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Tesla Vs GM In Revenue Growth And Gross Margin

A GM Cadillac Eldorado Brougham 1957. Flickr Image.

It’s interesting to see how Tesla’s (NASDAQ:TSLA) automotive business performs when compared with that of its bigger rival such as General Motors (NYSE:GM).

For your information, Tesla is relatively new to the automotive industry and is a pure electric vehicle player.

On the other hand, General Motors or GM has already been in the trade for more than several decades and has only jumped on the electric vehicle bandwagon recently.

With both companies getting more ambitious in the electric vehicle space, I would like to see how both companies measure up to each other in terms of revenue, margins, profitability and possibly other metrics.

While both companies operate in the same industry, they have a different approach in terms of how their products are distributed.

In this sense, Tesla is adopting a retail-based business model, whereas GM’s business model, is wholesale-based.

Theoretically, I would expect Tesla’s margin to be worse than that of GM, considering the extra costs required to operate its retail stores.

In this article, we are doing a comparison of just revenue and gross margin between Tesla and GM to see how their results stack up.

Let’s take a look!

Apple To Apple Comparison

This article compares only the automotive sector of Tesla and GM.

Although Tesla and GM are both automobile companies, they have non-automotive businesses that contribute significant sales to revenues.

For example, Tesla gets a significant portion of sales in the energy sector.

On the other hand, General Motors derives a significant portion of revenue not only from the automotive segment but also from its financial segment.

Therefore, for an apple to apple comparison, we have to make some adjustments when measuring the automotive revenue and gross margin.

These adjustments include the exclusion of non-automotive portions.

GM Financial

For General Motors, GM Financial is the captive finance arm of the company.

The subsidiary provides loans and credit facilities to retail and commercial customers.

As a result, GM Financial derives the majority of its revenue from finance income and does not have any activities related to automobile manufacturing.

For this reason, the portion of revenue from GM Financial is excluded during the measurement of GM’s automotive revenue and gross margin.

Tesla Energy and Leasing Revenue

Similarly, Tesla’s energy is a business subsidiary that is unrelated to automobile manufacturing.

Aside from the energy sector, Tesla’s automotive leasing revenue is another revenue segment that needs to be adjusted so that the automotive revenue is in line with that of General Motors.

For your information, GM’s automotive leasing revenue is recognized as a type of finance income that belongs to GM Financial.

Therefore, both Tesla’s energy and leasing revenue is stripped off during the measurement of the automotive revenue and gross margin in order to perform an apple-to-apple comparison.

Tesla Regulatory Credits

The same goes for Tesla’s automotive regulatory credits revenue which needs to be adjusted as well.

As of fiscal 2021, General Motors did not break down any sales that came from regulatory credits.

In this aspect, I am assuming that GM did not produce sufficient zero-emission vehicles to offset the emission that comes from fossil-fuel vehicles.

Therefore, for an apple to apple comparison, I have excluded Tesla’s regulatory credits revenue during the measurement of the automotive revenue and gross margin.

Tesla Services Revenue

GM wraps its services revenue under the automotive sector.

Therefore, to be in line with that of General Motors, I am taking Tesla’s services revenue as part of its automotive revenue as well.

For this reason, I am including Tesla’s services revenue during the measurement for an apple to apple comparison.

Research and Development Costs

Similarly, GM treated its research and development expenses under the automotive segment and is part of the gross margin measurement.

However, for Tesla, its R&D costs fall under the operating expenses which are outside of the gross margin measurement.

For a close comparison, I need to add Tesla’s R&D costs into the automotive revenue so that a similar gross margin as that of GM can be derived.

The problem for Tesla is that not all research and development expenses were spent in the automotive sector.

Some of Tesla’s R&D expenses may have been spent on the energy sector.

As such, I am using a certain portion of Tesla’s R&D costs to be added as part of the gross margin measurement.

This ratio comes to be around 80% and is consistent with the automotive revenue to total revenue ratio.

Tesla Vs GM In Automotive Revenue (Quarterly)

Automotive revenue comparison: Tesla vs GM (Quarterly)

Automotive revenue comparison: Tesla vs GM (Quarterly)

* Tesla’s automtoive revenue is adjusted as discussed to arrive at the final figure as shown in the chart.
* GM automotive revenue is a measurement determined in accordance with GAAP and is obtained from GM’s income statements.
* Both Tesla and GM’s fiscal year begins on Jan 1 and ends on Dec 31.

The above graph shows the comparison between Tesla’s adjusted automotive revenue and GM’s automotive revenue for the period from fiscal 2015 to 2021 on a quarterly basis.

As mentioned, Tesla’s automotive revenue has been adjusted to include and exclude a couple of items to be in line with that of General Motors.

That said, the chart above clearly presents that GM’s automotive revenue is much higher than that of Tesla.

As of fiscal 3Q 2021, GM’s automotive revenue came in at $23.4 billion compared to only $12 billion recorded in the same quarter for Tesla.

GM’s automotive revenue was 2X bigger than that of Tesla in 3Q 2021 on a quarterly basis.

