Tesla Purchases Number of Levers To Generate More Income
Cash flows when evaluating a company's finances and its stock but cash flows need to be viewed over a multi-year timeframe and especially not on a one quarter basis. There are too many initiatives or levers that management can use that make cash flows look better or worse than expected.
Payments can be withheld from vendors for an extra few days or weeks, capital expenditures can be delayed or inventory can be drawn down that temporarily increase cash flows. Managements may decide to spend cash on items when it gives them a good return such as paying an invoice early to gain an additional discount or make a bulk purchase to get a better price. These can be smart decisions that benefit the company and shareholders but make cash flows lower than they would be otherwise.
Tesla does not provide a complete cash flow statement in its shareholder letters so a complete picture cannot be determined but there is enough information that shows a large amount of the positive free cash flow generated in the September quarter was created by one-time events. One of the initial positives from Tesla's September quarter was the $424 million provided by operating activities (up from $150 million in the June quarter and a negative $203 million a year ago) and $176 million in free cash flows (vs. a negative $144 million in the June quarter and negative $596 million a year ago), respectively. This helped the stock to rally the day after the earnings announcement to a high of $213.70 on Thursday (up over $11 from the close on Wednesday) but fell during the day to close at $204.01 (up $1.77) and has continued to fall every day since where it is trading at about $198 this afternoon.
In September 2014 and 2015 Tesla's accounts payable and accrued liabilities increased by $239 and $82 million, respectively, from the June to September quarters. This year they increased by a combined $628 million.
Accrued liabilities consist of taxes payable, accrued purchases, payroll & related costs and warranty and other. These are detailed in Tesla's 10-Q filing so when it is available we will have some more information and what may have driven the large increase.
While the company's cost of goods and various expenses have increased over the same timeframe, which should drive an increase in these line items, it does appear that they were larger than normal and helped generate some of the positive free cash flow.