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 3% of the company’s total sales in 2022, its profitability may surprise you.
For your information, Tesla’s automotive leasing has a gross margin that is north of 40% in fiscal 2022 and this figure has been rising.
In addition to its highly profitable operation, Tesla’s automotive leasing revenue also has been growing at a YoY growth rate of nearly 50% since fiscal 2020, driven primarily by Model 3 and Model Y leasing revenue.
Aside from revenue growth, the number of vehicle deliveries as a result of leasing sales also has been growing as depicted in the following table.
Tesla deliveries attributed to leasing sales
|As at 31 Dec|
|Of Which Subject To Lease Accounting||11,034||25,439||34,470||60,912||47,582|
|% Of Leased Vehicles To Total Deliveries||4.5%||6.9%||6.9%||6.5%||3.6%|
Since fiscal 2018, Tesla’s number of vehicles on leasing revenue has been on a rise, growing from 11,000 units reported in 2018 to 48,000 units as of 2022.
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 will explore Tesla’s automotive leasing, including the gross margin, revenue share, and growth rates.
All said, let’s start with the following topics.
Tesla’s Automotive Leasing Topics
1. Automotive Leasing Business
2. Automotive Leasing Revenue By Quarter
3. Automotive Leasing Revenue By TTM
4. Gross Margin By Quarter
5. Gross Margin By TTM
6. Automotive Leasing To Total Revenue Ratio
7. Quarterly Growth Rates
8. YoY Growth Rates
10. References and Credits
Tesla’s Automotive Leasing Segment
Tesla’s automotive leasing sector is clearly illustrated in the following diagram:
As shown, Tesla’s automotive leasing is located in 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
(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
Let’s first look at Tesla’s quarterly automotive leasing revenue for the period from fiscal 2015 to 2022.
As shown in the chart above, Tesla’s quarterly automotive leasing revenue has been on a rise and reached as much as $600 million as of 4Q 2022.
While automotive leasing revenue has increased on a long-term basis, it slightly declined between 2018 and 2020.
The decline in Tesla’s automotive leasing revenue in 2018 was driven primarily by a change in accounting standards for leasing revenue.
Therefore, the declining revenue in 2018 was not market-driven and therefore, can be safely ignored.
As of 2022, Tesla’s quarterly automotive leasing revenue has significantly grown from that of 2021 to more than $500 million per quarter.
Tesla’s Automotive Leasing Revenue – TTM
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 displays the uptrend of Tesla’s automotive leasing revenue from 2020 onward.
As of 4Q 2022, Tesla’s TTM automotive leasing revenue came in at $2.5 billion USD, a record high for the company and roughly in line with that of the prior quarter.
The 4Q 2022 result represents a year-on-year growth of 51%.
While the quarterly chart shows a flat revenue trend for Tesla’s automotive leasing in the past 5 quarters, the TTM chart shows otherwise.
For example, Tesla’s TTM automotive leasing has been on significant growth in the last 5 quarters as shown in the chart above.
Tesla’s Automotive Leasing Gross Margin – Quarterly
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 measurement 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 Tesla’s automotive leasing gross margin is among the highest at more than 40% compared to other business segments.
Therefore, Tesla’s automotive leasing is among the most profitable business segment in the company, even exceeding that of automotive sales.
As of fiscal 4Q 2022, Tesla’s automotive leasing gross margin stood at 41%, up about 4 percentage points from a year ago.
At this figure, Tesla makes a gross profit of nearly $0.40 for every $1.00 of sales generated from automotive leasing.
Tesla’s Automotive Leasing Gross Margin – TTM
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 the bumps seen in the quarterly plot.
As shown, the TTM plot clearly shows the rising trend of Tesla’s automotive leasing gross margin since 2017 which hit 48% in fiscal 2020.
However, Tesla’s TTM automotive leasing gross margin dipped slightly to 39% as of fiscal 2022 Q4.
While Tesla’s TTM gross margin has declined partially from its record high in 2022, it was still one of the best at 40% among all business sectors in the company.
At this ratio, Tesla’s automotive leasing sector is among the most profitable business.
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
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 2022.
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 4Q 2022.
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 opposing 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 more models, including 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 Rates
As seen in the chart, Tesla’s automotive leasing sequential growth rates were much in 2021 than in 2022.
For example, Tesla’s automotive leasing sequential growth rates were in the high single digits in 2021 compared to negative figures reported in 2022.
As of Q4 2022, Tesla’s automotive leasing revenue declined 3.5% on a quarterly basis compared to a rise of 5.6% reported in the prior quarter.
Tesla’s Automotive Leasing Year Over Year Growth
Tesla experienced much better YoY growth rates compared to its sequential growth rates for automotive leasing revenue as depicted in the chart above.
As shown, Tesla’s automotive leasing revenue YoY growth rates had been positive and in high double digits since 2020.
As of 2022 4Q, Tesla’s automotive leasing revenue declined by 4.6%, the first year-on-year decline since 2020.
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 as the gross margin crosses 40% on average.
This figure has been the highest among all 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 this article were obtained and referenced from Tesla’s financial reports which are available in Tesla SEC Filings.
2. Featured image was used under Creative Common Licenses and obtained from Yasunari Goto and Jeff Cooper.
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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