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Tesla Automotive Leasing Revenue Tops $1 Billion

Charging a Tesla Model S. Flickr Image.

Tesla’s revenue streams consist of multiple sources, including the automotive and energy sector.

Aside from these 2 major sectors, Tesla also gets its revenue source from services such as the sales of used vehicles, parts and repairs.

Under the automotive sector, one revenue stream that we have often overlooked is the automotive leasing revenue.

While Tesla’s automotive leasing revenue has only been able to make up less than 5% of the company’s total sales in 2021, its profitability may surprise you.

For your information, Tesla’s automotive leasing has a gross margin that is north of 40% in fiscal 2021 and this figure has been rising.

In addition to its highly profitable operation, Tesla’s automotive leasing revenue also has been growing at more than 20% since fiscal 2020 on a year-on-year basis, driven primarily by the launch of the Model 3 leasing program in the same fiscal year.

Aside from revenue growth, the number of vehicle deliveries as a result of leasing sales also has been growing as depicted in the following snapshot.

Tesla's vehicle deliveries from leasing sales

Tesla’s vehicle deliveries from leasing sales

In the 2Q 2021 quarter alone, Tesla’s vehicle deliveries from leasing sales grew more than 200% year-over-year, one of the best growth rates the company has ever seen since 2020.

More importantly, the launch of the Model Y leasing program will further drive revenue growth and boost margin.

Therefore, Tesla’s automotive leasing sector has great potential for years to come and is one segment that should not be overlooked by investors.

In this article, we are going to dive into the details of Tesla’s automotive leasing, including taking a close look at the gross margin, revenue ratio and growth rates in 2021.

Let’s stay tuned!

Tesla’s Automotive Leasing Segment

Tesla’s automotive leasing sector is clearly illustrated in the following diagram:

Tesla automotive leasing business

Tesla automotive leasing business

As shown, Tesla’s automotive leasing is located under the automotive sector and is in the same hierarchy as that of automotive sales.

Tesla’s automotive leasing segment gets its revenue stream from 2 leasing methods, and they are

(1) direct leasing, and
(2) leasing with a resale value guarantee.

Direct leasing is where Tesla gets more of its leasing revenue while the company is doing less with leasing with a resale value guarantee.

In addition, I believe leasing with a resale value guarantee is only available in North America all this while.

Tesla’s Automotive Leasing Revenue – Quarterly

Tesla's quarterly automotive leasing revenue

Tesla’s quarterly automotive leasing revenue

* Automotive leasing revenue is a GAAP measure and is obtained directly from Tesla’s quarterly and annual income statements.
* Tesla’s fiscal year begins on Jan 1 and ends on Dec 31.

Let’s first look at Tesla’s quarterly automotive leasing revenue for the period from fiscal 2015 to 2021.

As shown in the chart above, Tesla’s quarterly automotive leasing revenue has been on a rise and reached as much as $332 million as of 2Q 2021.

While automotive leasing revenue has increased in the last 5 years, it declined significantly in fiscal 2018.

However, the decline of Tesla’s automotive leasing revenue in 2018 was driven primarily by the change in accounting standards for leasing revenue.

Therefore, the declining revenue is not market-driven and therefore, can be safely ignored.

On the other hand, Tesla’s automotive leasing revenue of $332 million reported in 2Q 2021 represents a growth rate of 24%, one of the best quarters the company has ever seen since fiscal 2020.

Tesla’s growing automotive leasing revenue has been a result of the launch of the Model 3 leasing program which started way back in 2019 as shown in the following snapshot.

Tesla Moel 3 leasing data

Tesla Model 3 leasing started in 2Q 2019. Source: Tesla 2Q 2019 Update Letter

In short, Tesla’s automotive leasing has been rising in both revenue figures and vehicle delivery numbers.

Going forward, Tesla’s automotive leasing will further expand when the company adds another flagship product – the Model Y – to its leasing program.

Tesla’s Automotive Leasing Revenue – TTM

Tesla's TTM automotive leasing revenue

Tesla’s TTM automotive leasing revenue

* TTM data consist of the sum of Tesla’s quarterly automotive leasing revenue on a trailing 12-month or 4-quarter basis.
* Tesla’s fiscal year begins on Jan 1 and ends on Dec 31.

The quarterly plot may look bumpy and it’s hard to see a trend in the quarterly plot.

Therefore, to smooth out the quarterly plot, the TTM or trailing 12-month plot for Tesla’s automotive leasing revenue is created as shown in the chart above.

The TTM plot clearly shows the uptrend of Tesla’s automotive leasing revenue from 2019 and onward.

As of 2Q 2021, Tesla’s TTM automotive leasing revenue reached $1.2 billion USD, a new record for the company.

Tesla’s Automotive Leasing Gross Margin – Quarterly

Tesla's quarterly automotive leasing gross margin

Tesla’s quarterly automotive leasing gross margin

* Automotive leasing gross margin is a GAAP measure and is calculated based on the ratio of Tesla’s automotive leasing gross income to leasing revenue.
* Tesla’s fiscal year begins on Jan 1 and ends on Dec 31.

Tesla’s automotive leasing gross margin measures the automotive leasing business profitability.

Take note that the gross margin takes into account only the costs of revenue.

Other expenses such as R&D, administrative, marketing and interest charges are not accounted for during the measure of the gross margin.

That said, the higher the automotive leasing gross margin, the better the profitability is.

As shown in the chart above, Tesla’s automotive leasing gross margin averages around 42% and has been increasing since fiscal 2018.

Keep in mind that the automotive leasing gross margin is the highest at more than 40% on average when compared to other business segments.

In other words, Tesla’s automotive leasing is the most profitable business segment in the company, even outdoing that of the automotive sales.

