Tesla Inc. (NASDAQ:TSLA)

Solvency ratios demonstrate a generally improving financial position from 2021 to 2023, followed by a moderate increase in leverage and a decline in coverage ratios from 2023 to 2025. The company has significantly reduced its reliance on debt financing over the period, but recent trends suggest a potential shift back towards increased financial leverage.

Debt Ratios

Debt to equity, debt to capital, and debt to assets all decreased substantially from 2021 to 2022, indicating a significant deleveraging. These ratios remained relatively stable between 2022 and 2023 before beginning to increase modestly from 2023 to 2025. The inclusion of operating lease liabilities consistently results in higher debt ratio values, highlighting the impact of off-balance sheet financing. The increase in debt ratios from 2023 to 2025, while moderate, warrants monitoring.

Leverage Ratio

Financial leverage decreased from 2.06 in 2021 to 1.70 in 2023, suggesting a reduced proportion of assets financed by debt. However, this trend plateaued and showed a slight increase to 1.68 by 2025. This indicates a stabilization, and then a slight increase, in the company’s use of financial leverage.

Coverage Ratios

Interest coverage improved dramatically from 18.10 in 2021 to 72.83 in 2022, and remained high at 64.93 in 2023, demonstrating a strong ability to meet interest obligations. However, a consistent decline is observed from 2023 to 2025, falling to 16.62. Similarly, fixed charge coverage followed a comparable pattern, increasing from 7.36 to 14.87 and then decreasing to 3.51. This decline in coverage ratios, while still indicating sufficient coverage, suggests a weakening capacity to meet fixed financial obligations as debt levels modestly increase.

Overall, the solvency position strengthened considerably in the early part of the analyzed period. The recent trend of increasing debt ratios and decreasing coverage ratios suggests a potential shift in financial strategy or operating conditions that requires further investigation.

The debt to equity ratio demonstrates a fluctuating pattern over the five-year period. Initially, the ratio decreased significantly before stabilizing and experiencing a slight increase. This suggests a changing capital structure and evolving risk profile.

Debt to Equity Ratio - Overall Trend

The debt to equity ratio began at 0.23 in 2021. A substantial decrease was observed in 2022, falling to 0.07. The ratio then remained relatively stable, at 0.08 in 2023, before increasing to 0.11 in 2024 and settling at 0.10 in 2025. This indicates a period of deleveraging followed by a moderate increase in debt relative to equity.

The significant reduction in the ratio from 2021 to 2022 suggests a substantial improvement in the company’s financial leverage. This could be attributed to increased equity, decreased debt, or a combination of both. The subsequent stabilization and slight increase in the ratio from 2023 onwards indicate a potential shift in financing strategy, possibly involving increased debt to fund growth initiatives or share repurchases.

Total Debt

Total debt decreased from US$6,834 million in 2021 to US$3,099 million in 2022. It then increased over the subsequent three years, reaching US$8,213 million in 2024 and US$8,376 million in 2025. This upward trend in absolute debt levels contrasts with the initial decrease in the debt to equity ratio, highlighting the concurrent growth in equity.

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 substantial increase in equity is a primary driver of the initial decline in the debt to equity ratio and provides a buffer against increased debt levels in later years.

The observed trends suggest the company initially prioritized reducing its reliance on debt financing, likely to improve its financial flexibility and reduce risk. However, as the company grew and matured, it appears to have become more comfortable with a moderate level of debt, potentially leveraging it to enhance shareholder returns or fund expansion plans. The continued growth in equity provides a strong foundation for managing this increased debt.

The Debt to Equity ratio, including operating lease liability, demonstrates a fluctuating pattern over the five-year period. Initially, the ratio decreased significantly before stabilizing and exhibiting a slight upward trend in later years. Total debt, inclusive of operating lease liabilities, increased from 2021 to 2025, while stockholders’ equity consistently increased throughout the period.

Debt to Equity Ratio - Overall Trend

The Debt to Equity ratio decreased substantially from 0.29 in 2021 to 0.13 in 2022. This indicates a significant improvement in the company’s financial leverage, suggesting a reduced reliance on debt financing relative to equity. Following 2022, the ratio experienced a modest increase, reaching 0.15 in 2023, 0.19 in 2024, and stabilizing at 0.18 in 2025. This suggests a gradual increase in the use of debt financing as the company grows, but remains relatively controlled.

Total Debt (including operating lease liability)

Total debt decreased from US$8,873 million in 2021 to US$5,748 million in 2022. However, it then began to rise, reaching US$9,573 million in 2023, US$13,623 million in 2024, and US$14,719 million in 2025. This increase in debt suggests the company is utilizing more debt to fund operations or expansion, despite the concurrent growth in equity.

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 consistent growth in equity provides a stronger financial foundation and contributes to the overall solvency of the company, partially offsetting the increase in debt.

The combination of increasing debt and equity suggests the company is expanding its operations and potentially undertaking larger projects. While the Debt to Equity ratio remains relatively stable in the later years, the increasing absolute value of debt warrants continued monitoring to ensure it remains manageable in relation to the company’s earnings and cash flow.

