Even the most famous investors can get things wrong. Like all of us, they must filter through a lot of information and invest their money with the best probability of delivering returns -- even if it means betting a stock will decline. And occasionally a company that looks sketchy finds its groove, causing the stock to shoot higher.
That's what has happened over the last few years with Tesla (TSLA +0.07%). Investors like Jim Chanos, David Einhorn, and Michael Burry of The Big Short fame have all taken turns predicting the demise of the electric vehicle (EV) maker. The result has been quite the opposite. And these charts show just how much financial momentum the company has built up.
Image source: Tesla.
Headwinds can't slow it down
Automakers have faced significant challenges in the past few years. Lockdowns, stretched supply chains, and inflation have wreaked havoc on the companies trying to get vehicles off the assembly line and to customers. In the first quarter of 2022, auto sales in the U.S. fell 12% versus the prior year.
It's been a different story for Tesla. Although production was flat quarter over quarter, it was up 69% versus last year. It has done this while managing to steadily increase gross margin -- what's left of revenue after the cost of sales. While the industry bemoans multiple cost pressures, Tesla seems to be defeating them.
Data source: Tesla. Chart by author.
Cash is king
One way to see if those better gross margins are flowing through the financial statements is to look at cash from operations. Indeed, Tesla's cash from operations has spiked since 2018. And it's actually far outpacing the company's operating income.
That's one number experts look for to indicate accounting shenanigans -- the ratio of operating cash flow to income. It can be a red flag if it's consistently less than 1.0. Tesla gets the all clear. The company is actually much stronger than its income statement indicates. It is generating a lot more cash than is getting reported as operating income.
Data source: Tesla. Chart by author.
Cleaning up the balance sheet
That's allowing it to eliminate huge chunks of both short and long-term debt. Tesla's debt dwarfed its annual earnings just a few years ago. Now the obligations don't even add up to what analysts believe it will earn this year. In the most recently completed quarter, Tesla reduced its debt by $2 billion -- the balance now stands at about one-third of what it was at the same time last year.
TSLA Current Debt & Capital Lease Obligation (Annual Per Share) data by YCharts
All systems are go
Tesla has a controversial past. That had to do with the financial prospects, the steep valuation, and periodic outlandish claims and behavior from CEO Elon Musk. Some things never change.
One thing that has changed is the number of naysayers. And for good reason. It is gaining profitability through a difficult economic environment, it is printing cash, and it is eliminating obligations that had been a risk factor. While some are still skeptical about the prospects of the stock, the numbers show the company is only getting stronger.