As of fiscal 2Q 2021, Tesla’s automotive leasing gross margin stood at 43%, roughly flat when compared to that of the same quarter a year ago.

At this figure, Tesla makes a gross profit of more than $0.40 for every $1.00 of sales generated from automtive leasing.

Tesla’s Automotive Leasing Gross Margin – TTM

Tesla's TTM automotive leasing gross margin

Tesla’s TTM automotive leasing gross margin

* TTM stands for trailing 12-month.
* Tesla’s fiscal year begins on Jan 1 and ends on Dec 31.

Similarly, the quarterly automotive leasing gross margin plot may not clearly display the long-term trend.

Therefore, the TTM plot for the automotive leasing gross margin is created in the chart above to smooth out bumps seen in the quarterly plot.

As shown, the trend clearly shows that Tesla’s automotive leasing gross margin has been rising steadily since 2017 and hit nearly 50% in fiscal 2020.

However, Tesla’s TTM automotive leasing gross margin dipped slightly to 45% as of fiscal 2021 Q2.

While Tesla’s TTM gross margin has declined partially from its high in 2021, it was still one of the highest at more than 40% among all business sectors in the company.

At this ratio, Tesla’s automotive leasing sector is the most profitable compared to other business segments.

One of the explanations for the high gross margin can be attributed to the fact that the assets (leased vehicles) are still owned by Tesla, and therefore, the lower costs of revenue for the leased assets.

Besides, leased vehicles also command a higher leased revenue compared to retail sales which explains the higher gross margin.

All in all, Tesla’s automotive leasing is a high-margin business.

Ratio of Tesla’s Automotive Leasing Revenue to Total Revenue

Tesla's automotive leasing to total revenue ratio

Tesla’s automotive leasing to total revenue ratio

* Ratio is calculated by the author based on the TTM automotive leasing revenue and TTM total revenue.
* Automotive leasing revenue and total revenue are both GAAP measures and are obtained directly from Tesla’s income statements.
* Tesla’s fiscal year begins on Jan 1 and ends on Dec 31.

The chart above represents the ratio of Tesla’s automotive leasing revenue to total revenue expressed in percentage for the period from fiscal 2015 to 2021.

The ratio measures the portion of Tesla’s automotive leasing revenue with respect to total revenue.

Accordingly, we can see that the ratio has decreased over time from around 10% reported in fiscal 2015 to only 3% as of fiscal 2Q 2021.

While automotive leasing revenue has been on a rise, the ratio has gone in the opposite direction, indicating that the leasing revenue contribution to total revenue has been getting smaller.

The contrasting direction means that Tesla’s other revenue segments such as automotive sales have grown at a much faster rate than the automotive leasing sector.

At only 3% of total revenue, Tesla’s automotive leasing sector does not make much of an impact on the company’s secular growth, no matter how profitable the business is.

In the end, Tesla needs to boost its automotive leasing revenue in order to make a bigger contribution to the company’s total revenue.

Tesla’s newly launched Model Y can definitely help to grow the company’s leasing revenue aside from the established Model 3.

Tesla’s leasing revenue will certainly accelerate in the coming quarters when the roll-out of the new Model Y comes to full throttle.

Besides, with the completion of the Gigafactory Shanghai in China and the setting up of a financial leasing unit in China, Tesla leasing revenue will undoubtedly explode in the future.

Tesla’s Automotive Leasing Revenue Quarterly Growth

Tesla's automotive leasing revenue QoQ growth rates

Tesla’s automotive leasing revenue QoQ growth rates

* QoQ growt rates are calculated by the author.

According to the chart, Tesla’s automotive leasing may have grown the most in the early years such as during 2016.

For example, sequential growth rates were well over 20% in 2016.

While QoQ growth rates may have been flat between 2017 and 2018, Tesla’s leasing revenue growth came roaring back again in 2019 when the company introduced the Model 3 leasing program.

As of Q2 2021, Tesla reported a whopping 11.8% higher automotive leasing revenue compared to the previous quarter.

Tesla’s Automotive Leasing Year Over Year Growth

Tesla's automotive leasing revenue YoY growth rates

Tesla’s automotive leasing revenue YoY growth rates

* YoY growt rates are calculated by the author.

Tesla experienced even better YoY growth rates compared to its sequential growth rates for automotive leasing revenue as depicted in the chart above.

Tesla’s automotive leasing revenue YoY growth may have been flat between fiscal 2018 and 2019, it came back throughout 2020.

In 2020, Tesla’s automotive leasing revenue grew mostly in double-digit rates, due mainly to the launch of the Model 3 leasing in 2019.

Since 2020, Tesla’s automotive leasing revenue growth rates have been on a tear, growing at more than 20% year-over-year.

As of 2021 2Q, Tesla’s automotive leasing revenue grew 24% higher compared to the same quarter a year ago, one of the best quarters ever reported in the last 3 years.

Conclusion

Tesla’s automotive leasing business plays an essential role in the growth of the company although its revenue contribution was only 3% of total revenue.

While automotive leasing revenue is small relative to other revenue segments, it has been one of the most profitable business segments for Tesla when its gross margin reached nearly 50% in 2020.

This figure has been the highest of all the business sectors ìn the company.

Tesla needs to expand its lines of products to boost its leasing revenue, considering that only legacy products are available for leasing.

To this end, Tesla’s Model Y can certainly drive the leasing revenue higher in addition to boosting the margin in this sector.

References and Credits

1. All financial figures in charts and snapshots were obtained and referenced from Tesla’s financial reports available in Tesla SEC Filings.

2. Featured image was used under Creative Common Licenses and obtained from Yasunari Goto and Jeff Cooper.

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Disclosure

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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