Tesla Inc. (NASDAQ:TSLA)

The financial performance, as measured by economic profit, exhibits a concerning trend over the five-year period. While net operating profit after taxes (NOPAT) initially increased significantly, economic profit consistently remained negative, and worsened over time. This indicates that, despite generating operating profits, the company’s returns are not exceeding its cost of capital.

Net Operating Profit After Taxes (NOPAT)

NOPAT demonstrated substantial growth from 2020 to 2022, increasing from US$2,291 million to US$14,874 million. However, NOPAT declined in both 2023 and 2024, falling to US$11,309 million and subsequently to US$8,828 million. This suggests a potential weakening in operational efficiency or market conditions in the later years.

Cost of Capital

The cost of capital remained relatively stable throughout the period, fluctuating between 32.89% and 33.79%. This consistency suggests that the company’s risk profile and financing structure did not undergo significant changes. The consistently high cost of capital, however, presents a significant hurdle for generating positive economic profit.

Invested Capital

Invested capital increased steadily over the five years, rising from US$39,217 million in 2020 to US$67,545 million in 2024. This indicates ongoing investment in the business, potentially to support growth initiatives. However, the increasing capital base, coupled with a stable cost of capital, contributes to the growing magnitude of negative economic profit.

Economic Profit

Economic profit was negative in each of the five years analyzed. The deficit widened from US$-10,606 million in 2020 to US$-13,997 million in 2024. This trend suggests that the company is destroying economic value, as the returns generated from invested capital are insufficient to cover the cost of that capital. The initial improvement in NOPAT was not enough to offset the increasing invested capital and consistent cost of capital, and the subsequent decline in NOPAT further exacerbated the negative economic profit.

In summary, while the company has demonstrated an ability to generate operating profits, its inability to generate returns exceeding its cost of capital is a significant concern. The increasing invested capital base and declining NOPAT in recent years have contributed to a worsening economic profit position.

The financial data reveals notable fluctuations in key profitability metrics over the five-year period.

Net Income Attributable to Common Stockholders

Net income shows an overall increasing trend from 2020 to 2023, rising from $721 million in 2020 to a peak of $14,997 million in 2023. This represents a substantial growth in profitability over the first four years. However, in 2024, net income experiences a significant decline to $7,091 million, falling to less than half of the previous year's figure. This sudden drop interrupts the prior growth trajectory and suggests potential challenges or changes affecting net profitability in the most recent year.

Net Operating Profit After Taxes (NOPAT)

NOPAT follows a broadly upward movement from 2020 through 2022, increasing from $2,291 million to $14,874 million. This rapid growth underscores enhanced operating efficiency or higher operational earnings during this phase. Contrary to net income, NOPAT declines more moderately in 2023 and 2024, decreasing to $11,309 million and then to $8,828 million respectively. Despite the decline after 2022, NOPAT remains significantly above the 2020 base level over the entire period, indicating sustained operational profitability.

Comparatively, net income's volatility is more pronounced than that of NOPAT, especially in the latest year where net income dropped sharply relative to NOPAT. This could point to increased non-operating expenses, tax effects, or other one-time items impacting net income beyond operational performance. Overall, the company exhibited strong growth in profitability metrics until 2022, followed by a period of contraction in both net income and NOPAT through 2024.

Provision for (benefit from) income taxes

There is a notable increase in the provision for income taxes from 292 million US dollars in 2020 to 1,132 million US dollars in 2022, indicating a rising tax expense over this period. However, in 2023, the provision shifts dramatically to a benefit of -5,001 million US dollars, representing a significant tax benefit or reversal. In 2024, the provision returns to a positive amount of 1,837 million US dollars, suggesting a reinstatement of tax expenses though at a higher level than in previous years except for 2023.

Cash operating taxes

Cash operating taxes demonstrate a consistent upward trend from 422 million US dollars in 2020 to 1,335 million US dollars in 2022. However, in 2023 and 2024, cash taxes slightly decrease to 1,208 million and 1,164 million US dollars respectively. Despite this slight decline, the cash tax payments remain significantly higher than the 2020 level.

Overall Analysis

The data shows a divergence between the provision for income taxes and the cash operating taxes particularly in 2023, where the provision indicates a substantial tax benefit while cash taxes remain relatively stable and elevated. This pattern may suggest the influence of deferred tax accounting, tax credits, or other temporary differences affecting book income tax expense but not cash payments in that year. The fluctuations in the provision for income taxes reflect variability likely driven by changes in profitability, tax planning strategies, or legislative impacts. Meanwhile, cash taxes show a more stable yet gradually increasing pattern over the observed period.

Total Reported Debt & Leases

The total reported debt and leases exhibit a declining trend from 2020 through 2022, decreasing substantially from 13,228 million US dollars in 2020 to 5,748 million US dollars in 2022. However, this decreasing pattern reverses starting in 2023, where debt rises sharply to 9,573 million US dollars, followed by a further increase to 13,623 million US dollars in 2024, nearly returning to the 2020 level.

