Despite acquiring SolarCity in 2016, Tesla is still pretty much an automaker that relies substantially on automotive revenue.
As of 2Q 2021, Tesla’s automotive segment contributed a whopping 86% of revenue to the company’s total sales on a trailing 12-month or TTM basis compared to less than 10% for the energy sector.
Aside from being the largest revenue source, Tesla’s automotive segment also contributed the most revenue growth to the company, notably at nearly 60% On a year-over-year basis since fiscal 2016.
In terms of profitability, Tesla’s automotive sector also has been the most productive, generating well above 20% of stable gross margin to the company in the last 5 years.
This level of gross margin produces a minimum of $7 billion of gross profit for Tesla in the last 12 months or 4 quarters.
All this shows just how important the automotive business is to the company.
All said, in this article, we will take a deeper look at Tesla’s automotive business from the perspective of revenue and gross margin on a historical basis.
Let’s explore Tesla’s automotive revenue.
Tesla’s Automotive Sector
Before we begin, let’s take a look at Tesla’s business segments as shown in the following diagram:
As shown in the snapshot above, Tesla’s automotive sector is divided into 2 major segments and they are:
Tesla’s Automotive Sales
Automotive sales include revenues related to sales of Tesla’s primary products such as the Model S, Model X and Model 3/Y vehicles.
Besides, automotive sales also include revenue related to internet connectivity, Supercharger access, and specified software updates for cars equipped with Autopilot hardware.
Sales of regulatory credits to other automakers is also part of automotive sales.
Tesla’s Automotive Leasing
Automotive leasing revenues are sales generated from the leasing of Model S, Model X and Model 3/Y.
In addition, sales of cars with resale value guarantees are treated as an operating lease and hence, are recognized as automotive leasing revenue under the lease accounting standard.
Tesla has already started the leasing of Model 3 in 2Q 2019 and soon the Model Y.
Tesla’s Automotive Revenue – Quarterly
Tesla’s automotive revenue is the sum of automotive sales revenue and automotive leasing revenue.
Based on the chart, Tesla’s automotive revenue has been growing at a very impressive rate over the past 6 years.
For instance, Tesla’s made a modest $1 billion in quarterly automotive revenue in Q1 2015 but that figure has since grown more than 1000% to a little over $10 billion as of 2Q 2021.
On average, Tesla’s quarterly automotive revenue grew nearly 60% since 2016 on a year-over-year basis.
Assuming a slightly smaller growth rate at 50% year-over-year, Tesla will be making roughly $20 billion of sales in the automotive sector by fiscal 2022 and close to $30 billion by fiscal 2023.
Tesla’s mass production model – Model 3 – has made this monumental feat possible.
Going forward, Tesla’s Model Y will be another flagship product that will be mass-produced and will drive the company’s revenue growth in the future.
For your information, Tesla has already started the Model Y production in the Fremont Gigafactory in 1Q 2020 and started the delivery in 2Q 2020.
Tesla’s Automotive Revenue – TTM
The TTM or trailing 12-month revenue is best used to see the long-term trend of Tesla’s automotive revenue, whether going up or down.
As the chart shows, Tesla’s TTM automotive revenue has been growing nicely in the last 6 years and reached as much as $36 billion as of 2021 Q2.
Therefore, Tesla’s automotive revenue has been on a rising trend in the last several years.
On average, Tesla’s TTM automotive revenue grew 53% since fiscal 2016, slightly less than the quarterly figure growth rate.
At this growth rate, Tesla’s TTM automotive revenue will be a massive $50 billion business by the end of fiscal 2022 and more than $70 billion by the end of fiscal 2023.
Tesla’s Automotive Revenue Breakdown
The chart above shows the breakdown of Tesla’s quarterly automotive revenue into 2 major segments, and they are automotive sales and automotive leasing.
As seen from the chart, Tesla’s automotive sales revenue contributes to the largest portion of the automotive revenue, reaching an average of more than 90%.
On the other hand, Tesla’s automotive leasing revenue contributed less than 10% of sales to the automotive sector.
As of fiscal 2021 Q2, Tesla’s automotive sales revenue reached as much as $10 billion on a quarterly basis, as opposed to only $330 million for automotive leasing revenue generated in the same fiscal quarter.
Therefore, Tesla’s automotive sales revenue was more than 30X bigger than automotive leasing as of 2Q 2021.
Ratio of Tesla’s Automotive Revenue to Total Revenue
From the chart above, Tesla’s automotive revenue contributed more than 80% of sales to total revenue for the past 6 years.
