The electric car manufacturer Tesla Inc., based in Palo Alto, California, has never paid a dividend to its investors, and it doesn’t look like it will pay dividends any time soon.

Why Tesla doesn’t pay dividends

It’s up to Tesla’s board of directors to decide when it’s suitable to begin paying dividends. They’re tasked with overseeing that management is working towards maximizing the business’ value, and it’s their responsibility to make sure that leaders of the company use cash in the best interest of shareholders. (Executives and board of directors of public companies are chosen by shareholders, however.)

Elon Musk, Tesla’s CEO, has made it clear that the company’s immediate goal is to continue growing and expanding in the luxury car sector. In fact, one of Tesla’s key short-term initiatives is to produce half a million Model 3 luxury sedans. That’s an ambitious goal considering Tesla produced only 84,000 of this model in 2016.  

Why can’t Tesla expand production and pay dividends at the same time?

Dividends represent a sum of money paid to shareholders by a company from its profits or cash reserves. When a company’s executives or its board think that free cash is better off reinvested in the business, rather than distributed to shareholders, they can decide not to pay dividends.

Source: Business Insider

Capital expenditures are investments a company makes to increase future revenue or profitability. So, when Tesla buys new machinery or manufacturing plants, it incurs capital expenses that most of the time are required to be paid in cash.

Tesla may have many initiatives at any given time, but its stated primary goal has been to increase manufacturing capacity to meet production needs in all of its divisions. This goal requires a strategy that depends on internally generated cash as well as more cash funding from other sources like requesting cash loans from investors.

In fact, you can see from sections of Tesla’s income statements that while revenue continues to increase, it has incurred net losses for the past three years. If you’ve invested in Tesla, don’t panic; these losses don’t necessarily mean Tesla is struggling. It simply means the company is spending more money than it’s generating, which is often the case with innovative fast growing companies.

Tesla’s capital expenditures are one reason it needs to use its cash in the best way possible. And for the near future, it looks like management and director views expanding the company as a greater priority than paying dividends.

This doesn’t mean investors in Tesla can’t make a profit from investing in the company, however. Dividends are just one way shareholders see profit from their investments. If Tesla stock increases in value, shareholders will also see positive returns.

When will Tesla pay dividends?

Short answer: no one knows.

It’s impossible to tell with 100% certainty when Tesla might pay dividends, and it’s important to remember that not all public companies do. Many companies start paying dividends once they become profitable for an extended period of time, while others choose never to pay them.

You also may be invested in Tesla on Stash. Several ETFs available on Stash have exposure to Tesla. One example is Global Citizen.

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And while Tesla doesn’t pay dividends, Global Citizen has exposure to over 7,000 companies many of which pay dividends. This is one of the benefits of diversifying with ETFs, you can buy a fund made up of companies that have varying policies on dividend payments.

Just looking for some dividends? Stash has an investment for that (Tesla not included). Check out Delicious Dividends, an ETF with companies that have a history of paying dividends.
New to ETFs? You can find our introduction here: Now That’s What I Call an Investment! ETFs Explained