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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 into renewable energy.

To realize its 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 and solar energy generation systems.

Other than getting sales from cars, Tesla also gets its revenue streams from multiple sources, including energy storage and electricity generated from its 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 nothing more than the automotive sales revenue.

What are Tesla’s Automotive Sales?

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

Tesla revenue segments

Tesla revenue segments. Author’s own work.

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

In short, Tesla’s automotive sales are mainly sales revenue generated from selling new cars.

The revenue streams from Supercharger network and regulatory credits are only a byproduct of Tesla’s new car sales. Without car sales, these secondary revenue streams will not exist.

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!

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 for the period from 2015 to 2020.

Over the past 6 years, Tesla’s automotive sales revenue has been on an explosive growth, reaching as much as $9 billion in 4Q 2020 on a quarterly basis.

The uptrend is clearly displayed for the period from 2018 to 2020 when revenue growth is seen hitting new highs in multiple quarters.

The exponential growth in car sales has been largely due to the delivery ramp of Tesla’s flagship product – the Model 3.

Soon, the delivery ramp of the Model Y – another mass-produced electric car – will contribute equally to the automotive sales revenue when Tesla boosts up the production capacity for this model.

In the latest quarter of 2020 Q4, Tesla posted automotive sales of $9 billion, representing a sequential growth rate of 23% or 47% on a comparable basis.

While most major automakers in the U.S such as General Motors and Ford have been negatively affected by the COVID-19 pandemic, Tesla’s automotive sales revenue seemed to defy the disruption.

Throughout 2020, Tesla’s car revenue grew stronger as reflected in the above chart and chugged along relatively well.

Tesla’s Automotive Sales Revenue (TTM)

Tesla automotive sales revenue - TTM

Tesla automotive sales revenue – TTM

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

As of 2020 Q4, Tesla’s automotive sales revenue reached more than $26 billion on a TTM basis, a new high for the company.

Year over year, the 4Q 2020 result grew higher by 30% compared to the same quarter a year ago.

Tesla’s Automotive Sales Gross Margin (Quarterly)

Tesla automotive sales gross margin - quarterly

Tesla automotive sales gross margin – quarterly

The gross margin measures Tesla’s car sales profitability before accounting for other expenses, including R&D and SGA.

The higher the gross margin, the better the profitability is for Tesla’s automotive sales.

In terms of gross margin, the figure improved dramatically to 23% in Q4 2020, an 8% improvement over the same 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 more than 20% 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 nearly 25% in the latest quarter of 2020 Q4.

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 83% in 2020 4Q. 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.

In other words, Tesla’s car sales have been the single most important revenue stream for the company all this while.

Tesla’s Automotive Sales Revenue QoQ Growth

Tesla automotive sales revenue QoQ growth rates

Tesla automotive sales revenue QoQ growth rates

On average, the automotive sales revenue QoQ growth rate has been roughly 14%. 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 4Q 2020, Tesla’s automotive sales revenue grew 23% quarter over quarter, one of the best reported quarters.

Tesla’s Automotive Sales Revenue YoY Growth

Tesla automotive sales revenue YoY growth rates

Tesla automotive sales revenue YoY growth rates

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

On average, Tesla reported a much higher YoY growth rate.

As of 2020 4Q, Tesla’s average growth rate for YoY growth was 54%.

In the 2020 4Q quarter alone, Tesla’s car sales revenue year-on-year growth was 47%, slightly lower than the average.

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

Tesla automotive sales gross margin with and without carbon credits - quarterly

Tesla automotive sales gross margin with and without carbon 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 more than $1.5 billion in 2020.

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 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 3.6% in 4Q 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 with and without carbon credits - TTM

Tesla automotive sales gross margin with and without carbon 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 4.8% in 2020 4Q.

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 25% in 4Q 2020 on a TTM basis.

Without the carbon credits revenue, Tesla could only achieve an automotive sales gross margin of only 20% 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, Tesla’s car 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 and referenced from financial statements available in Tesla SEC Filings. Some of the figures were the author’s own calculation.

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

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