Tesla Gigafactory Texas. Photo: @peterdog15/Twitter
New Street Research sees Tesla (NASDAQ: TSLA) generating ~ 40% cash returns in 2023, looking at it through the lens of return on operating assets.
New Street Research analyst Pierre Ferragu takes a look at Tesla through the lens of Return on Operating Assets. The company's return on assets reached breakeven in 2018 and reached 20% in 2020. This is a reliable indicator and indicates that the company will have a cash return of 40% in 2023.
Ferragu said he sees many comments about Tesla's profitability or lack thereof. They often confuse thoughts of gross margin, segment results, exceptional or financial items, regulatory credits, although the question of whether Tesla successfully builds factories to manufacture cars and sells them is rarely discussed. The analyst points out that the only suitable way to gauge Tesla's operational profitability is to look at cash return on operating assets: "out of a dollar of assets immobilized in the ground, how much cash can Tesla generate in one year." The resulting metric is “bullet-proof.” As it is only looking at operational cash, it cannot be tuned with accounting levers and purely represent the ability of Tesla’s operation to generate cash. Thus Ferragu concludes that "increasing asset utilization will drive near doubling of return on operating assets from 20% in 2020 to 38% in 2023."
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