1. Introduction

Tesla, Inc. is a disruptive innovation in the automotive and clean energy industries founded in 2003 by Elon Musk. To provide a thorough understanding of Tesla's operational efficiency, financial stability, profitability, and investor appeal, this financial analysis will examine the company's financial performance using ratio analysis, including liquidity, solvency, profitability, and investment ratios.

In recent years, the automotive industry has undergone an important change, with an increasing emphasis on environmentally friendly practices. The electric vehicle industry is rapidly evolving, with a range of vehicle types and technologies being developed [1]. Compared to conventional vehicles, EVs can substantially reduce greenhouse gas and air pollutant emissions in regions with a low proportion of coal-based electricity [2]. As a key strategy for reducing greenhouse gas emissions, the electrification of the global vehicle fleet, specifically through the implementation of electric vehicles (EVs), is regarded as crucial [3]. Traditional automakers like Mercedes-Benz, BMW, and Volkswagen as well as more recent arrivals like BYD and NIO are competitors in the EV industry. In this shift, Tesla has been a leader, driving the advancement of sustainable energy technology and electric cars. The company's product line includes a wide range of items, including solar panels, powerwall, charging, AI, and electric vehicles like the Model S, Model 3, Model X, and Model Y. They also add new products to their catalog, such as Roadster and Cybertruck. A key factor in Tesla's success and distinctive advantage in the automotive industry is its technology and innovation, which includes features like over-the-air (OTA) software updates, battery technology, and autopilot. OTA updates improve vehicle performance, functionality, safety, security, and user experience. Autopilot enables full self-driving in almost all situations. Tesla's Gigafactories, committed to battery production, promote large-scale manufacturing of batteries for its electric vehicles and energy storage products. Tesla serves a wide range of customers, including both private individuals and businesses, who are interested in implementing environmentally friendly energy and transportation choices.

Tesla's revenue comes from a diverse of sources. Sales of vehicles, production of energy, technology of storage, and various services all bring a mass profit to the company. The growing global demand for renewable energy and electric vehicles may attributes to Tesla’s revenue growth. Due to its strong competitive impact on the traditional automotive and energy industries, people pay attention to Tesla's financial performance closely. Because of its competitive effect on the traditional automotive and energy industries, experts, investors, and stakeholders closely follow Tesla's financial performance.

Numerous studies that have examined Tesla, Inc.'s performance, benefits and prospects have done financial analysis of the company. Ratio analysis was utilized by Almenhali and Huang to evaluate the profitability, liquidity, activity, cash flow, and debt ratio of the organization [4, 5]. They emphasized the effects of Tesla's combination with SolarCity on its finances and offered suggestions for interested parties. According to Cao’s study, Tesla must analyze financial indicators, improve its accounting practices, and launch new products to maintain its competitive advantage [6]. As a leader in sustainable energy and transportation, Huang emphasized Tesla's financial stability and earning potential even more [7]. In contrast, Qin conducted a comparative analysis of its financial performance in relation to its industry rivals [8]. By combining these studies, an in-depth comprehension of Tesla's financial position and prominence in the industry can be attained.

This analysis provides people a complete view on Tesla's financial strengths, weaknesses, and opportunities. Investors can use this analysis to assess Tesla's growth potential, so they can make wise investment decisions and adapt the rapidly changing automotive and clean energy markets. In addition, policymakers can use this analysis to understand market trends, regulatory effects, and the broader impact of Tesla's innovative solutions on the global economy and environment.

2. Liquidity

The liquidity ratios, encompassing the current ratio, quick ratio, and cash position, form an integral part of financial assessment tools. These metrics are pivotal in gauging a company's capacity to fulfill short-term financial obligations and navigate liquidity risks adeptly. Within the financial realm, the liquidity ratio stands as a fundamental determinant for survival [9]. Conversely, solvency ratios, such as the debt-to-equity ratio, debt ratio, and interest coverage ratio, offer insights into Tesla's enduring financial well-being and debt handling strategies, serving as predictive indicators for potential corporate insolvency [10]. Furthermore, profitability ratios, including the gross profit margin, operating profit margin, and net profit margin, shed light on Tesla's prowess in generating profits from operational endeavors, adeptness in managing operating expenses, and potential for enhancing shareholder value. Moreover, investment ratios like return on assets (ROA) and return on equity (ROE) gauge Tesla's efficiency in leveraging assets to yield income and furnish returns to shareholders, constituting widely adopted benchmarks for assessing managerial efficacy by creditors, investors, and management teams alike [11].

