Earlier this month, Tesla filed its annual report with the Securities and Exchange commission.
Annual reports — 10-Ks in financial parlance — are pretty boring documents, but they can provide some valuable insight into companies.
Tesla’s annual report for 2016 is interesting from the get-go because the company no longer describes itself as primarily a carmaker, due to its acquisition last year of SolarCity, a $2-billion-plus deal.
“We design, develop, manufacture and sell high-performance fully electric vehicles, and energy storage systems, as well as install, operate and maintain solar and energy storage products,” the report reads.
“We are the world’s only vertically integrated energy company, offering end-to-end clean energy products, including generation, storage and consumption,” it continues.
“We have established a global network of vehicle stores, service centers and Supercharger stations to accelerate the widespread adoption of our products. Our vehicles, engineering expertise across multiple products and systems, intense focus to accelerate the world’s transition to sustainable transport, and business model differentiates us from other manufacturers.”
That’s the macro overview of what Tesla is all about.
Now let’s take a look at what this all means financially, by touring the balance sheet.
As you can see, there have been major changes since 2015. There’s about $3 billion more in cash on hand, which is pretty impressive for an epically cash-burning company like Tesla. But there’s also a massive uptick in “Solar energy systems, leased and to be leased” — a $6-billion addition to the balance sheet, all attributable to absorbing SolarCity, which leases panels to customers and held the value of those assets on its own balance sheet.
Tesla expects to spend pretty much all its cash to launch its Model 3 later this year, necessitating a recent capital raise of more than a billion to keep the cash situation where the company likes it.
But the big new piece on the assets front, helping Tesla’s assets to more than double from 2015 to 2016, came as a result of SolarCity.
The thing to zero in on here is the increase in long-term debt — mostly the SolarCity debt, more than $3 billion. Tesla has also issued new convertible debt as part of its most recent capital raise, and the company has previously issued convertible debt coming due next year. Compared with 2015, the 2016 balance sheet is far more debt-laden.
Finally, losing money
Tesla lost less in 2016 than it did in 2015, but it still lost a lot. Compared with 2014, it lost hugely more. But it also brought in far more revenue.
What’s the takeaway?
The positive about Tesla, the newly vertically integrated company that mostly loses money selling electric cars and has done something daring by merging with SolarCity, is that the firm has a cash position that it would have envied in its past. That sets it up to successfully launch the Model 3 later this year — a $35,000 mass-market car that already has almost 400,000 pre-orders.
The negative is the additional debt — placed against Tesla available cash, the SolarCity debt pretty much zeroes the situation out — and perhaps the SolarCity assets that now have to be accounted for. Tesla is now managing billions in what look to me like illiquid leased solar panels and long-term debt, while preparing to blow through billions in cash.
The losses are actually neutral. Nobody expects Tesla to show consistent profits until 2018 at the earliest, once the revenue for the Model 3 begins to roll in.
Obviously, the SolarCity acquisition has had the biggest impact on Tesla’s balance sheet — and transformed Tesla into a different type of company. In 2017, the challenge will be getting the Model 3 off the assembly line and into customers’ driveways.