Tesla’s (NASDAQ:TSLA) goal is to transform the world from using fossil fuels 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 products that produce zero emissions.
To this end, not only does the company design and manufacture sophisticated electric vehicles but also designs and builds some of the world’s largest energy storage and solar energy generation 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.
This article delves into Tesla’s automotive sales revenue, gross margin, growth rates, and emission credits sales that help to boost automotive gross margin.
Let’s take a look!
What Is Tesla’s Automotive Sales?
The following snapshot illustrates the overview of Tesla’s business unit and the respective revenue streams:
As shown in the snapshot above, Tesla’s automotive sales are revenue streams generated from multiple segments, including new vehicle deliveries, revenue recognized from multiple sources such as Supercharger network, autopilot and autonomous driving as well as sales of regulatory credits.
Tesla’s automotive sales fall under the automotive business sector.
The other revenue stream that partially contributes to the automotive sector is the automotive leasing revenue which is discussed in this article: Tesla’s automotive leasing.
While Tesla’s automotive sales revenue may seem diverse, it actually boils down to only the revenue stream generated from car sales.
The revenues recognized from the Supercharger network, autopilot, autonomous driving, and regulatory credits are only a byproduct of Tesla’s vehicle sales.
Without car sales, these secondary revenue streams will not exist.
Tesla’s Automotive Sales Revenue (Quarterly)
The chart above illustrates Tesla’s quarterly automotive sales revenue for the period from fiscal 2015 to 2022.
Over the past 8 years, Tesla’s automotive sales revenue has been on an explosive growth, reaching $20 billion as of 4Q 2022 on a quarterly basis.
Tesla’s automotive sales growth is driven primarily by the company’s flagship product – the Model 3.
Tesla’s Model 3 is first delivered only from the Fremont Gigafactory and now, it is also delivered from the Shanghai Gigafactory.
Therefore, you are seeing an explosive growth rate in automotive sales between fiscal 2020 and 2022 when the production ramp was started at the Shanghai Gigafactory.
Tesla is adding another flagship product – the Model Y – for production ramp.
The Model Y is a mass-produced electric car that is meant for mass-market adoption.
As such, the Model Y will certainly contribute a substantial amount of sales to automotive sales revenue when the production ramp of this model is at full capacity sometime in the future.
Tesla’s automotive sales revenue seems to defy the disruption caused by the pandemic, including the microchip shortages.
Between fiscal 2020 and 2022, Tesla’s automotive sales revenue grew even stronger as seen in the chart, and reached multiple new highs in fiscal 2022.
Tesla’s Automotive Sales Revenue (TTM)
From a trailing 12-month (TTM) perspective, the uptrend of Tesla’s automotive sales revenue is clearly displayed.
As of 2022 Q4, Tesla’s automotive sales revenue reached a massive $69 billion on a TTM basis, a record high for the company.
Year over year, the 4Q 2022 result grew by 51% compared to the same quarter a year ago, or by 9% from the previous quarter.
Will Tesla’s automotive sales grow even higher in 2023? Most likely.
The fact is that EV adoption as of 2022 comprised only a tiny bit of the overall automotive market.
Therefore, there are plenty of opportunities for the biggest EV maker in the world.
More importantly, Tesla’s market share as of 2022 Q4 has not even reached 5% on a worldwide basis, according to the Q4 quarterly release.
Tesla’s Automotive Sales Gross Margin
The higher the gross margin, the better the profitability is for Tesla’s automotive sales revenue.
Between fiscal 2018 and 2022, Tesla’s automotive sales gross margin has improved dramatically to 28.1% in Q4 2022 on a TTM basis, down slightly from the same quarter a year ago.
Despite the COVID-19 outbreak and microchip crisis plaguing the automotive industry, Tesla’s automotive sales gross margin has remained resilient and even thrived as reflected in the expanding gross margin since 2018.
Going into 2023, automotive sales gross margin may be on track to top 30% when production volume expands.
For your information, Tesla’s EV sales have not even reached 2 million units as of 2022 on an annual basis.
With multiple Giga factories around the world on track to expansion, Tesla will sell even more vehicles in the future.
