Well, they'd better hurry up and do something fast if they want...

Well, they'd better hurry up and do something fast if they want to keep being able to supply the market, because the financial parameters of the company are deteriorating before our analytical eyes.

Because, the company is under-investing in fixed PP&E with capex having fallen below depreciation in recent reporting periods; and Inventory levels are not keeping up with sales (Inventory-to-Annualised Sales was 16% at the last-reported result, down from 19% in pcp.)

And, worse of all, Gross Profit Margins - the lifeline for any business - are being crunched, with the trend as follows in recent financial periods for the company's Auto Sales business:

Auto Sales GP Margin:
FY2015: 23.1%
FY2016: 23.6%
FY2017: 21.4%
FY2018: 22.1%
JH2019: 18.1% (!)



But it doesn't end there:

Tesla is involved in other associated businesses, such as Energy Generation and Storage, where it basically breaks even at the Gross Profit level, and Vehicle Servicing, which actually making losses at the GP level (and, ominously, the losses are occurring at an increasing rate: $300m loss in FY2017, $490m loss in FY2018 and $330m loss in just the first 6 months of FY2019 alone).

In other words, Teva is propping up unit sales by not only taking haircuts on GP Margins of its core products, but also by subsidising its customers with servicing that is increasingly loss-making for Tesla.

Pretty scary leading indicators for any business, especially one that is geared to the hilt and whose cost of both debt and equity capital are rising.

If the Gross Profit Margin for the Tesla Group (all business activities, not just Auto Sales), the picture looks even more bleak:

Tesla Group GP Margins:
FY2015: 22.9%
FY2016: 22.6%
FY2017: 18.9%
FY2018: 18.6%
JH2019: 13.7% (!)

A sub-14% Gross Profit Margin leaves precious little wiggle room in the way of being able to support important Cost of Doing Business Expenditure, including the mission-critical and much-vaunted R&D.

Little wonder the company's CEO talks about the need to increase prices for their vehicles.

Trouble is, already they are not meeting their internal sales targets.
Ratcheting up the price list sure isn't going to help sell more units.

It is a truly invidious, and unenviable, position for a company to find itself.

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