Tesla Gigafactory Shanghai. Source: Tesla Q3 2019 Update Letter.
Despite acquiring SolarCity in 2016, Tesla is still pretty much a car company that relies substantially on automotive revenue.
As of 4Q 2022, Tesla’s automotive segment made up a whopping 88% of total revenue as opposed to only 5% for the energy sector.
Aside from being the largest revenue source, Tesla’s automotive segment also grew at an average year-on-year growth rate of around 58%, which is more than any other business sector.
In terms of profitability, Tesla’s automotive sector is on the cusp of reaching 30% of gross margin on a TTM basis, also the largest among all its business segments.
The respective gross margin produced a gross profit in excess of $20 billion for Tesla, a massive figure that helps to pay off the company’s debt and possibly buy back shares in the future.
Therefore, Tesla’s automotive sector is the lifeline that generates massive cash flow and profit for the company.
All said, in this article, we will take a deeper look at Tesla’s automotive business from the perspective of revenue, gross margin, and growth rates.
Let’s take a look!
Tesla’s Automotive Revenue Topics
1. Business Segment Overview
2. Automotive Revenue – Quarterly
3. Automotive Revenue – TTM
4. Automotive Revenue Breakdown
5. Ratio Of Automotive Revenue to Total Revenue
6. Automotive Gross Margin – Quarterly
7. Automotive Gross Margin – TTM
8. Automotive Revenue QoQ Growth Rates
9. Automotive Revenue YoY Growth Rates
10. Conclusion
11. References and Credits
12. Disclosure
Tesla’s Business Segment Overview
Before we begin, let’s take a look at the breakdown of Tesla’s business segments which is shown in the following diagram:
Tesla automotive business segment (click to enlarge)
As shown in the snapshot above, Tesla’s automotive sector is divided into the following 2 major segments:
Let’s look at the definition of automotive sales and automotive leasing below.
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 2019 and Model Y in 2020.
Tesla’s Automotive Revenue – Quarterly
Tesla’s quarterly automotive revenue (click to enlarge)
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 8 years.
For instance, Tesla’s made a modest $1 billion in quarterly automotive revenue in Q1 2015 but that figure has since been growing more than 1000% to a little over $20 billion as of 4Q 2022.
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 having roughly $30 billion of sales in the automotive sector by fiscal 2023 and close to $45 billion by fiscal 2024.
Tesla’s mass-production models, the Model 3, and the newly launched Model Y have 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
Tesla’s TTM automotive revenue (click to enlarge)
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 8 years and reached as much as $71.5 billion as of 2022 Q4.
Therefore, Tesla’s automotive revenue has been on a rising trend in the last several years.
On average, Tesla’s TTM automotive revenue grew 56% since fiscal 2016, slightly less than the quarterly figure growth rate.
At this growth rate, Tesla’s TTM automotive revenue will be a massive $100 billion business by the end of fiscal 2023 and more than $150 billion by the end of fiscal 2024.
Tesla’s Automotive Revenue Breakdown
Tesla’s automotive revenue breakdown (click to enlarge)
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 a massive 97% in 2022 Q4.
On the other hand, Tesla’s automotive leasing revenue contributed only 3% of sales to the automotive sector.
As of fiscal 2022 Q4, Tesla’s automotive sales revenue reached $21 billion on a quarterly basis, as opposed to $600 million for automotive leasing revenue generated in the same fiscal quarter.
Therefore, Tesla’s automotive sales revenue was about 35X bigger than automotive leasing as of 4Q 2022.
Ratio of Tesla’s Automotive Revenue To Total Revenue
Tesla’s automotive revenue to total revenue ratio (click to enlarge)
From the chart above, Tesla’s automotive revenue contributed about 80% of sales to total revenue for the past 8 years.
As of 4Q 2022, Tesla’s automotive revenue made up roughly 88% of total revenue.
The remaining revenue portions were made up of Tesla’s other business segments, including the energy products and service and other 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 significantly dropped from 93% reported in 2015 to about 81% reported in 2018.
However, this figure has been on the rise since then and reached 88% as of 4Q 2022.
The decline in 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.
From 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 not have 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 revenue gross margin – quarterly (click to enlarge)
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% in Q3 2022, one of the record highs for the company.
The gross margin dropped slightly to 26% as of Q4 2022.
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 2023, 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
Tesla’s automotive revenue gross margin – TTM (click to enlarge)
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 2022 Q4, Tesla’s TTM automotive gross margin reached as much as 28.5%, also one of the record highs 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.
Tela’s Model Y will likely further drive margin expansion when production volume further increases.
For your information, Tesla is on the cusp of building multiple factories in a number of locations around the world.
Tesla’s volume expansion will help the company to streamline and lower costs of production per vehicle, hence, improving margins.
Tesla’s Automotive Revenue QoQ Growth Rates
Tesla’s automotive revenue quarterly growth rates (click to enlarge)
On average, Tesla’s automotive revenue grew 14% quarter-over-quarter between fiscal 2015 and 2022.
Since fiscal 2015, Tesla has only experienced very few negative QoQ growth rates as shown in the chart.
As of 2022 4Q, Tesla’s automotive revenue grew 14% quarter over quarter which is significantly lower than the 28% sequential growth rate reported in the prior quarter.
Overall, Tesla’s automotive revenue quarterly growth rates have been quite impressive between 2017 and 2022 as there are only a few quarters reporting negative sequential growth rates.
Tesla’s Automotive Revenue YoY Growth Rates
Tesla’s automotive revenue year-over-year growth rates (click to enlarge)
Tesla’s YoY growth rates are even more impressive compared to its sequential growth rates.
Between fiscal 2016 and 2022, 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 33% as of 2022 4Q.
Conclusion
To recap, Tesla has been having outstanding automotive revenue growth for the past 8 years between 2015 and 2022.
Tesla’s growth story has been phenomenal and looks unstoppable considering that EV adoption is still low as of 2022.
Tesla is building a number of Gigafactory on all major continents such as Europe, North America, and Asia.
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 2023 and beyond, Tesla’s automotive revenue will most likely 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 $1.4 trillion at one point.
At this valuation, Tesla has overtaken Toyota, Volkswagen, Ford, Hyundai, BYD, General Motors, etc. 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.
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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