The Debt to Capital ratio demonstrates a fluctuating pattern over the five-year period. Initially, the ratio decreased significantly before stabilizing and experiencing a slight increase. This suggests a changing risk profile related to the company’s financing structure.

Total Debt

Total debt decreased substantially from 2021 to 2022, falling from US$6,834 million to US$3,099 million. It then increased over the subsequent three years, reaching US$8,376 million by 2025. This indicates a period of debt reduction followed by renewed borrowing, potentially to fund expansion or other strategic initiatives.

Total Capital

Total capital exhibited consistent growth throughout the period, increasing from US$37,023 million in 2021 to US$90,513 million in 2025. This growth suggests increasing equity and retained earnings, or potentially new equity financing, contributing to a stronger capital base.

Debt to Capital Ratio

The Debt to Capital ratio declined from 0.18 in 2021 to a low of 0.06 in 2022, reflecting the significant reduction in total debt relative to total capital. The ratio then rose to 0.10 in 2023 and remained relatively stable at 0.09 in 2024 and 2025. While the ratio increased from its lowest point, it remained below the 2021 level, indicating a generally lower reliance on debt financing compared to the beginning of the period. The stabilization suggests a more consistent capital structure in the later years.

Overall, the trend suggests an initial deleveraging followed by a moderate increase in debt alongside substantial growth in total capital. The Debt to Capital ratio, while increasing from its low point, remained within a manageable range throughout the analyzed period.

The Debt to Capital ratio, inclusive of operating lease liabilities, demonstrates a fluctuating pattern over the five-year period. Initially, a significant decrease in the ratio is observed, followed by a period of increases and stabilization.

Total Debt (including operating lease liability)

Total debt decreased substantially from $8,873 million in 2021 to $5,748 million in 2022. Subsequently, debt increased to $9,573 million in 2023, continuing upward to $13,623 million in 2024 and reaching $14,719 million in 2025. This indicates a recent trend of increasing debt levels.

Total Capital (including operating lease liability)

Total capital exhibited consistent growth throughout the period. It rose from $39,062 million in 2021 to $50,452 million in 2022, then to $72,207 million in 2023, $86,536 million in 2024, and finally to $96,856 million in 2025. This demonstrates a strengthening capital base.

Debt to Capital Ratio

The Debt to Capital ratio decreased markedly from 0.23 in 2021 to 0.11 in 2022, suggesting a substantial improvement in the company’s solvency position. The ratio then increased to 0.13 in 2023, further to 0.16 in 2024, and stabilized at 0.15 in 2025. While the ratio remains below the 2021 level, the recent increases suggest a growing reliance on debt financing relative to the capital base, although the overall level remains moderate.

The observed trend suggests that while the company initially reduced its debt burden relative to its capital, it has subsequently taken on more debt to fund growth, resulting in a moderate increase in the Debt to Capital ratio in the later years of the period. The capital base has grown at a faster rate than debt, mitigating the impact of the debt increase on the ratio.

The Debt to Assets ratio demonstrates fluctuations over the five-year period. Initially, the ratio decreased significantly before stabilizing and experiencing a slight increase in later years. This indicates a changing leverage profile for the company.

Debt to Assets Ratio - Overall Trend

The Debt to Assets ratio began at 0.11 in 2021. A substantial decrease was observed in 2022, falling to 0.04. The ratio then increased modestly to 0.05 in 2023, continued to 0.07 in 2024, and settled at 0.06 in 2025. This suggests a period of deleveraging followed by a resumption of debt financing, though remaining at relatively low levels.

The most significant change occurred between 2021 and 2022, representing a considerable reduction in the proportion of assets financed by debt. The subsequent increases, while present, were less dramatic and suggest a more measured approach to debt accumulation. The ratio remained below the initial 2021 level throughout the analyzed period.

Debt to Assets Ratio - Specific Observations

In 2021, for every dollar of assets, approximately 11 cents were financed by debt. By 2022, this figure dropped to 4 cents. The ratio then gradually rose to 7 cents by 2024, before decreasing slightly to 6 cents in 2025. This indicates a strengthening of the company’s financial position in terms of debt reliance, followed by a moderate increase in debt utilization.

The observed trend suggests the company initially prioritized reducing its debt burden, potentially to improve financial flexibility or reduce interest expenses. The later increases in the ratio may reflect investments in growth initiatives or other strategic priorities requiring external financing.

The Debt to Assets ratio, including operating lease liability, demonstrates a fluctuating pattern over the five-year period. Initially, the ratio decreased significantly before stabilizing in the latter years.

Overall Trend

The ratio experienced a substantial decline from 0.14 in 2021 to 0.07 in 2022. Following this decrease, the ratio began to increase, reaching 0.09 in 2023, 0.11 in 2024, and remaining at 0.11 in 2025. This indicates a period of decreasing leverage followed by a stabilization and slight increase in debt relative to assets.

