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).
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 and more ambitious in the automotive industry, we want to see how both companies measure up to each other in terms of revenue, margins, profitability and possibly other metrics despite the different business models adopted by each company.
That said, Tesla is doing 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 run its retail stores.
In this article, we are going to do a comparison of just revenue and gross margin between Tesla and GM to see where Tesla is today.
Let’s go take them!
Apple to Apple Comparison
Before we proceed, I want to make it clear that we are comparing only the automotive sector of both companies.
Although Tesla and GM are major players in the automotive business, they have non-automotive business segments that contribute significant sales to the company revenue.
For an apple to apple comparison, we have to make some adjustments to the automotive revenue and gross margin of both companies, such as excluding the non-automotive sector.
For General Motors, GM Financial is a business segment that provides lending services and is not related to any of its car-making activities.
As such, the portion of revenue from GM Financial will be excluded when measuring GM’s automotive revenue and gross margin.
The following snapshot shows the portion of revenue from GM Financial that will be taken off.
Tesla Energy and Leasing
Similarly, Tesla has non-automotive revenue which comes from other sectors, including the energy generation and storage revenue which needs to be adjusted when making an apple to apple comparison with that of General Motors.
Aside from the energy, Tesla’s automotive leasing revenue needs to be adjusted as well.
The reason is that GM’s automotive leasing belongs to GM Financial and is not related to any of its automotive segments.
Therefore, I have stripped off Tesla’s leasing revenue when doing the comparison with General Motors.
Tesla Regulatory Credits
The same goes for Tesla’s automotive regulatory credits revenue which will be stripped off as well.
As of fiscal 2020, General Motors did not break down any sales that came from regulatory credits.
In this aspect, I am assuming that GM has not produced sufficient zero-emission vehicles to offset the emission that comes from fossil-fuel vehicles.
Therefore, for an apple to apple comparison, I have stripped off Tesla’s regulatory credits revenue.
Tesla Services and Other
Tesla’s services and other revenue is considered as part of the automotive revenue to be in line with that of General Motors.
GM wraps its services and other revenue under its automotive sector.
Therefore, I am doing the same thing for Tesla so that an apple to apple comparison is done.
Research and Development Costs
Similarly, GM lumps its research and development together with the automotive cost of sales.
However, for Tesla, its R&D costs are part of the operating expenses which are separate from costs of sales.
For a close comparison, I have included Tesla’s research and development costs as part of the automotive cost of sales.
The problem 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, a percentage of R&D costs that is consistent with the ratio of automotive revenue to total revenue is calculated.
This figure comes to be around 80%.
Therefore, I am assuming that around 80% of research and development costs were spent on the automotive segment.
This 80% of R&D costs were then added to Tesla’s automotive cost of sales to arrive at a gross margin that is consistent with that of GM.
Finally, it seems like we are all set with the adjustments and assumptions.
Automotive Revenue: Tesla vs GM (Quarterly)
The above graph shows the comparison between Tesla’s adjusted automotive revenue and GM’s automotive revenue for the period from 2015 to 2021 on a quarterly basis.
As mentioned, Tesla’s automotive revenue has been adjusted to include the “Services and Other” portion while excluding certain portions, including leasing, energy, and regulatory credits to match that of GM for an apple to apple comparison.
All told, it’s very clear from the chart that GM’s automotive revenue has been much higher than that of Tesla.
In fact, in the latest quarters of fiscal 2021, GM’s automotive revenue was 3X bigger than that of Tesla.
However, the difference was much bigger 5 years ago at roughly 35X when Tesla’s adjusted automotive revenue was only slightly less than $1 billion at that time.
In just 5 years, Tesla has managed to close the gap with GM, reflecting the remarkable growth that Tesla has achieved in the automotive industry.
In contrast, GM’s quarterly automotive revenue has declined quite significantly over the years.
GM used to earn revenue of nearly $40 billion per quarter in fiscal 2016.
However, GM’s automotive sales have reached slightly below $30 billion per quarter as of fiscal 2021 1Q.
In the same quarter, Tesla’s quarterly revenue reached nearly $10 billion, marking a new high for the company.
