Tesla Inc. (NASDAQ:TSLA)

The financial performance, as measured by economic profit, exhibits a fluctuating pattern over the five-year period. Net operating profit after taxes (NOPAT) initially increased significantly before declining, while invested capital consistently rose. The cost of capital remained relatively stable throughout the period. These factors combined to produce a shifting economic profit profile.

NOPAT Trend

Net operating profit after taxes demonstrated substantial growth from 2021 to 2022, increasing from US$7,214 million to US$14,874 million. However, this was followed by a decline in subsequent years, reaching US$5,629 million by 2025. This suggests a potential weakening in operational profitability despite increasing investment.

Cost of Capital

The cost of capital remained consistently high, fluctuating narrowly between 27.47% and 27.62% over the observed period. This indicates a stable, but significant, required rate of return for investors.

Invested Capital Trend

Invested capital experienced a continuous upward trend, increasing from US$40,247 million in 2021 to US$69,754 million in 2025. This signifies ongoing investment in the business, potentially to support growth initiatives or expansion, but not necessarily translating into improved economic profit.

Economic Profit Analysis

Economic profit began at a negative value of US$-3,884 million in 2021. It turned positive in 2022, reaching US$1,184 million, coinciding with the peak in NOPAT. However, economic profit subsequently became negative again and deteriorated significantly through 2025, reaching US$-13,635 million. This indicates that, despite increasing NOPAT in 2022, the returns generated were insufficient to cover the cost of capital, and this shortfall widened considerably in later years. The increasing invested capital, coupled with a stable cost of capital and declining NOPAT, contributed to this negative trend.

The observed pattern suggests that while the company has been actively investing in its operations, the returns on those investments have not consistently met the required rate of return, resulting in a declining economic profit. Further investigation into the drivers of NOPAT decline and the efficiency of capital allocation would be warranted.

Net income attributable to common stockholders and net operating profit after taxes (NOPAT) both demonstrate significant fluctuations over the five-year period. NOPAT exhibits a more pronounced growth trajectory initially, followed by a decline, while net income mirrors this pattern but with differing magnitudes.

NOPAT Trend

NOPAT increased substantially from $7,214 million in 2021 to $14,874 million in 2022, representing a growth of over 106%. This growth slowed in 2023, with NOPAT reaching $11,309 million, a decrease of approximately 24% from the prior year. The decline continued into 2024, with NOPAT at $8,828 million, and further decreased to $5,629 million in 2025. This represents a cumulative decrease of approximately 62% from the peak in 2022.

Net Income Trend

Net income attributable to common stockholders also increased significantly from $5,519 million in 2021 to $12,556 million in 2022, a growth of approximately 128%. It continued to rise in 2023, reaching $14,997 million. However, a substantial decrease is observed in 2024, with net income falling to $7,091 million. This downward trend persisted in 2025, with net income reported at $3,794 million, representing a decrease of approximately 75% from its peak in 2023.

Relationship between NOPAT and Net Income

While both metrics generally move in the same direction, the magnitude of change differs. The increase in net income from 2021 to 2023 was more substantial than the increase in NOPAT over the same period. Conversely, the decline in net income from 2023 to 2025 was more pronounced than the decline in NOPAT. This suggests that factors beyond core operating profitability, such as financing costs or non-operating items, are influencing net income to a greater extent than NOPAT.

The observed declines in both NOPAT and net income in the later years of the period warrant further investigation to determine the underlying causes. Potential factors could include increased competition, rising input costs, changes in pricing strategy, or macroeconomic conditions.

The provision for (benefit from) income taxes exhibits significant volatility over the observed period. Beginning at US$699 million in 2021, it increased to US$1,132 million in 2022 before experiencing a substantial negative swing to a benefit of negative US$5,001 million in 2023. This was followed by a return to a provision of US$1,837 million in 2024 and a slight decrease to US$1,423 million in 2025.

Cash operating taxes demonstrate a more stable, though declining, trend. An initial value of US$936 million in 2021 rose to US$1,335 million in 2022. Subsequent years show a gradual decrease, with values of US$1,208 million, US$1,164 million, and US$1,085 million reported for 2023, 2024, and 2025 respectively.

Provision for Income Taxes Trend

The large negative provision in 2023 suggests a significant impact from tax credits, changes in deferred tax assets/liabilities, or alterations in tax laws. Further investigation would be required to determine the specific drivers behind this substantial shift. The return to a positive provision in 2024 and 2025 indicates a normalization of the tax expense, though it remains below the levels seen in 2021 and 2022.

Cash Taxes vs. Provision for Taxes

A consistent difference exists between the provision for income taxes and cash operating taxes throughout the period. This discrepancy suggests the presence of non-cash tax items, such as deferred taxes, impacting the reported provision. The magnitude of this difference is particularly pronounced in 2023, correlating with the negative provision for income taxes.

Cash Operating Taxes Trend

The observed decline in cash operating taxes from 2022 to 2025, while gradual, warrants attention. This could be attributable to changes in tax rates, increased tax deductions, or shifts in the geographic distribution of taxable income. The consistent decrease suggests a potentially evolving tax strategy or external factors influencing the company’s tax obligations.