Table 1: Liquidity ratios of Tesla and its competitors.

As shown in Table 1, Tesla has the highest current ratio compared to BYD, Toyota, and Mercedes-Benz. The current ratio is determined through the division of a company's current assets by its current liabilities. A higher current ratio signifies stronger short-term liquidity. Tesla surpasses its counterparts in efficiently leveraging short-term assets to fulfill short-term liabilities, showcasing an optimal capability in this aspect.

The quick ratio is a stronger indicator of liquidity. Because sometimes the inventory might be difficult to convert into cash quickly, it is excluded from the current assets. A business's current assets, excluding inventory, are divided by its current liabilities to get the quick ratio. When comparing Tesla to BYD, Toyota, and Mercedes-Benz, the company has the greatest quick ratio and appears to have a better short-term liquidity position than the others concerning its current liabilities. Tesla maintains a substantial amount of cash and cash equivalents on hand, thereby increasing its current assets and quick ratio. Additionally, the outstanding sales performance and revenue generation of Tesla may result in increased cash inflows, which would have a beneficial impact on its quick assets. Furthermore, in relation to its current assets, Tesla has a small number of short-term debt obligations, which results in a higher quick ratio.

The cash ratio compares current liabilities to cash and cash equivalents, the only assets that is considered the most liquid. Among the four mentioned firms, Tesla possesses the highest cash ratio. This means that its cash and cash equivalents add up to the largest proportion of its current liabilities. A high cash ratio indicates that Tesla displays significant capacity to meet its immediate financial obligations using its easily accessible cash reserves, without the need to convert other assets.

3. Solvency

Table 2: Solvency ratios of Tesla and its competitors.

Table 2 above shows the debt to equity ratio, debt ratio, and interest coverage ratio of Tesla and the other three competitors. The debt to equity ratio measures the percentage of the total equity in relation to the total debt of a company. This measure indicates that a firm’s capital structure consists of debt rather than equity. Tesla's debt-to-equity ratio is the lowest among all companies of 0.15. This suggests that Tesla is less reliant on debt financing and less exposed to financial risk.

The debt ratio juxtaposes a company's total debt against its total assets, revealing the proportion of assets financed through debt. A lower debt ratio implies enhanced solvency and reduced financial risk. Based on the debt ratio of 0.09, Tesla demonstrates a comparatively low degree of leverage in relation to its overall assets. Consequently, Tesla owes $0.09 in debt for each dollar of assets.

The Interest Coverage Ratio assesses a company's ability to meet its interest obligations with its operating income. A higher ratio indicates a stronger ability to cover interest obligations and implies a reduced level of financial risk. Tesla's interest coverage ratio of 56.99 underscores its robust capability to meet interest obligations through its operating income. This indicates that Tesla's operating income exceeds its interest expenses by a factor of approximately 57. The advanced ratio indicates that Tesla's operating income is sufficient to cover all of its interest, thereby promoting the company's financial well-being and stability. Creditors and investors generally view a high interest coverage ratio positively. It reflects the operational efficiency and profitability of the company.

4. Profitability

Table 3: Profitability ratios of Tesla and its competitors.

The gross profit margin of a company showcases the portion of revenue remaining after deducting the cost of goods sold (COGS). A heightened gross profit margin signifies greater success, indicating that the company retains a larger proportion of revenue as gross profit. Among these four companies shown in Table 3, Mercedes-Benz has the highest gross profit margin of 22.44% in 2023. This indicates that Mercedes-Benz had the most effective cost control over production and possibly the strongest pricing power. With a gross profit margin of 18.25%, Tesla achieved a relatively high ratio. It increases the probability that Tesla's material costs are reduced or the company has greater pricing power than its competitors.

The operating margin is a metric used to assess the percentage of a company's revenue that is subtracted from operating expenses. Mercedes-Benz maintained the greatest operating profit margin among these four firms. The fact that Tesla achieved the second-highest operating profit margin of 9.19% indicates that the company effectively manages costs and has a solid capacity to convert sales into pre-tax profits. BYD has the lowest operating profit margin of 5.84%, which is nearly half the value of Mercedes-Benz. This indicates that BYD may be experiencing difficulty controlling its operational expenses or may not be generating sufficient revenue in relation to these expenses. It also signals to investors that the company's cost structure and operating strategy need further evaluation. High operating margins are considered a sign of effective management and great profit potential. This indicator is crucial when comparing the operating efficiency of firms in the same industry. According to the data presented in Table 3, Mercedes-Benz has the highest probability of sustaining its operations and expanding profitably in competitive EV markets.

