≡ Menu

Advertisement


Tesla Automotive Leasing Revenue Tops $1 Billion

Charging a Tesla Model S. Flickr Image.

Tesla’s sales come from multiple business segments.

These business segments are broken down into 2 major categories, which are

(1) automotive, and
(2) energy.

In the automotive segment, the business is further divided into 2 categories, which are:

(1) automotive sales, and
(2) automotive leasing.

This article focuses on Tesla’s automotive leasing business.

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

Tesla automotive leasing business

Tesla automotive leasing business

The above snapshot shows where Tesla’s automotive leasing business is located under the automotive sector and how the company’s automotive leasing business generates its revenue.

In this case, Tesla’s automotive leasing business gets its sales revenue from 2 leasing methods, which are

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

Again, this article talks mainly about Tesla’s automotive leasing business and the respective automotive leasing revenue.

Other than the revenue, we will also look at the automotive leasing gross margin.

For your information, the automotive leasing gross margin measures the profitability of Tesla’s automotive leasing business.

Let’s get started!

Tesla’s Automotive Leasing Revenue

According to Tesla’s financial reports, its automotive leasing revenue is recognized under the lease accounting guidance.

Tesla’s automotive leasing revenue comes from several leasing methods:

1. Direct vehicle leasing program, and
2. Leasing program with resale value guarantee.

The leasing program with resale value guarantee is further divided into 2 categories:

(a) Vehicle sales to leasing partners with a resale value guarantee and a buyback option, and
(b) Vehicle sales to customers with a resale value guarantee where exercise is probable.

I will not go into a detailed discussion of the revenue recognition method for leasing revenue.

For readers who are interested in revenue recognition, please visit this page which talks a little about the revenue recognition guideline: Tesla Revenue Recognition.

Chart of Tesla’s Automotive Leasing Revenue – Quarterly

Tesla automotive leasing revenue (quarterly)

Tesla automotive leasing revenue (quarterly)

* Automotive leasing revenue is a GAAP measure and is shown as reported in Tesla’s quarterly and annual reports.

The chart above shows Tesla’s quarterly automotive leasing revenue for the period from 2015 to 2020.

Tesla’s quarterly automotive leasing revenue reached new highs in 2017 but dropped badly in 2018.

Fear not, the drop in Tesla’s automotive leasing revenue in 2018 from the prior year was due to a change in revenue recognition for leasing revenue.

Therefore, the decline was mainly caused by a change in accounting methods.

Moving forward, we can see that Tesla’s automotive leasing revenue charged higher steadily and reached $280 million in 4Q 2020, a new high for the company since 2018.

The increase in Tesla’s automotive leasing revenue since 2019 has been largely driven by the debut of the Model 3 leasing in 2Q 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

Chart of Tesla’s Automotive Leasing Revenue – TTM

Tesla automotive leasing revenue (ttm)

Tesla automotive leasing revenue (ttm)

* TTM numbers came from the author’s own calculation and consist of the sum of Tesla’s quarterly automotive leasing revenue on a trailing 12-month or 4-quarter basis.
* Quarterly automotive leasing revenue is a GAAP measure and is extracted from Tesla’s income statements.

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.

Tesla reached more than $1 billion in automotive leasing revenue as of 4Q 2020 on a TTM basis, a new achievement for the company.

Tesla’s Automotive Leasing Gross Margin – Quarterly

Tesla automotive leasing gross margin (quarterly)

Tesla automotive leasing gross margin (quarterly)

* Automotive leasing gross margin is a GAAP measure and came from the author’s own calculation using Tesla’s automotive leasing revenue and automotive leasing cost of revenue.

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 yet in the gross margin.

Therefore, the higher the automotive leasing gross margin, the better the chance is for the automotive leasing business to make a profit.

All told, the chart above shows Tesla’s quarterly automotive leasing gross margin for the period from 2015 to 2020.

Tesla has an average automotive leasing gross margin of around 42%.

This figure is the highest among all Tesla’s business segments.

In other words, Tesla’s automotive leasing has been the most profitable business segment at a gross margin north of 40%.

The quarterly plot above shows that Tesla’s automotive leasing gross margin has steadily increased in the last 3 years and reached nearly 50% in 2020.

