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Charging Up: A Look into Tesla’s Annual Report

7investing Lead Advisor plugs into Tesla's annual filing to supercharge on the company's state of affairs.

February 15, 2023

Digging into a company’s financial reports can be like plugging into a power source. And Tesla‘s (NASDAQ: TSLA) latest 10K report is no exception. By delving into Tesla’s 10K, I recently supercharged my knowledge of the company. Below are some electrifying insights I gathered from the filing!

Inventory Dynamics

Tesla’s inventories, including raw materials, work-in-progress, finished goods, and service parts, recorded at the lower of cost or net realizable value. As of December 31, 2022, Tesla’s inventory was $12,839 million, a 123% Year-over-Year (YoY) increase.

Generally, rapid inventory growth compared to sales can suggest issues with demand, which could result in future write-downs. However, context is essential. The Energy generation & storage segment contributed $1,843 million to the inventory balance, up from $779 million the previous year. This growth can be attributed to the recent availability of battery cells, which management has stated were previously reserved for vehicles due to lack of supply. With new tax incentives available to utilities in the US, thanks to the Inflation Reduction Act, this is an opportune time to expand the energy storage business.

The inventory balance is split between raw materials, work-in-progress, finished goods, and service parts. Finished goods, at $3,475 million, accounted for a 172% YoY increase. Some of this is due to a decrease in demand at the end of December in China and the US, as consumers awaited rumored price changes. 

Additionally, Tesla has shifted its vehicle delivery approach from a “wave” strategy, where a bulk of deliveries were made in the quarter’s final month, to a more streamlined schedule. This change addresses the logistical difficulties posed by the increasing delivery scale but also results in a higher inventory volume than the previous “wave” method. 

The Government Rebate Game

Tesla takes advantage of various government subsidies, but these rebates can take up to a year or more to be collected, depending on the processing time of the issuing jurisdiction. As of December 31, 2022, government rebate receivables were $753 million.

Deferred Revenues

Tesla reports two types of deferred revenues. In the Energy generation & storage segment, deferred revenue is mainly due to milestone payments and increased to $863 million in 2022, up from $399 million the previous year. In the automotive segment, deferred revenue includes Full Self Driving (FSD) features, premium (Internet) connectivity, free Supercharging programs, and over-the-air software updates, which increased to $2,913 million as of December 31, 2022, from $2,382 million the previous year.

Emission Credits 

Tesla’s zero-emission credits (ZEVs) have been a lucrative source of income for the company. By selling ZEVs to other companies to help them meet emission standards and regulations, Tesla could book $1,776 million in fiscal 2022, an increase from the previous year’s $1,465 million. Additionally, Tesla recognized $288 million in revenue from regulatory changes that entitled it to additional consideration for credits sold in the past. Despite the expected decrease in ZEV sales as more OEMs adopt electric vehicles, Tesla’s performance in this area remains strong.

Potential for Increased Interest Income

Tesla earned little interest income from its cash and equivalents in fiscal 2022, but this may change in fiscal 2023. With higher interest rates, CDs have become attractive. As of December 31, 2022, Tesla had $4.3 billion in CDs (with the remainder held in cash and money market funds). Tesla’s cash & equivalents at the end of fiscal 2022 was $22.2 billion. 

Capital Expenditures

Tesla is gearing up for an electrifying future. In fiscal 2022, the company invested $7.16 billion in capital expenditures and plans to spend between $6-8 billion in 2023 and $7-9 billion in the following two years. These spending commitments signal a continued push to expand Tesla’s footprint globally with more gigafactories and battery plants in the works!

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