Stockholders’ Equity

Stockholders’ equity shows a consistent and strong growth trajectory over the five-year period. Starting at 22,225 million US dollars at the end of 2020, equity increases each year, reaching 72,913 million US dollars by the end of 2024. This steady rise reflects an accumulation of retained earnings and potentially increased capital contributions.

Invested Capital

Invested capital also demonstrates a continuous upward trend from 39,217 million US dollars in 2020 to 67,545 million US dollars in 2024. The increase is gradual with moderate growth between 2020 and 2021, followed by more pronounced growth in the subsequent years. This pattern suggests ongoing investments in the company’s operations and assets.

Summary of Trends

Over the period analyzed, there is evidence of a strategic shift in the company's financial structure. Initially, debt levels are reduced significantly until 2022, indicating efforts to deleverage the balance sheet. However, from 2023 to 2024, debt increases substantially, possibly to finance expansion or capital expenditures as reflected in the rising invested capital. Concurrently, stockholders' equity consistently grows, highlighting strong equity financing or retained earnings accumulation, enhancing the company's capital base. The simultaneous increase in invested capital and equity suggests robust reinvestment and capital strengthening, while the fluctuation in debt indicates a dynamic approach to leveraging.

The economic spread ratio exhibited a fluctuating pattern over the five-year period. Initially, the ratio demonstrated improvement, followed by a resurgence of negative trends. Economic profit consistently remained negative throughout the observed timeframe, while invested capital increased steadily.

Economic Spread Ratio

The economic spread ratio began at -27.04% in 2020 and improved to -15.84% in 2021, indicating a lessening of the gap between the cost of capital and returns generated from invested capital. However, this improvement was short-lived. The ratio continued to -3.81% in 2022, before declining significantly to -14.61% in 2023 and further to -20.72% in 2024. This indicates a widening gap between the cost of capital and returns, suggesting diminishing value creation as the period progressed.

Economic Profit

Economic profit remained negative across all five years. While the negative value decreased from US$ -10,606 million in 2020 to US$ -1,891 million in 2022, it increased in magnitude to US$ -8,687 million in 2023 and reached US$ -13,997 million in 2024. This suggests that, despite revenue growth, the company’s returns have not consistently exceeded its cost of capital.

Invested Capital

Invested capital demonstrated a consistent upward trend, increasing from US$ 39,217 million in 2020 to US$ 67,545 million in 2024. This growth in invested capital occurred concurrently with the deterioration of the economic spread ratio, suggesting that increases in capital deployment have not translated into proportional increases in economic profit.

The combined trends suggest that while the company has been increasing its investment in operations, it has struggled to generate returns that exceed its cost of capital, particularly in the later years of the period. The widening negative economic spread ratio and increasing negative economic profit are concerning indicators of value destruction.

The economic profit margin exhibited considerable fluctuation over the five-year period. Initially negative, the margin improved through 2022 before declining significantly in subsequent years. A consistent pattern of negative economic profit is evident throughout the observed timeframe, indicating that the company’s returns are not exceeding its cost of capital.

Economic Profit Margin Trend

The economic profit margin began at -33.24% in 2020. A substantial improvement was noted in 2021, reaching -11.68%, suggesting enhanced profitability relative to capital employed. This positive trend continued into 2022, with the margin reaching -2.29%, the closest value to profitability observed during the period. However, 2023 saw a reversal, with the margin worsening to -8.83%. This negative trend accelerated in 2024, culminating in a margin of -14.27%, the lowest point in the observed period.

Relationship to Adjusted Revenues

Adjusted revenues demonstrated a strong upward trajectory from 2020 to 2023, increasing from US$31,908 million to US$98,337 million. However, revenue growth plateaued in 2024, remaining relatively stable at US$98,060 million. Despite the revenue increases, the economic profit margin did not consistently benefit, and ultimately deteriorated, suggesting that revenue growth was insufficient to offset increasing costs or capital charges.

Economic Profit

The absolute value of economic profit decreased from US$10,606 million in 2020 to US$6,376 million in 2021, indicating a reduction in the shortfall between returns and cost of capital. This trend continued with a further reduction to US$1,891 million in 2022. However, economic profit increased in absolute value to US$8,687 million in 2023 and reached US$13,997 million in 2024, coinciding with the decline in the economic profit margin. This suggests that while revenues remained high, the cost of generating those revenues, or the capital employed, increased disproportionately.

In summary, while the company experienced significant revenue growth, its ability to generate economic profit has consistently lagged. The recent deterioration in the economic profit margin, despite stable revenues, warrants further investigation into the underlying cost structure and capital allocation efficiency.