Financial Statement Analysis: Ford vs Tesla - Research Paper

Financial Statement Analysis Case Assignment

Executive Summary

The industry for electric vehicles and hybrids is expected to develop and grow over the years due to the increased benefits associated with the usage of these vehicles. Many countries are adopting stringent measures and regulations aimed at safeguarding the environment by reduction of emissions brought forth by fossil fuels. The year 2004 is characterized by the Ford Motor company launching the Ford Escape, which was the first petrol-electric hybrid SUV. However, the company experienced financial hiccups as its automotive operations in the international market continued to struggle despite having Ford Credit subsidiary reinforce the firm's income in 2004. Tesla Car Company focuses on speeding up the passage of the world to sustainable energy as it holds that the faster people lessen their reliance on fossil fuels, the better. Apart from building all-electric vehicles, the company also facilitates the generation of scalable clean energy and storage products. Analyzing the financial statements of a company is vital in determining the elements of financial position, operational outcomes, and the strengths and weaknesses of a company. The process is critical in identifying the changes and trends in the profitability of the company and offer the relevant data to the investors and lenders. Comparative analysis between Ford Motor Company and Tesla Car Company is crucial in evaluating the financial condition and performance of the companies.

Analysis Overview

Ford Motors Company

In 1903, Henry Ford founded the American automotive corporation and had been the leading manufacturer of automotive in the world for years. The primary operations are undertaken by this company range from financing, designing, marketing, manufacturing, and servicing vehicles. Also, the company makes the manufacturing and distribution of cars, service parts, and accessories, whose marketing takes place using Lincoln and Ford brands. The operating component of the company comprises four primary sectors, which include financial services, ford smart mobility LLC, automotive, and central treasury operations. Main activities under this component include designing, manufacturing, developing, selling, and distributing the branded vehicles and services parts, and it is the core source of revenue for the company. Besides, the financial component entails the Ford Motor Credit Company, LLC, which provides financial products and credit to the automotive dealers and retailers. The LLC is crucial as it enables the organization to draw its revenue from the payments received via lease contracts and retail installments. The company utilizes the mechanism of having a credit system that allows clients to meet their obligations at a given time such that funds obtained pay those who supply the raw materials. In doing so, the production process continues unaffected since there will be no instances of supplies failing to meet their deadlines due to lack of payment. Thus, Ford aims at maintaining a constant production process to make sure that customers get products at the right time.

The year 2004 is characterized by the company launching the Ford Escape, which was the first petrol-electric hybrid SUV. However, the company experienced financial hiccups as its automotive operations in the international market continued to struggle despite having Ford Credit subsidiary reinforce the firm's income in 2004. The company was significantly hit by a fire that destroyed its Michigan plant in the year 2018 affected the supply chain considerably. Besides, the increased war between China and the United States regarding trading activities has made it expensive for consumers to import cars from the U.S to China and vice versa due to the high prices. The imposed tariffs have resulted in the high costs of core materials required in the assembling of vehicles such as steel. In 2018, the company announced its strategic plan of focusing on the building of cars that use electric power or a combination of this power and fuel by investing $11 billion by 2022. Such an investment is a form of diversification for the company, which will play a significant role in increasing its revenues. More so, the company intends to lay off 10% of the salaried staff as they claim it's an innovative strategy where the managerial staff will be profoundly affected by this move. The announcement came after the company had invested heavily but was yet to come up with a severe battery-electric vehicle. Ford Motor Company focuses on the provision of cars that will enhance the livelihood of people by lessening emissions, accidents, and congestion on the roads. To achieve this, the company will have to increase its investment in technology. Also, partnering with other companies that will facilitate the delivery of the vehicles as well as the production of electric and battery cars by 2022. Major product lines for this company include the family of crossovers and SUVs, Lincoln luxury vehicles, The Family of Ford Cars, and the family of vans and trucks.

Ford has faced challenges in establishing electric vehicles, which include stiff competition from companies such as Tesla and BYD. The stiff competition has pressurized the company to develop efficient and technologically advanced cars to ensure that their vehicles meet the market demand. However, Ford has devised new and transformed its business strategies for it to maintain a competitive position in the industry as the leading global automobile company. Besides, the government has tightened the monetary policies, which has resulted in volatility in some nations as depicted by the devaluation of currencies. Consequently, the price of aluminum and steel has increased as well as that of oil, resulting in uncertainty in the business of Ford. The company has also experienced global uncertainty in the automotive market, which was facilitated by various aspects. For instance, the price of buying vehicles rose due to the high costs of materials used to assemble them.