The divergence between the provision for income taxes and cash operating taxes highlights the importance of analyzing both figures when assessing a company’s tax position and its impact on economic value added. The volatility in the provision for income taxes necessitates a deeper understanding of the underlying accounting and tax-related events driving these fluctuations.

The invested capital of the company demonstrates a consistent upward trend over the five-year period. Simultaneously, changes are observed in the composition of that capital, specifically regarding debt and equity financing.

Invested Capital Trend

Invested capital increased from US$40,247 million in 2021 to US$69,754 million in 2025. This represents a cumulative growth of 73.1% over the period. The rate of increase slowed between 2024 and 2025, with an increase of only 3.3% compared to a 12.1% increase between 2023 and 2024.

Debt & Leases

Total reported debt and leases decreased significantly from US$8,873 million in 2021 to US$5,748 million in 2022, a reduction of 35.3%. However, debt levels then began to rise, reaching US$14,719 million by 2025. This represents a 156.6% increase from the 2022 low. The most substantial increase in debt occurred between 2023 and 2024, growing by 42.3%.

Stockholders’ Equity

Stockholders’ equity exhibited consistent growth throughout the period, increasing from US$30,189 million in 2021 to US$82,137 million in 2025. This represents a 172.1% increase. The rate of growth in equity slowed slightly from 2024 to 2025, but remained positive.

Capital Structure Shift

In 2021, debt constituted approximately 22.1% of invested capital (US$8,873 / US$40,247). By 2025, this proportion had risen to approximately 21.1% (US$14,719 / US$69,754). While the percentage change is relatively small, the increasing absolute value of debt suggests a growing reliance on debt financing, particularly in the later years of the observed period. Equity consistently represented the majority of invested capital, increasing its share slightly over the period.

The company’s increasing invested capital, coupled with the recent rise in debt, warrants further investigation into the efficiency of capital allocation and the associated financial risks.

The economic spread ratio exhibited a volatile pattern over the five-year period. Initially negative, it became positive in 2022 before reverting to negative values and declining consistently through 2025. This movement correlates with fluctuations in economic profit and invested capital.

Economic Spread Ratio

In 2021, the economic spread ratio was -9.65%, indicating that the company’s return on invested capital was less than its cost of capital. A significant improvement occurred in 2022, with the ratio rising to 2.39%, signifying a period where returns exceeded the cost of capital. However, this positive trend was short-lived. The ratio decreased to -8.45% in 2023 and continued to decline, reaching -14.53% in 2024 and -19.55% in 2025. This consistent decline suggests a widening gap between the cost of capital and the returns generated from invested capital.

The economic spread ratio’s movement is closely tied to the trend in economic profit. While the ratio was positive in 2022, coinciding with positive economic profit, the subsequent negative economic profit values in 2023, 2024, and 2025 directly contributed to the increasingly negative economic spread ratio.

Invested Capital

Invested capital consistently increased throughout the period, rising from US$40,247 million in 2021 to US$69,754 million in 2025. This growth in invested capital occurred alongside declining economic profit and a worsening economic spread ratio, suggesting that increases in capital deployment did not translate into proportional increases in returns.

The combination of rising invested capital and decreasing economic profit resulted in a consistently deteriorating economic spread ratio. This indicates a growing inefficiency in capital allocation and a potential need to reassess investment strategies or improve operational performance to enhance returns.

The economic profit margin exhibited significant fluctuations over the five-year period. Initially negative, it became positive in 2022 before reverting to negative values and declining consistently through 2025. This pattern mirrors the trend observed in economic profit, which decreased from a positive value in 2022 to increasingly negative values in subsequent years.

Economic Profit Margin Trend

In 2021, the economic profit margin stood at -7.12%. A substantial improvement was noted in 2022, with the margin reaching 1.43%, indicating positive economic profit generation relative to adjusted revenues. However, this positive trend was short-lived. The margin decreased to -5.11% in 2023 and continued to deteriorate, reaching -10.01% in 2024 and further declining to -14.29% in 2025. This represents a consistent erosion of economic profitability as a percentage of adjusted revenues.

The adjusted revenues demonstrate an initial increase from 2021 to 2023, peaking at US$98,337 million. However, revenues experienced a slight decrease in 2024 and a further decline in 2025, settling at US$95,397 million. Despite the initial revenue growth, the increasing negative economic profit margin suggests that the cost of capital, or other adjustments made to arrive at economic profit, grew at a faster rate than revenue generation, or that revenue growth slowed while costs remained high.

Relationship between Economic Profit and Margin

The economic profit margin directly reflects the economic profit. The negative economic profit values in 2021, 2023, 2024, and 2025 are consistent with the corresponding negative economic profit margins. The positive economic profit in 2022 is also reflected in the positive margin for that year. The magnitude of the margin’s decline from 2022 to 2025 is substantial, indicating a worsening trend in value creation.

The consistent decline in the economic profit margin from 2022 through 2025 warrants further investigation. A detailed analysis of the components of economic profit, including operating profit, taxes, and the cost of capital, is recommended to identify the key drivers of this negative trend.