Daily Management Review

How Solar City metamorphosed Tesla's balance sheets


03/23/2017


Car sales and risky mergers are sucking money out from Tesla. Nevertheless, its financial position is much better than in the past. Does this mean that the company is ready to assemble Model 3?



Robert Scoble via flickr
Robert Scoble via flickr
In March, Tesla sent its annual report to the US Securities and Exchange Commission (SEC). Such reports are boring to read, but they contain a lot of valuable information about the company. The Tesla report for 2016 is particularly interesting since in 2016 the company ceased to be only a car manufacturer, having bought SolarCity for more than $ 2 billion.

Here is a quote from the report: "We design, develop, manufacture and sell high-performance fully electric vehicles and energy storage systems, and install, operate and maintain equipment for generating solar energy and storing electricity. We are the only vertically integrated energy company in the world offering integrated "clean" solutions for production, storage and consumption of electricity. To accelerate the distribution of our products, we created a global network of car stores, service centers and charging stations. We are distinguished by design of our cars, our engineering and technical experience in creating various products and systems and by desire to accelerate transition of the world to transport operating on renewable energy, as well as our business model". 

This is how Tesla sees himself. Now let's look at the company from the side of finance.

 Assets

Much has changed since 2015. The company has $ 3 billion more funds on its accounts, which, given the rate of money loss, is impressive. The line "Solar power generators, leased or ready for leasing" draws attention, too. These $ 6 billion appeared after acquisition of SolarCity, which leases its solar batteries to customers and enters the money in the books. Tesla plans to spend almost all available funds to launch Model 3 this year, and has recently raised another $ 1.2 billion as a reserve. However, almost twofold growth in assets last year resulted from acquisition of SolarCity.

Commitments

Growth of long-term debt is mainly obliged to SolarCity’s debt, which amounts to more than $ 3 billion. Tesla, in the latest round of financing, also issued new convertible debt obligations, and will have repay previous in the next year. Thus, the company's debt burden has significantly increased in 2016.

Losses

Losses in 2016 turned out to be less than in 2015. However, their volume still looks impressing. On the other hand, revenue has also grown strongly.

Is it good?

Tesla has become a vertically integrated company; they are losing money on car sales and are going on a risky merger with SolarCity. Nevertheless, the company’s financial position is much better than in the past. This offers an opportunity to successfully launch a mass Model 3 with a cost of 35 thousand dollars (400 thousand pre-orders have already been submitted).

…Or is it bad?

Increased debt, which came with SolarCity, is balancing growth of free money. In addition, assets of SolarCity should probably be attributed to the same column. Many experts reckon that now Tesla is managing a huge storage of illiquid solar cells and has a billion-dollar long-term debt, planning to spend billions of cash. In fact, losses are not very important since no one expected Tesla to make a noticeable profit until 2018, when Model 3 is released. Obviously, purchase of SolarCity has had a huge impact on Tesla's balance, and there’s no surprise that it significantly changed the company. The task for 2017 is to launch the assembly line for Model 3 and start deliveries to consumers. 

source: businessinsider.com






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