While the gap was big in fiscal 2021, it was much bigger 5 years ago, reportedly at 35X difference.

In just 5 years, Tesla has managed to close the gap with GM, reflecting the remarkable growth that Tesla has achieved in the automotive sector.

In contrast, GM’s automotive revenue has been on a decline and the 2021 results were only slightly better than that reported in the prior year.

Tesla Vs GM In Automotive Revenue (TTM)

Automotive revenue comparison: Tesla vs GM (TTM)

Automotive revenue comparison: Tesla vs GM (TTM)

* Data shown in the chart above is presented on a TTM basis.
* TTM figures are calculated based on the sum of the quarterly data on a trailing 12-month or 4-quarter basis.
* Both Tesla and GM’s fiscal year begins on Jan 1 and ends on Dec 31.

The prior quarterly chart may not clearly present the trend of both companies’ revenues.

Therefore, I have created the trailing 12-months (TTM) chart above to show the results.

From a TTM perspective, it is clearly shown that GM’s automotive revenue has been declining while Tesla’s automotive revenue has been increasing in the past 6 years.

As of fiscal 2021 Q3, GM’s automotive revenue came in at $120 billion while Tesla’s figure hit a record $40 billion on a TTM basis.

These figures show that GM’s automotive revenue was about 3X higher than that of Tesla.

On a long-term basis, the gap between GM and Tesla has been narrowing, illustrating the remarkable progress that Tesla has made over the years.

Tesla Vs GM In Automotive Gross Margin (Quarterly)

Automotive gross margin comparison: Tesla vs GM (Quarterly)

Automotive gross margin comparison: Tesla vs GM (Quarterly)

* Tesla’s automtoive gross margin is adjusted as discussed to arrive at the final figure as shown in the chart.
* GM automotive gross margin is a measurement determined in accordance with GAAP and is obtained from GM’s income statements.
* Both Tesla and GM’s fiscal year begins on Jan 1 and ends on Dec 31.

As discussed in prior paragraphs, Tesla’s automotive gross margin has been adjusted to include and exclude several items to be in line with that of GM for an apple to apple comparison.

While the plots are zig-zagging in the chart, we can see that Tesla’s automotive gross margin has been closely trailing that of General Motors.

Particularly in fiscal 2021, Tesla’s automotive gross margin has slightly edged higher, exceeding that of General Motors for the first time.

As of fiscal Q3 2021, Tesla’s automotive gross margin surged to 22%, outpacing GM’s automotive gross margin of 12% by a wide margin.

In short, Tesla has a much better automotive gross margin compared to that of GM despite operating a retailed-based business model which is supposed to incur higher costs.

Tesla Vs GM In Automotive Gross Margin (TTM)

Automotive gross margin comparison: Tesla vs GM (TTM)

Automotive gross margin comparison: Tesla vs GM (TTM)

* Data shown in the chart above are presented on a TTM basis.
* TTM figures are calculated based on the sum of the quarterly data on a trailing 12-month or 4-quarter basis.
* Both Tesla and GM’s fiscal year begins on Jan 1 and ends on Dec 31.

Again, the quarterly chart may not clearly depict the trend of the plots.

As a result, the TTM chart above has been created to showcase Tesla and GM’s gross margin comparison.

From a TTM perspective, the chart clearly shows that both plots are almost going in the opposite direction.

Since fiscal 2015, Tesla’s automotive gross margin has been making tremendous improvement as opposed to the declining trend of GM’s automotive gross margin.

In fact, Tesla’s automotive gross margin has exceeded that of GM since fiscal 2020 Q2 from a TTM standpoint.

Thereafter, Tesla’s automotive gross margin has been staying above that of General Motors, indicating that Tesla’s automotive business is more profitable.

As of fiscal 2021 3Q, Tesla’s TTM automotive gross margin clocked at 17% and was much higher than General Motors’ automotive gross margin of 12% reported in the same quarter.

While GM’s results have been slipping, they made a comeback in fiscal 2021 as reflected in the increasing figures.

Despite the progress that GM has made, Tesla’s results were still slightly ahead as of fiscal 2021.

Conclusion

Tesla is clearly the winner when it comes to gross margin and it is slightly ahead of GM in the latest quarter.

However, Tesla still has much work to do in terms of automotive revenue.

While Tesla was still lagging slightly, it had made tremendous progress over the years.

The company has managed to close the gap with General Motors and the gap reported in 3Q 2021 was the smallest between the 2 companies.

I believe it is just a matter of time before Tesla finally reaches the size or even outgrows GM in sales and revenue.

In summary, Tesla has the capability to surpass the results of GM not only in the gross margin but in sales in the future.

Despite additional costs of operating retail stores as opposed to the wholesale-based business model of GM, Tesla can still successfully achieve the level of gross margin exceeding that of General Motors.

References and Credits

1. Financial figures for all companies discussed above were obtained and referenced from Tesla Investor Webcast and GM Earning Release.

2. Featured image was used under Creative Common Licenses and obtained from pcfishhk and Richard Wadd.

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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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