As of 2Q 2021, Tesla’s automotive revenue made up roughly 86% of total revenue.
The high revenue ratio from Tesla’s automotive sector indicates the importance of this sector with respect to other business sectors when it comes to driving revenue growth for the company.
Nevertheless, the ratio has dropped steadily over the years from 95% in 2015 to about 86% as of 2021 Q2.
The decline of the ratio can be attributed to the expansion of Tesla’s other business initiatives, including energy storage and solar generation system which have slowly contributed a significant amount of sales to the company’s overall revenue.
Despite multiple business segments, Tesla’s major revenue contributor still comes prominently from its automotive sector as of now.
The above chart shows that Tesla still pretty much relies heavily on its automotive sector for growth.
In another perspective, Tesla is counting on the success of the Model 3 for its survival.
As pointed out by Elon Musk, CEO of Tesla, “Without Model 3, Tesla will not survive.”
In short, if Tesla’s Model 3 failed to generate the expected volumes, Tesla would have not existed today.
As of now, there are still plenty of risks in buying Tesla stock.
For one, Tesla is still pretty much relying on a single product for its survival, which in this case, is the Model 3.
Tesla’s Automotive Gross Margin – Quarterly
Tesla’s automotive gross margin hovers around the 20% level as shown in the chart.
In recent quarters, Tesla’s automotive gross margin has been strengthening, reaching as much as 28% as of Q2 2021, a record high for the company.
The expanding margins have been a result of Tesla’s record vehicle volumes, a milestone that has helped Tesla to achieve cost and production efficiencies.
Going into fiscal 2022, Tesla’s automotive gross margin may further expand, helped by the newly launched Model Y as well as the existing Model 3 deliveries.
Tesla’s Model Y is touted as the next generation crossover utility vehicle (CUV) which is highly sophisticated and is the world’s first full-electric CUV.
The appeal of Model Y to the mass market will likely be undisputed and follow that of Model 3.
Tesla’s Automotive Gross Margin – TTM
The TTM plot in the chart above is created to smooth out the quarterly plot and to display the long-term trend of Tesla’s automotive gross margin.
As seen in the above chart, Tesla’s TTM automotive gross margin has been on a rise since fiscal 2018 after experiencing several quarters of a decline.
As of 2021 Q2, Tesla’s TTM automotive gross margin reached as much as 27%, a record high since fiscal 2018.
Again, Tesla’s strengthening automotive gross margin has been a result of the company’s Model 3 record volumes after its launch in 2018.
Tesla’s volume expansion has helped the company to streamline production and lower costs of production per vehicle, and hence, improving margins.
Tesla’s Automotive Revenue QoQ Growth Rates
On average, Tesla’s automotive revenue grew 14% quarter-over-quarter between fiscal 2015 and 2021.
Since fiscal 2015, Tesla has only experienced very few negative QoQ growth rates as shown in the chart.
As of 2021 2Q, Tesla’s automotive revenue grew 13% quarter over quarter, one of the best results the company has ever reported.
Tesla’s Automotive Revenue YoY Growth Rates
Tesla’s YoY growth rates are even more impressive compared to its sequential growth rates.
Between fiscal 2016 and 2021, Tesla experienced only 2 quarters of negative YoY growth rates.
On average, Tesla’s YoY growth rate comes in at a whopping 58% since fiscal 2016.
More importantly, Tesla’s automotive revenue YoY growth rates have been on a rise since fiscal 2020, reaching as much as 97% as of 2021 2Q.
To recap, Tesla has been having outstanding automotive revenue growth for the past 6 years between 2015 and 2021.
Tesla’s growth story has been phenomenal and looks unstoppable considering that the company is building a Gigafactory in all major continents.
Aside from the Model 3, Tesla also has a couple of new models coming up, including the Model Y and Cybertruck.
Tesla has already started producing and delivering the Model Y, another mass-produced vehicle touted to be having the same appeal as the Model 3.
Coming to 2022 and beyond, Tesla’s automotive revenue will go even higher, driven by new products launch and higher vehicle volumes.
That said, Tesla’s automotive gross margin should improve along with the expanding automotive revenue.
The success of Telsa’s automotive business has driven the company’s market capitalization to $800 billion at one point.
At this valuation, Tesla has overtaken Toyota, Ford and General Motors combined as the world’s most valuable automaker.
References and Credits
1. Financial figures in the charts were obtained and referenced from Tesla’s quarterly and annual filings available in Tesla Investor Overview.
2. Featured image was used under Creative Common License and obtained from Pål-Kristian Hamre.
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