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Tesla Largest Revenue Streams

The Interior of a Model 3. Flickr Image.

Tesla’s (NASDAQ:TSLA) goal is to transform the world from using fossil fuel to renewable energy. To realize the goal, the company has embarked on a mission that has never been attempted by anyone in this world before, and that is building cars and energy generation systems that produce zero emissions.

To this end, not only does the company design and manufacture sophisticated electric vehicles, it also designs and builds some of the world’s largest energy storage as well as solar energy generation systems.

As such, Tesla gets its revenue streams from multiple sources such as automobiles, energy storage and electricity generated from solar energy systems.

On the surface, the company’s revenue source may seem diversified. In reality, Tesla has been dominated by a single revenue stream all these years, and that dominant revenue stream has been none other than the automotive sales revenue.

The following snapshot illustrates the company’s business units and their respective revenue streams:

Tesla revenue segments

Tesla revenue segments

As shown in the snapshot above, Tesla’s automotive sales revenue is comprised of revenue streams from multiple segments such as new vehicle deliveries, revenue recognized from the use of Supercharger network and the sales of regulatory credits.

This article focuses on Tesla’s automotive sale revenue which falls under the automotive business segment but separated from its leasing unit. Moreover, we will also cover the automotive sales gross margin and the respective growth rates over multiple quarters.

Let’s dive in!

Chart of Tesla’s Automotive Sales Revenue (Quarterly)

Tesla automotive sales revenue (quarterly)

Tesla automotive sales revenue (quarterly)

The chart above illustrates Tesla’s quarterly automotive sales revenue from 2015 to 2020.

Over the past 5 years, Tesla’s automotive sales revenue has been on an uptrend, rising significantly from $1 billion in 2015 to $5 billion in 2020 on a quarterly basis.

The uptrend is clearly displayed from 2018 to 2020 when revenue growth is seen reaching new highs in multiple quarters. The exponential growth has been largely due to the delivery ramp of Tesla’s flagship product – the Model 3.

Tesla posted automotive sales of nearly $5 billion in 2Q 2020 which represents a sequential growth rate of 0.5% or -5% on a comparable basis.

Between 2018 and 2019, automotive sales revenue has fluctuated dramatically between new highs and lows. While automotive sales revenue took a beating in 1Q 2019 compared to the prior quarter, lower by 42% sequentially but still higher by 37% on a year-over-year basis, the uptrend continued afterward and reached multiple highs in 2019.

Additionally, Tesla’s automotive sales revenue seemed to defy the disruption initiated by the COVID-19 pandemic in 2020.

While most major automakers in the U.S such as General Motors and Ford suffered a serious blow to their sales, Tesla’s automotive sales emerged undisrupted and chugged along relatively well since the beginning of 2020.

Chart of Tesla’s Automotive Sales Revenue (TTM)

Tesla automotive sales revenue (ttm)

Tesla automotive sales revenue (ttm)

From a trailing 12-months (TTM) perspective, the uptrend of the automotive sales revenue is even more obvious.

As of 2020 Q2, Tesla’s automotive sales revenue reached $21.1 billion on a TTM basis, one of the highest reported since 2015.

Year over year, the 2Q 2020 result grew slightly higher at 2.4%.

Tesla’s Automotive Sales Gross Margin (Quarterly)

Tesla automotive sales gross margin (quarterly)

Tesla automotive sales gross margin (quarterly)

In terms of gross margin, the figure improved dramatically to 24.4% in Q2 2020, a nearly 40% improvement over the quarter a year ago.

Moreover, we are seeing a steady improvement in automotive sales gross margin since 2017. The figure has improved from 15.5% in 3Q17 to 24.4% in the latest quarter.

Tesla’s Automotive Sales Gross Margin (TTM)

Tesla automotive sales gross margin (ttm)

Tesla automotive sales gross margin (ttm)

From a TTM standpoint, the automotive sales gross margin displayed a similar uptrend, improving from 17.6% in 2Q18 to 22.9% in the latest quarter.

Despite the COVID-19 outbreak, Tesla’s automotive sales revenue gross margin remained unbreakable and even thrived, kudos to the executive team in the company for being able to successfully cut costs and streamline production.

Ratio of Tesla Automotive Sales to Total Revenue

Ratio of Tesla automotive sales to total revenue

Ratio of Tesla automotive sales to total revenue

The chart above shows Tesla’s automotive sales revenue as a percentage of total revenue for the past 5 years from 2015 to 2020.

