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Tesla Largest Revenue Streams

The Interior of a Model 3. Flickr Image.

As we all know, Tesla (NASDAQ:TSLA) is a leading automotive company in the world. Not only does the company design and manufacture electric vehicles, it also designs and builds the world’s largest and most sophisticated energy storage systems. In addition, it also involves in battery design that has enabled some of its flagship electric vehicles to have the longest travel distance in the world.

With that said, Tesla is currently enjoying multiple revenue streams that not only come from selling automobile products but also from the sales of energy storage products as well as electricity generated from its solar energy systems. As diverse as its revenue source may seem, one important and largest revenue stream that has been dominating the company over the years has been none other than the automotive sales revenue.

Tesla automotive sales has been the main revenue stream for the company since its inception. This revenue source is comprised of multiple segments such as automotive sales with and without resale value guarantee as well as income generated from the sales of regulatory credits.

Although the automotive sales revenue has been the most important source of income for Tesla, it is actually separated from its second most important automotive revenue stream which is the automotive leasing revenue. The following snapshot illustrates the company’s business hierarchy which is divided into two main segments: (1)automotive and (2)energy.

Tesla business hierarchy

Tesla business hierarchy

In this article, we will focus on Tesla’s automotive sales which falls under the automotive business segment but separated from its leasing unit. We will discuss about the revenue trend and its respective gross margin as well as the growth rate over multiple quarters.

For detailed discussion on how automotive sales revenue is recognized in the income statement, please visit this page: Tesla Revenue Recognition.

Chart of Tesla Automotive Sales Revenue

Tesla automotive sales revenue 2014-2019

Tesla automotive sales revenue

The chart above illustrates Tesla’s quarterly automotive sales revenue for the past 5 years from 2015 to 2019.

On a long-term basis, Tesla’s automotive sales revenue has been on an uptrend over the 5-year period. The uptrend is more significant in recent years such as 2018 and 2019 when revenue growth is seen reaching new highs in multiple quarters. The exponential growth observed has been largely coincided with the delivery ramp of Tesla’s flagship product – Model 3.

Tesla posted record automotive sales of $6.1 billion in 4Q 2019 which represents a sequential growth rate of as much as 19.7% or 1.2% on a comparable basis. Between 2018 and 2019, automotive 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% on a sequential basis but still higher by 37% on a year-over-year basis, the uptrend continued afterward and reached record high at the end of 2019.

Tesla Automotive Sales Gross Margin

Tesla automotive sales gross margin

Tesla automotive sales gross margin

In terms of gross margin, the average automotive sales gross margin for the past 20 quarters has been 22%. Tesla had stated multiple times that it would try to maintain the gross margin at around 20% and from the results above, it looks like the company has successfully done it by keeping gross margin above 20% in multiple quarters between 2018 and 2019.

Automotive sales gross margin was 21.6% in 4Q 2019 which was slightly lower compared to the same quarter a year ago but was still above the 20% threshold promised by the company. On a long-term basis, automotive sales gross margin has remained more or less flattened, showing neither improvement nor decline and the trend will likely remain so moving forward.

While gross margin at 20% seems reasonably high, it is still significantly lower compared to the company’s leasing revenue which averages about 40% gross margin. In other words, Tesla’s leasing business is much more profitable, in fact twice as much as that of automotive sales.

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 quarterly automotive sales revenue as a percentage of total revenue for the past 5 years from 2015 to 2019.

As the chart shows, Tesla’s automotive sales contributed in average of more than 80% of sales to total revenue. The remaining revenue contribution was made up by automotive leasing and energy segment.

Automotive sales was more than 90% of total revenue back in 2015 but the ratio dropped significantly in 2017 to around 75%. The decline may have been caused by the expansion of Tesla’s other business segments in 2017. Besides, Model 3 was still in the development stage in the same year, causing automotive sales to remain flat in 2017 as seen from the revenue chart.

The ratio slowly climbed up to the 80% level and remained so between 2018 and 2019. As of 4Q 2019, Tesla’s automotive sales remained as the largest revenue stream for the company at 83% total revenue, illustrating the importance and the dominance of the automotive sector in revenue contribution to the company.

Tesla Quarterly Automotive Sales Sequential Growth (Q/Q)

Tesla automotive sales QoQ growth rate

Tesla automotive sales QoQ growth rate

The chart above shows Tesla’s quarterly automotive sales revenue sequential growth rate (in percentage) for the past 5 years from 2015 to 2019.

From a calculation which I did not show here, the average automotive sales quarterly growth rate for the past 20 quarters was around 14% which is considerably good. As the chart shows, sequential growth has been largely positive for the past 20 quarters, with most quarters recording positive numbers.

Automotive sequential growth was specifically outstanding in 2018 when Tesla posted positive growth rates in all quarters. This scenario was largely due to the Model 3 exceptional delivery results in 2018.

Sequential growth in 2019 was not bad either, with both quarters reporting high double-digit growth rates. In 4Q 2019, Tesla posted a quarterly growth rate of 19.7% when it achieved record high of quarterly automotive sales revenue of more than $6 billion.

Tesla Quarterly Automotive Sales Year Over Year Growth (Y/Y)

Tesla automotive sales YoY growth rate

Tesla automotive sales YoY growth rate

The chart above represents Tesla’s quarterly automotive sales revenue year over year (YoY) growth rate (in percentage) for the past 4 years from 2016 to 2019.

Compared to sequential growth, Tesla’s YoY growth rate is even more impressive. As the chart shows, all quarterly results reported positive growth rates except 3Q19 when the company posted a yoy growth rate of -12.7%. Similarly, the best YoY result was achieved in 2018 when Tesla reported triple digits growth rates in 2 consecutive quarters, far exceeding the results of other quarterly growth rates.

From my calculation, the average YoY automotive sales growth rate between 2016 and 2019 was close to 60%, indicating that Tesla has been growing at an exceptional rate despite being around for more than 10 years since its IPO in 2010.

While Tesla’s automotive sales has reached new high in 4Q 2019 at more than $6 billion of quarterly revenue, the respective YoY growth rate was only 1.2% which is far lower than the sequential growth rate of 19.7% recorded in the same quarter.

Conclusion

Tesla has achieved the impossible task of exceptional revenue growth as seen from its double digits QoQ and YoY automotive sales revenue growth over the past 5 years. The company has done this literally with only a single product which is the best selling Model 3.

While other vehicles such as Model S and Model X are undeniably appealing, their deliveries has been far lower than that of Model 3. Besides, these models are considered premium products which only go into production when customers have confirmed their order. This is unlike the Model 3 where mass manufacturing is being done and only the selected models are available for the mass market.

As of Q1 2020, Tesla stated that Model Y production has already started and the delivery will be approximately at the end of Q1 or early of Q2 2020. For your information, Model Y is similar to Model 3 and both models are sharing similar designs and platforms so that mass production and deliveries can be made possible.

With the launch of Model Y, I believe Tesla will most likely achieve new sales record and the automotive sales revenue will likely remain as the single largest revenue stream for the company now and in future.

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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