They just barely became profitable recently. I don’t think P/E is super informative right now.
Like Amazon, they reinvest basically all of what they take in in growth, so don’t end up with much in the way of profit. (Historically they’ve invested more than 100% of what they’ve taken in in growth, relying on selling equity. Recently it’s started to be slightly less.)
So, I think you want to look at revenue, and project revenue growth and future gross margin to get the equivalent of a P/E ratio.
I don’t get how (re)investing should lower the profits? I mean they are buying assets and not burning the cash in the backyard. Are there instant depreciations on investments, lowering the profit?
Buying physical assets generally doesn’t lower profits, but accountants don’t have a good way to treat R&D, or investment in human capital, as investments.
Hmm, good question. I actually don’t have a good sense of how much of that is assets that remain on the balance sheet (e.g. manufacturing equipment) vs stuff like paying their employees to figure out how to make the batteries better, or how to set up the factory more efficiently.
And paying employees to figure stuff out would show up as just costs on the balance sheet, rather than assets, unless you actually patented something, right? (I don’t actually know accounting super well.)
EDIT: It’s intuitive to me though that when you’re growing revenue at 50% annually (as Tesla has since 2013), you’re just not going to be able to spend money as efficiently as when you’re operating at, or close to, the same scale from one year to the next. (That is, efficiently in terms of short-term profit and loss. From a long-term perspective it might be very efficient, if the spending is enabling future growth.)
I’m not sure exactly where that’s most likely to show up on an accounting statement. But I do think it’s what you’d expect by default. And it’s how startups operate. You spend to grow, and you don’t expect to be profitable right away. Tesla should perhaps be thought of as a rare public company that still operates like a high-growth startup.
They just barely became profitable recently. I don’t think P/E is super informative right now.
Like Amazon, they reinvest basically all of what they take in in growth, so don’t end up with much in the way of profit. (Historically they’ve invested more than 100% of what they’ve taken in in growth, relying on selling equity. Recently it’s started to be slightly less.)
So, I think you want to look at revenue, and project revenue growth and future gross margin to get the equivalent of a P/E ratio.
Good point. I’m not familiar with TSLA, just poking at some sanity checks.
I don’t get how (re)investing should lower the profits? I mean they are buying assets and not burning the cash in the backyard. Are there instant depreciations on investments, lowering the profit?
Buying physical assets generally doesn’t lower profits, but accountants don’t have a good way to treat R&D, or investment in human capital, as investments.
Hmm, good question. I actually don’t have a good sense of how much of that is assets that remain on the balance sheet (e.g. manufacturing equipment) vs stuff like paying their employees to figure out how to make the batteries better, or how to set up the factory more efficiently.
And paying employees to figure stuff out would show up as just costs on the balance sheet, rather than assets, unless you actually patented something, right? (I don’t actually know accounting super well.)
EDIT: It’s intuitive to me though that when you’re growing revenue at 50% annually (as Tesla has since 2013), you’re just not going to be able to spend money as efficiently as when you’re operating at, or close to, the same scale from one year to the next. (That is, efficiently in terms of short-term profit and loss. From a long-term perspective it might be very efficient, if the spending is enabling future growth.)
I’m not sure exactly where that’s most likely to show up on an accounting statement. But I do think it’s what you’d expect by default. And it’s how startups operate. You spend to grow, and you don’t expect to be profitable right away. Tesla should perhaps be thought of as a rare public company that still operates like a high-growth startup.