Tesla's share price has soared 616% since March 2013. Such a meteoric rise has caused some investors consternation and encouraged a closer look at Tesla's SEC filings such as last month's 10-k.
Doug Kass of RealMoneyPro.com and Seabreeze Partners was highly critical of Tesla's book keeping this weekend. "Tesla's accounting has long been controversial. In a prior post, I characterized Tesla's reported profits as EBBS (earnings before B.S.)."
Kass specifically called into question Tesla's claim that it went from $8 million under accrual on 2012 warranties during the first three fiscal quarters and then suddenly reported a $2 million over accrual for the year in its fourth quarter filings.
"In essence the question comes down to whether Tesla's warranty reserve release was used as a cookie jar to boost profits in the latest quarter, or did the company simply miscalculate its warranty calculations," said Kass.
While revenue growth has spiked, production costs have not declined to a point necessary for the company to make a profit. Net loss in 2013 was 74% or $0.62 per share.
One step in alleviating these concerns is the recently announced $5 billion battery factory that Tesla has planned to build. The factory will employ 6,500 and is expected to reduce the cost of its lithium ion batteries by 30% by the end of the first year of volume production.
The factory may be the first step in allowing the nascent company to increase production output in the near future.
Separately, TheStreet Ratings team rates TESLA MOTORS INC as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:
"We rate TESLA MOTORS INC (TSLA) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. However, as a counter to these strengths, we find that the company's profit margins have been poor overall."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- TSLA's very impressive revenue growth greatly exceeded the industry average of 3.7%. Since the same quarter one year prior, revenues leaped by 100.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The debt-to-equity ratio is somewhat low, currently at 0.91, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. To add to this, TSLA has a quick ratio of 1.56, which demonstrates the ability of the company to cover short-term liquidity needs.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Automobiles industry and the overall market, TESLA MOTORS INC's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for TESLA MOTORS INC is currently lower than what is desirable, coming in at 31.56%. Despite the low profit margin, it has increased significantly from the same period last year. Despite the mixed results of the gross profit margin, TSLA's net profit margin of -2.64% significantly underperformed when compared to the industry average.
- You can view the full analysis from the report here: TSLA Ratings Reports