Tesla Motors, Inc. (NASDAQ: TSLA) reported a net loss of $889 million and average shareholders' equity of $1 billion for the full-year 2015, resulting in a return on equity (ROE) of -88.9%. Tesla's priority is growth, not profitability, so the company will likely continue to invest in property, corporate infrastructure, marketing and distribution in the near future. The company's generally accepted accounting principles (GAAP) net losses cause it to lag auto industry peers significantly on ROE, while asset turnover and financial leverage are similar to those of competitors.
Tesla is still a relatively young company experiencing an explosive growth phase, and companies in this position generally do not prioritize profitability. Instead, growth companies use capital generated from equity raises, such as the initial public offering (IPO), to fund product development, corporate infrastructure buildout and aggressive sales and marketing functions. Since the company began disclosing financial results, it has not recorded net profits for any full year. ROE has, therefore, been negative throughout Tesla's recent history, with returns ranging from -227% to -19%. The year 2015 marked recent highs for both net losses and shareholders' equity. To dissect ROE and understand which factors drive returns, DuPont analysis is a useful tool.
With net losses of $889 million and total revenue of $4.0 billion, Tesla's net margin was -22% in 2015. This value is significantly wider than the -3.7% in 2013 and -9.2% in 2014, but net margin was approaching or below -100% throughout most of Tesla's publicly disclosed operating history. Selling, general and administrative (SG&A) expenses grew 54% and research and development (R&D) expenses climbed 53%, while revenue only rose 27%. Continued investment in future growth will likely keep net margin negative in coming years.
Tesla's revenue of $4.0 billion and average assets of $7.0 billion in 2015 resulted in an asset turnover of 0.58. This marks a reduction from 1.14 in 2013 and 0.77 in 2014 as asset growth has outpaced that of sales. Tesla raised nearly $750 million from a secondary offering in 2015, much of which was used to finance an expansion in property, plant and equipment (PP&E) that will be used to generate revenue in future periods. The temporary impact of these actions reduces the magnitude of ROE.
Tesla's average assets of $7 billion and average shareholders' equity of $1 billion in 2015 resulted in an equity multiplier of 6.97. The equity multiplier is a measure of financial leverage, with larger values representing more leverage. Rather than focusing exclusively on debt, the equity multiplier implicitly considers all liabilities as sources of financing and compares these to the amount of equity capital. Tesla's 2015 equity multiplier is one of the highest results since financial results became publicly available. Since the company's 2010 IPO, the lowest equity multiplier was 1.86, suggesting Tesla is relying increasingly heavily on liabilities to finance its operations as the business grows. The largest increases in Tesla's liabilities in 2015 were related to the resale value guarantee program, deferred revenue and accounts payable.
It is difficult to draw meaningful comparisons between Tesla and its auto manufacturer peers. Most large automakers are mature, established companies with very different capital structures and growth outlooks. Many of these competitors are also reliably profitable in most stages of the economic cycle. Moreover, Tesla is diversifying operations by spreading into the energy storage market, which is a serious departure from auto industry norms.
Among peers, ROEs range from 3.5% for Fiat Chrysler Automobiles N.V. (NYSE: FCAU) to General Motors Company's (NYSE: GM) 26.5%. Ferrari N.V. (NYSE: RACE) leads the group on net profit margin at 10.6%. In 2015, asset turnover for the group was relatively high, with most companies falling within the range of 0.7 to 1.1, which Tesla has lagged since its secondary offering. High financial leverage is common in the automobile industry, with participants such as Fiat Chrysler and General Motors maintaining equity multipliers above 7.0, so Tesla is similar to peers in this regard.