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.
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 regulatory credits sales that help to improve automotive gross margin.
Let’s take a look!
What Is Tesla’s Automotive Sales?
The following snapshot illustrates the company’s automotive 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 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 2021.
Over the past 6 years, Tesla’s automotive sales revenue has been on an explosive growth, reaching nearly $10 billion as of 2Q 2021 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 Shanghai Gigafactory.
Therefore, you are seeing an explosive growth rate in automotive sales during fiscal 2020 and 2021 in which 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 2021, Tesla’s automotive sales revenue grew even stronger as seen in the chart, and reached multiple new highs in fiscal 2021.
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 2021 Q2, Tesla’s automotive sales revenue reached as much as $35 billion on a TTM basis, a record high for the company.
Year over year, the 2Q 2021 result grew higher by 75% compared to the same quarter a year ago.
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 2021, Tesla’s gross margin has improved dramatically to as much as 26% in Q2 2021 on a TTM basis, representing a 4 percentage points improvement over the same quarter a year ago.
Despite the COVID-19 outbreak and microchip crisis plaguing the automotive industry, Tesla’s automotive sales revenue gross margin has remained resilient and even thrived as reflected in the growing gross margin in the last 3 years.
Despite the record automotive sales gross margin, the figure may further improve in the foreseeable future considering the volume expansion driven by the launch of the Model Y.
The added volume from Model Y will further increase efficiency and reduce costs in operations and thereby improving 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 the 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 2Q 2021.
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 contribute the biggest part of the revenue to the company.
In the last 5 years, this ratio has remained quite steady at 80%, illustrating the significant dominance of the automotive sector to the company.
Therefore, Tesla’s car 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 2Q 2022, Tesla’s automotive sales revenue grew 13% quarter over quarter and is in line with the historical average growth rate.
YoY Growth Rates
Tesla’s YoY growth rate is much better than the sequential growth rate.
On average, Tesla reported a much higher YoY growth rate at 57%.
In 2021 2Q, Tesla’s automotive sales revenue grew 101%, which was way above its historical average growth rate.
Regulatory 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 $1.5 billion in 2020.
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 extends as carbon credit revenue may disappear altogether when other automakers have caught 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 26% in 2Q 2021 compared to the one without emission credits revenue which is reported to be only 22% in the same quarter.
Therefore, the gap shows a difference of as much as 4% which is considered quite significant.
Without carbon credits revenue, Tesla could only achieve an automotive sales gross margin of only 22% on a TTM basis in the latest quarter.
Moreover, the gap in the plots above is getting larger, illustrating the growing regulatory credits revenues that Tesla has been having.
Tesla’s automotive sales revenue is the dominant revenue stream at a ratio of more than 80% of total sales.
This ratio has not changed much in the last 5 years, indicating the importance of automotive sales to the company as the main revenue source.
Tesla’s automotive sales also include revenue streams from the sales of carbon credits and this amount totaled $1.5 billion in fiscal 2020.
Tesla’s automotive sales gross margin is inflated by the sales of carbon credits, notably at a 4% difference as of 2Q 2021 on a TTM basis.
Despite having a record gross margin of 26%, this figure will further expand, driven primarily by the delivery of Model Y which will grow the production volume, and thereby improve operational efficiency.
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.
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