As the chart shows, Tesla’s automotive sales contributed an average of 80% of sales to total revenue. The remaining revenue contribution came from automotive leasing and the energy division.

Over the 5 years, we can see that the ratio has declined steadily and reached 81% in 2020 2Q. The ratio was around 90% back in 2015 but it dropped over the years.

The decline may have been caused by the expansion of Tesla’s other business units such as the energy sector as well as the services revenue all these years.

At over 80% of total sales, the automotive sales unit remained as the company’s largest and most important revenue stream, illustrating the significant dominance of the automotive sector to the company.

Tesla’s Automotive Sales Revenue QoQ Growth

Tesla automotive sales revenue qoq growth

Tesla automotive sales revenue qoq growth

On average, the automotive sales revenue QoQ growth rate was roughly 12%. Accordingly, sequential growth has been largely positive for the past 20 quarters.

Automotive sales sequential growth was specifically extraordinary in 2018 when Tesla posted positive figures in all quarters. This positive result was largely due to the Model 3 delivery ramp in 2018.

In 2Q 2020, Tesla’s automotive sales revenue grew 0.4% quarter over quarter to $4.91 billion.

Tesla’s Automotive Sales Revenue YoY Growth

Tesla automotive sales revenue yoy growth

Tesla automotive sales revenue yoy growth

Tesla’s YoY growth rate was much better than the sequential growth.

On average, Tesla reported a YoY growth rate of 55% for the past 18 quarters.

Despite the high double-digits YoY average growth rate, Tesla’s automotive sales revenue declined year-over-year by 5% in Q2 2020.

Tesla’s Automotive Sales Gross Margin With and Without Regulatory Credits Revenue (Quarterly)

Tesla automotive sales gross margin without regulatory credits (quarterly)

Tesla automotive sales gross margin without regulatory credits (quarterly)

Regulatory credits revenue made up a certain percentage of Tesla’s automotive sales revenue. Investors argued that the company’s gross margin has been inflated by the sales of the carbon credits, which totaled nearly $500 million in 2Q 2020 alone.

The argument has been about the unsustainability of the regulatory credits revenue, as the sales have been largely a by-product of the manufacturing and sales of zero-emission vehicles. Slowly, this revenue may disappear altogether when other automakers catch up with Tesla in producing and selling of zero-emission vehicles.

Nevertheless, the chart above shows the difference in gross margin with and without regulatory credits revenue.

Accordingly, the carbon credits revenue did make a difference in the gross margin as reflected by the plots above.

The most obvious gap was seen in 2020 2Q, in which the regulatory credits revenue managed to boost the automotive sales gross margin by as much as 7%.

Similarly, Tesla’s automotive sales gross margin was inflated by as much as 6% in 1Q 2020 with the help of the carbon credits revenue.

Tesla’s Automotive Sales Gross Margin With and Without Regulatory Credits Revenue (TTM)

Tesla automotive sales gross margin without regulatory credits (ttm)

Tesla automotive sales gross margin without regulatory credits (ttm)

On a TTM basis, the gap between the automotive sales gross margin with and without regulatory credits has slowly widened and reached the largest at 4% in 2020 2Q.

The widening gap has been mainly attributed to the growing revenue from regulatory credits in recent quarters.

Again, Tesla’s regulatory credits have indeed inflated the automotive sales gross margin.

With the help of the emission credits revenue, the automotive sales gross margin improved tremendously and reached a new high at 23% in 2Q 2020 since 2019.

Without the carbon credits revenue, Tesla could only achieve an automotive sales gross margin of only 19% on a TTM basis in the latest quarter.

Conclusion

Tesla’s exceptional automotive sales revenue growth illustrates the dominance of the automotive sector and the proportion of the revenue that the automotive sector contributes.

In this aspect, the automotive sales revenue has been the single largest revenue stream for the company, contributing well over 80% of sales to the company.

In fact, the automotive sales revenue will become even more dominant moving forward when the newly launched Model Y goes mainstream, possibly surpassing the result of Model 3.

For this reason and judging from the fact that there has been no breakthrough in the energy sector, the automotive sales revenue will likely remain as the single largest revenue stream for Tesla for years to come.

References and Credits

1. Financial figures in all charts and tables were obtained from Tesla SEC Filings.

2. Featured images in this article are used under creative commons license and sourced from the following websites: Jakob Härter.

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