 509,737 units. The previous high was 139,300 vehicles delivered in the third quarter of 2020 (Liu, 2021). From the above information, it is easy to gather that the brand has been among the fastest-growing brands globally for an extended period. As a result, analysis of the budget review proves to be helpful in pointing out good quality highlights and any performing critical components in any cash related role, operational impact and understanding the brand’s qualities and flaws.

The strong roots of any accounting are the analysis of the financial statements, this helps to identify and detect any earning manipulations that may have occurred. The Tesla business model has some aspects that help distinguish it from other automobile makers such as their accounting policies. Some of the accounting policies adopted by Tesla include reclassifications, unaudited interim financial statements, revenue recognition. Accounting policies such as revenue recognition have impacted the manner in which the brand accounts for the sale of their cars. Selling their cars with a guaranteed resale value and cars leased through Tesla’s leasing partners are counted as sales with a right of return rather than operating leases, allowing Tesla to report revenue faster.

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Based on the brands overall profits, it’s clear that, since 2010, there’s been a steady growth in transactions. Due to the steps that the company has taken to boost both production and sales, the similar pattern is expected to continue in the coming years. As a result, Tesla will be in a much better position in the future than it is now. This has made it clear that the brand has had a significant improvement in every imaginable aspect. The improvement has been visible over the year, and other related companies are attempting to use a similar criterion to ensure that their businesses continue to improve, it would be wise to make an investment with the brand.

Financial Ratios

Liquidity Ratios

The quick ratio of Tesla increases in the year 2013 by 0.87 from that of 2012. This indicates that it increased its ability to use its liquid assets to meet the company’s obligations. It shows that the company puts to full utilization its resources for the productivity of the company. The current ratio increased by 0.91 in 2013 from that of 2012, indicating an increase in the use of current assets to meet current obligations (Liu, 2021). Compared to that of the industry, Tesla has higher quick and current ratios, which shows that its liquidity performance is higher than its competitors.

Efficiency Ratios

The average days of selling inventory increased in the year 2013 to 80 from 256 in 2012. The increase shows that the company stock took a more extended period to sell. However, despite its drop, it is way higher than 28 of the industry, indicating it is competitive. Both inventory turnover and accounts payable turnover increased in 2013 from the year 2012. This shows that the company effectively sells the stock and pays creditors amounts owed to them compared to the previous year (Liu, 2021). The turnover is lower than that of the industry meaning the competitors are doing better than Tesla in selling out its stocks. The total asset turnover increased by 1.6 in 2013, indicating an increase in revenue generation efficiency. The industry turnover ratios show that Tesla at a competitive advantage in the efficiency of assets.

Chart showing financial ratios for Tesla Company.
Figure1: Chart showing financial ratios for Tesla Company.

Profitability Ratios

Profitability ratios show the ability of the company to convert sales to profit. The net profit margin increased by 0.21 in the year 2013 from that of 2012. The rise indicates that more sales were converted to profits increasing the profitability of Tesla. The increase in the net profit margin also shows a generally good performance because of making profits (Liu, 2021). In both years, the dividend yield ratio was 0.00, indicating that no dividends have been given to shareholders.

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Prospective Analysis

It is forecasted that the growth in demand of renewable energy and environmentally friendly products is inevitable. This means that Tesla has set a good precedent to grow as a global leader in the market. As a result, it is expected that through proper research and development, the company will be able to continue to use differentiation as a major competitive strategy (Liu, 2021). Therefore, it is anticipated that there will be a reduction in cost of production which means there will be an increase in the sales and profitability of the company. Tesla is building a giga factory in Germany which will be the largest high-volume electric vehicle production plant in the world (Liu, 2021). The completion of this giga factory will help set the company apart in the electric car industry which will propel Tesla to immense success. The uptake of Tesla in the world is significantly developing and this will increase the company’s market share immensely. The opening of a factory in Shanghai that produces the Model Y has increased the production of Tesla vehicles worldwide. Tesla’s sales rose by more than 36 percent in 2020 and this is expected to significantly increase in 2021.

Conclusion

The differentiation of the products will continue to impact the sustainability of Tesla Inc. The company has its strength in innovation which helps them differentiate their products in the market. This is an important part in ensuring that the future of the business is sustainable and the investment will be profitable. Tesla’s stocks in the market have raised considerably in the last few years, it has a valuation of around $600 billion, placing it among the world’s most valuable companies. As an investor, it is impossible to ignore the impressive company’s growth rate that does not look to slow down anytime soon.

Reference

Liu, S. (2021). Competition and Valuation: A Case Study of Tesla Motors. In IOP Conference Series: Earth and Environmental Science (Vol. 692, No. 2, p. 022103). IOP Publishing. Web.

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