The net profit margin measures the percentage of revenue that remains as net income following the deduction of various expenses, such as operating costs, interest, taxes, and miscellaneous revenue and expenses. It provides a comprehensive viewpoint on the overall profitability and efficiency of a company's revenue conversion process into visible profits. At 15.50%, Tesla exhibited the highest net profit margin among all four companies analyzed, a significantly higher figure. This indicates that Tesla effectively manages its expenses and generates a profit from its business activities. Tesla is the most profitable company and has also been able to efficiently manage difficult financial situations. BYD's net profit margin, meanwhile, was the lowest at 4.99%. That means BYD doesn't have enough capacity to turn sales into visible profits. This situation could stem from inefficiencies in management practices and elevated material expenses. It could pose concerns, especially if the ratio significantly lags behind the industry norm. Moreover, investors find this ratio pivotal as it offers a glimpse into Tesla's profitability per unit of sales, a factor directly influencing investment yields.

5. Investment

Table 4: Investment Ratios of Tesla and its Competitors.

ROA is usually calculated by dividing a company's net income by the average total assets. Individuals can determine how efficiently a firm converts its assets into earnings using this ratio. It assesses the effectiveness of management in transforming available resources into net income. As Table 4 shown, Tesla's ROA is 14.07% which is significantly greater than other businesses in 2023. This shows that Tesla is effectively turning its assets into net income. It also indicates competent leadership and the potential to dominate the industry. Toyota has the lowest return on assets (ROA) of any company at 3.30%, with a less efficient strategy for using its assets to generate earnings. This situation may be the result of ineffective asset allocation, poor management decisions, or a competitive EV market environment. The ratio helps to assess the performance of companies in different industries regardless of the amount of their assets. Through the application of ROA, investors are able to determine the probability of a good return on their investment. As a result, investing in Tesla offers the greatest potential for earning a decent return.

Return on equity, or ROE, shows how much of a company's gains are given back to its shareholders. This ratio is an indicator of the efficiency with which the firm converts its investment into revenue. It is very important when comparing how profitable different companies in the same business are. Compared with the other three companies, Tesla's ROE of 23.58% indicates that the shareholder's money is being well spent to make money. he ratio is a sign of Tesla's solid financial health and effective management. On the other hand, at 8.38%, Toyota had the lowest return on equity of the four businesses. This means that Toyota may not be making the best use of shareholder cash to make money. Therefore, it may not be wise to buy or hold Toyota stock.

6. Conclusion

This paper presents a comprehensive financial analysis of Tesla and compares its financial condition with BYD, Toyota, and Mercedes-Benz. Tesla demonstrates a strong financial position, as indicated by its impressive current ratio, quick ratio, and cash ratio. Tesla's operational efficiency and financial health are reflected positively by its strength in liquidity. In addition, it is noteworthy that Tesla has a low debt-to-equity ratio and debt ratio. Based on the measurements, Tesla has a lower dependence on debt financing. This helps to minimize financial risk and makes the company able to adjust for economic downturns. With a high interest coverage ratio, it is evident that Tesla can comfortably cover interest expenses. These indicators highlight the company's strong financial management and effective management of debt obligations. Tesla's profitability ratios underscore its impressive ability to generate profits. Tesla showcases strong cost management, pricing strategies, and revenue generation through its high gross profit margin, operating profit margin, and net profit margin. These margins demonstrate Tesla's specialization in efficiently converting revenue into profits at various stages of operations, highlighting its strong competitive advantage and strategic market positioning. In addition, Tesla's impressive ROA and ROE demonstrate the company's effective use of assets and shareholder equity to generate strong returns. Maintaining a high return on assets indicates Tesla's proficiency in generating profits from its assets, while a high return on equity demonstrates the company's ability to provide strong returns to its shareholders' investments. These ratios demonstrate the impact of Tesla's operations on its financial strength and market performance, benefiting both investors and shareholders.

The analysis found that Tesla's current advantages are outweighed by disadvantages. The financial statistics of Tesla showcase a strong financial base, organized operations, and shareholder value creation, establishing the company as a leader in the automotive and renewable energy sectors.