Moreover, Tesla has been aggressively adding new models to its lineup such as the Model Y, Cybertruck, Tesla Semi, etc.
The addition of Giga factories and new models will further expand Tesla’s production volume, increase efficiency and reduce costs, hence, improving the gross margin.
Ratio Of Tesla Automotive Sales To Total Revenue
As the chart shows, Tesla’s automotive sales revenue contributes an average of 80% of sales to total revenue.
The remaining portion is from other segments, including automotive leasing, services, and the energy division.
The ratio was higher in fiscal 2016 at more than 90% but has declined to slightly below 85% as of 4Q 2022.
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.
Nevertheless, at over 80% of total sales, Tesla’s automotive sales make up the biggest part of the revenue.
Since 2019, this ratio has remained steady at around 80%, illustrating the significant dominance of the automotive sector to the company.
Therefore, it is probably an understatement to say that Tesla’s vehicle sales (excluding the leasing segment) have been the main growth driver for the company all this while.
Quarterly Growth Rates
On average, Tesla’s automotive sales revenue grows 13% sequentially.
In 4Q 2022, Tesla’s automotive sales revenue grew 15% quarter over quarter and is in line with the historical average growth rate.
A trend worth mentioning is that there are only a few quarters with negative sequential growth rates as shown in the chart.
Therefore, Tesla’s automotive sales quarterly growth rates have been quite impressive.
YoY Growth Rates
For Tesla’s YoY growth rates, the results are much better than the sequential growth rate.
On average, Tesla reported a much higher YoY growth rate of 57% since 2016.
In 2022 4Q, Tesla’s automotive sales revenue grew 35%, down significantly from the historical average figure.
Despite the lower growth rate, Tesla’s automotive sales have been extremely impressive.
Automotive Sales Without Carbon Credits Revenue
Regulatory credits revenue made up a certain percentage of Tesla’s automotive sales revenue.
Investors argued that the company’s automotive gross margin has been inflated by the sales of the carbon credits, which totaled more than $1.7 billion in 2022.
Investors are worried about the unsustainability of the sales of regulatory credits, as carbon credits are largely a by-product of the production and sales of zero-emission vehicles.
This argument is true to some extent as carbon credit revenue may disappear altogether when other automakers catch up with Tesla in terms of producing and selling zero-emission vehicles.
All told, the chart above shows the difference in automotive sales gross margin with and without regulatory credits revenue.
Accordingly, Tesla’s sales of carbon credits revenue do inflate the gross margin as reflected in the plots above.
With the help of the emission credits revenue, Tesla’s automotive sales gross margin improved tremendously to 28% in 4Q 2022 compared to the one without emission credits revenue which is reported to be only 26% in the same quarter.
Therefore, the gap shows a difference of as much as 2% which is considered quite significant.
Without carbon credits revenue, Tesla could only achieve an automotive sales gross margin of only 26% on a TTM basis in the latest quarter.
Moreover, the gap in the plots above is getting larger, illustrating the growing regulatory credit revenues that Tesla has been having.
Therefore, the verdict is that Tesla’s emission credit sales help to boost automotive sales margins and profit.
Tesla’s automotive sales revenue is the dominant revenue stream at a ratio of more than 80% of total sales.
This ratio has slightly increased since 2019, indicating the importance of automotive sales to the company as the main revenue driver.
Tesla’s automotive sales also include revenue streams from the sales of carbon credits and this amount totaled $1.8 billion in fiscal 2022.
Tesla’s automotive sales gross margin is inflated by the sales of carbon credits, notably at 2% as of 4Q 2022 on a TTM basis.
Despite having a record gross margin of 28%, this figure will most likely further grow, driven primarily by volume expansion which will result in better operational efficiency and cost reduction.
References and Credits
1. Financial figures in this article were obtained and referenced from financial statements available in Tesla SEC Filings. Some of the figures were the author’s own calculations.
2. Featured images in this article are used under creative commons license and sourced from the following websites: Jakob Härter.
The content in this article is for informational purposes only and is neither a recommendation nor a piece of financial advice to purchase a stock.
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