As of 4Q 2020, Tesla’s automotive leasing gross margin stood at 47%.

At this figure, Tesla makes a gross profit of $0.47 dollar for every $1.00 dollar of sales.

Tesla’s Automotive Leasing Gross Margin – TTM

Tesla automotive leasing gross margin (TTM)

Tesla automotive leasing gross margin (TTM)

* TTM automotive leasing gross margin came from the author’s own calculatio using the TTM automotive leasing revenue and TTM automotive leasing cost of revenue.
* TTM automotive leasing gross margin is a GAAP measure.

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 quarterly plot.

As shown, Tesla’s automotive leasing gross margin has been rising steadily since 2017.

As of Q4 2020, Tesla’s automotive leasing gross margin reached 46.5% on a TTM basis, one of the new highs for the company.

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

The high automotive leasing gross margin can be explained by the fact that the assets (leased vehicles) are still under Tesla’s ownership.

As a result, the costs of revenue for automotive leasing revenue are primarily the depreciation of the leased asset over the leased term.

Besides, leased vehicles may command a higher leased price compared to retail sales which explains the high 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 automotive leasing to total revenue ratio

Tesla automotive leasing to total revenue ratio

* Ratio is calculated by the author using TTM automotive leasing revenue and TTM total revenue.
* Automotive leasing revenue and total revenue are both GAAP measures and can be obtained directly from Tesla’s income statements.

The chart above represents the ratio of Tesla’s automotive leasing revenue to total revenue expressed in percentage for the period from 2015 to 2020.

The ratio measures the size of Tesla’s leasing revenue with respect to total revenue expressed in percentage.

Accordingly, we can see that the ratio has decreased over time from around 10% reported in 2015 to slightly less than 4% reported in 4Q 2020.

The declining ratio shows how insignificant the leasing revenue has become for Tesla over the years.

While Tesla’s leasing business has been the most profitable with a gross margin north of 40%, the size of its revenue contribution represents only 4% of total revenue as of Q4 2020.

Consequently, Tesla’s automotive leasing may 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 increase its leasing revenue to make a bigger impact on the company’s automotive leasing business.

Additionally, higher leasing sales will also contribute to higher gross margins which may improve the overall gross margin and hence, higher profitability for the company.

Tesla’s Automotive Leasing Revenue Quarterly Growth

Tesla automotive leasing QoQ growth rates

Tesla automotive leasing QoQ growth rates

* QoQ growt rates are calculated by the author using Tesla’s quarterly automotive leasing revenues.
* Automotive leasing revenue is a GAAP measure and can be obtained directly from Tesla’s income statements.

The plot above represents Tesla’s automotive leasing revenue quarterly growth rates between 2015 and 2020.

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 Q4 2020, Tesla reported a whopping 5.7% higher automotive leasing revenue compared to the previous quarter.

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 Year Over Year Growth

Tesla automotive leasing YoY growth rates

Tesla automotive leasing YoY growth rates

* YoY growt rates are calculated by the author using Tesla’s quarterly automotive leasing revenues.
* Automotive leasing revenue is a GAAP measure and can be obtained directly from Tesla’s income statements.

Tesla experienced even better YoY growth rates compared to its sequential growth rates for automotive leasing revenue as depicted in the chart above for the period from 2016 to 2020.

Tesla’s automotive leasing revenue YoY growth may have been flat between 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.

As of 2020 4Q, Tesla’s automotive leasing revenue grew 24% higher compared to the same quarter a year ago.

Therefore, if the growth rates persist consecutively, we will be certain that Tesla’s automotive leasing business would not just be recovering but also expanding.

Conclusion

Tesla’s automotive leasing business plays an essential role in the growth of the company although its revenue contribution was less than 4% 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% throughout 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.

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.

Trending Articles That You Might Be Interested

Disclosure

Readers, investors, analysts, bloggers, visitors, researchers, writers, or academicians are highly encouraged to use, copy, quote, distribute, duplicate, modify, edit, upload, download, share and link any materials on this webpage such as the charts, snapshots, texts, paragraphs, etc. in your websites, research papers, essays and so on.

You can credit back to this page by a link or a mention of the website. Thanks for sharing!

{ 0 comments… add one }

Leave a Comment


X

Forgot Password?

Join Us