Tesla Car Company

A team of engineers established Tesla car company in 2003 with the intent of manifesting that there was no need for compromising for an individual who desired to drive an electric car. They proved that electric vehicles were advantageous to the gasoline ones in that they were faster, more fun, and better to drive. Tesla focuses on speeding up the passage of the world to sustainable energy as it holds that the quicker people lessen their reliance on fossil fuels, the better (Salman, 26). Apart from building all-electric vehicles, the company also facilitates the generation of scalable clean energy and storage products. Tesla managed to enter the automobile industry by offering customers fuel-efficient products since their main objective is reducing the emissions brought forth by the use of fossil fuels. Besides, its products were offered at affordable prices, which attracted the customers. Their products stood out as many people preferred the environmentally friendly aspect of these vehicles and the fact that they did not have to undergo the hectic process of fueling. However, Ford focused on the provision of quality commodities by incorporating innovation and high technology in their manufacturing. For this reason, Ford has adequately maintained its sales volume as well as the market share.

The roadster was set in motion in 2008 and introduced the top-notch battery technology and electric powertrain built by Tesla. Afterward, the company came up with its first Model S all-electric sedan whose advantages have enhanced its acceptance in the world. The car enhances safety, has excellent efficiency and performance as well as over-the-air software updates which makes it acceptable over time. The company has also produced model X, model 3, Tesla semi, which aims at saving the user on the costs of fuel and offering safe and quick services to the user.

Apart from building the electric cars, the company aims at having a sustainable energy ecosystem by use of power pack, power wall, and solar roof, which aid in regulating the generation, consumption, and storage of renewable energy. The company has created employment by having in-house cell production, and it enhances the affordability and availability of its products to the users. All these factors have made Tesla have a tremendous competitive advantage in the industry. However, the company has faced challenges such as the reduction in federal tax credit. Such destabilization in the automotive industry has resulted from an increased interest rate imposed by the U.S. Federal Reserve. Besides, the company experiences a decline in the demand for vehicles due to the high rate of inflation, which results in the high cost of production and consequently high costs of the cars. The level of demand lowers as the consumer purchasing power declines. Besides, there is a stiff competition of the company's products based on technological progression and traditional segment classification. For example, Model X and Model S usually ace competition from products by other companies such as BMW, Mercedes, Lexus, Audi, among others.

Also, Tesla experiences the risk of substitution of products in the industry due to the existence of many companies that produce similar products. Mitigating the threat requires that the company offer quality products that have high performance. High quality involves the use of technology and innovation in the designing and manufacturing of commodities. Both Tesla and Ford should ensure that they offer safe products that are of high value to the customers, and they should engage the customers to ensure that they remain loyal to them. For instance, they could create a communication channel where that would respond to the customers' queries and concerns. Besides, maintain a content-based website that will be updated regularly is crucial in keeping customers informed of the new products at all times.

Evidential Matter

The industry for electric vehicles and hybrids is expected to develop and grow over the years due to the increased benefits associated with the usage of these vehicles. Many countries are adopting stringent measures and regulations aimed at safeguarding the environment by reduction of emissions brought forth by fossil fuels. Therefore, most companies will enhance their technology to make sure that they make vehicles that meet customers' needs. However, there exists stiff competition in the industry, as there are several companies that produce similar products. Customers have the privilege of selecting from a wide variety. Thus, to maintain a high customer base and remain competitive in the industry, companies have to ensure that their prices are competitive. Analyzing the financial statements of a company is vital in determining the elements of financial position, operational outcomes, and the strengths and weaknesses of a company. The process is critical in identifying the changes and trends in the profitability of the company and offer relevant data to the investors and lenders (Kahn & Neil, 15). Comparative analysis between ford company and tesla car company is crucial in evaluating the financial condition of the companies.

Ford Motor Company recorded annual revenue of $155,900 in 2019, $160,338 in 2018, $156,776 in 2017, $151,800 in 2016 a...