Year-over-Year Changes

The most significant change occurred between 2021 and 2022, with a decrease of 0.07 in the ratio. From 2022 to 2023, the ratio increased by 0.02. The period from 2023 to 2025 shows a consistent ratio of 0.11, suggesting a leveling off of the debt-to-asset relationship.

Debt and Asset Movements

Total debt, including operating lease liability, decreased from US$8,873 million in 2021 to US$5,748 million in 2022, contributing to the initial ratio decline. However, debt then increased to US$9,573 million in 2023, US$13,623 million in 2024, and US$14,719 million in 2025. Simultaneously, total assets grew consistently from US$62,131 million in 2021 to US$137,806 million in 2025. The increasing asset base partially offset the rising debt, resulting in the observed stabilization of the Debt to Assets ratio in the final two years.

The observed trend suggests a period where the company actively reduced its debt burden relative to its assets, followed by a phase of increased investment and debt accumulation alongside continued asset growth, ultimately leading to a relatively stable leverage position.

An examination of the financial information reveals a consistent trend in financial leverage over the five-year period. Total assets increased steadily from US$62,131 million in 2021 to US$137,806 million in 2025. Simultaneously, stockholders’ equity also exhibited growth, rising from US$30,189 million to US$82,137 million over the same timeframe. However, the rate of increase in stockholders’ equity was sufficient to result in a decreasing trend in financial leverage.

Financial Leverage

The financial leverage ratio decreased from 2.06 in 2021 to 1.68 in 2025. The most significant decrease occurred between 2021 and 2022, dropping to 1.84. Subsequent yearly declines were more moderate, moving to 1.70 in 2023, 1.67 in 2024, and finally reaching 1.68 in 2025. This indicates a diminishing reliance on debt financing relative to equity financing as the company expanded.

The consistent growth in both total assets and stockholders’ equity suggests a healthy expansion of the business. The decreasing financial leverage ratio implies that the company is becoming less reliant on debt to finance its assets, which could be viewed favorably from a risk perspective. The stabilization of the ratio in the final two years, at 1.67 and 1.68, suggests a potential equilibrium in the company’s capital structure.

The interest coverage ratio demonstrates significant fluctuation over the five-year period. Initially, the ratio was strong, but a notable decline is observed towards the end of the analyzed timeframe.

Earnings before Interest and Tax (EBIT)

EBIT increased substantially from 2021 to 2022, more than doubling. However, subsequent years show a decreasing trend, falling from US$10,129 million in 2023 to US$5,616 million in 2025. This decline in earnings is a primary driver of the observed changes in interest coverage.

Interest Expense

Interest expense decreased from 2021 to 2022, then continued to decline through 2023. A substantial increase in interest expense is then observed in 2024 and 2025, rising to US$350 million and US$338 million respectively. While the increase is not dramatic year-over-year between 2024 and 2025, it contributes to the weakening interest coverage.

Interest Coverage Ratio

The interest coverage ratio peaked in 2022 at 72.83, indicating a very strong ability to meet interest obligations with earnings. The ratio remained high in 2023 at 64.93. However, a significant decrease is apparent in 2024, falling to 26.69. This downward trend continues into 2025, with the ratio reaching 16.62. While still above one, the declining ratio suggests a diminishing cushion for covering interest payments as earnings decrease and interest expense rises.

The combined effect of decreasing EBIT and increasing interest expense results in a substantial weakening of the company’s ability to cover its interest obligations. The trend suggests increasing financial risk related to debt servicing as the period progresses.

The company’s fixed charge coverage exhibited significant fluctuation between 2021 and 2025. Initially strong, the ratio declined substantially over the analyzed period.

Earnings Before Fixed Charges and Tax

Earnings before fixed charges and tax increased notably from 2021 to 2022, rising from US$7,341 million to US$14,708 million. However, subsequent years demonstrate a decreasing trend, falling to US$11,282 million in 2023, US$10,840 million in 2024, and further to US$7,382 million in 2025. This indicates diminishing profitability available to cover fixed obligations.

Fixed Charges

Fixed charges remained relatively stable between 2021 and 2023, fluctuating around US$1,000 million. A clear upward trend emerges in 2024 and 2025, with fixed charges increasing to US$1,850 million and US$2,104 million respectively. This suggests a growing burden from fixed financial obligations.

Fixed Charge Coverage Ratio

The fixed charge coverage ratio peaked in 2022 at 14.87, signifying a strong ability to meet fixed obligations. A consistent decline is then observed, with the ratio decreasing to 8.62 in 2023, 5.86 in 2024, and reaching 3.51 in 2025. While still above 1.0 in the final year, the diminishing ratio indicates a weakening capacity to cover fixed charges with earnings. The combined effect of decreasing earnings and increasing fixed charges is the primary driver of this downward trend.

The observed trends suggest a potential increase in financial risk over the period. While the company maintained coverage throughout, the substantial decline in the fixed charge coverage ratio warrants attention and further investigation into the underlying causes of both the earnings decrease and the fixed charge increase.