In short, Tesla has a remarkable revenue growth whereas GM’s one has been on a decline in the last 6 years.
Automotive Revenue: Tesla vs GM (TTM)
The prior quarterly chart may not clearly reflect the trend of both companies’ revenues.
Therefore, I have created the trailing 12-months (TTM) chart above to smooth out the plots.
From a TTM perspective, we can clearly see that GM’s automotive revenue has been declining whereas Tesla’s automotive revenue has been increasing in the past 6 years.
As of 2021 1Q, GM’s TTM automotive revenue clocked in slightly over $100 billion whereas Tesla’s figure hit a record $20 billion on a TTM basis.
From this comparison, GM’s automotive revenue was about 5X higher than that of Tesla.
For your information, Tesla’s market cap has already reached more than $600 billion whereas GM’s market cap was not even $90 billion.
As a result, investors are expecting Tesla to perform even better in the future when they slapped a sky-high market valuation on Tesla.
Automotive Gross Margin: Tesla vs GM (Quarterly)
As discussed in prior paragraphs, Tesla’s cost of revenue has been adjusted to include a partial portion of research and development expenses to match that of GM for an apple to apple comparison.
Aside from r&d costs, some of Tesla’s non-automotive related revenues such as leasing, energy, and regulatory credits were also excluded when measuring the gross margin.
That said, Tesla’s adjusted gross margin has been much worse than that of GM from 2015 to 2017.
In the early periods, Tesla’s automotive gross margin has been mostly negative because of low production volume in the early days, reflecting the heavy losses that the company has incurred.
However, Tesla’s adjusted gross margin improved remarkably from 2018 to 2021 along with the growing production volume.
Tesla’s gross margin turned positive in 2018 as seen from the positive gross margin which hit more than 15% in 2018 and 2020 on a quarterly basis.
However, Tesla’s adjusted gross margin tumbled again in early 2019 and hit nearly 0% in 1Q 2019.
Nevertheless, Tesla worked on its gross margin again throughout 2019 by launching a series of restructuring to cut costs.
Other than restructuring, Tesla also achieved a record production volume when Gigafactory Shanghai started operating in early 2020.
As a result, Tesla’s automotive gross margin reached more than 10% in 3 consecutive quarters and surged to 15% as of 3Q 2020 before slightly dropped to 13% in fiscal 2021 1Q.
At the same time, General Motors’ automotive gross margin started to decline in 2019 and dropped to negative territory in early 2020, possibly driven by the COVID-19 disruption.
While GM’s automotive gross margin seems to be deteriorating, it recovered post-2020.
As of 2021 1Q, GM’s automotive gross margin clocked in at about the same level as that of Tesla.
In short, Tesla’s automotive gross margin has improved tremendously over the years and has attained the same level of profitability as that GM.
Automotive Gross Margin: Tesla vs GM (TTM)
Again, the quarterly chart may not clearly show the trend of the plots.
As a result, the TTM chart above has been created to showcase Tesla and GM’s gross margin comparison.
As seen from the TTM chart, the trend clearly shows that both plots are going in the opposite direction.
Between 2015 and 2021, Tesla’s automotive gross margin has been slowly improving as opposed to the declining trend of GM’s automotive gross margin.
In fact, Tesla’s adjusted automotive gross margin has outperformed that of GM since 2020 Q2 from a TTM standpoint.
Accordingly, Tesla’s automotive gross margin reached more than 10% in Q2 2020 and topped out at nearly 13% by Q3 2020 on a TTM basis.
In contrast, GM’s automotive gross margin tumbled to only 7% in 2020 Q2 and improved slightly to 8% by 2020 Q3 on a TTM basis.
However, GM’s automotive gross margin made a comeback in 2021 and clocked in at almost the same level as that of Tesla but still below Tesla.
The TTM chart clearly shows that Tesla has slightly surpassed the level of gross profitability that GM has achieved in the past and even outperformed that of GM by fiscal 2021.
In short, Tesla is capable of achieving the same gross margin as that of General Motors when production volume soars.
Therefore, Tesla may even considerably surpass GM in the future when its volume further expands.
Is Tesla catching up with GM in sales and gross margin?
Yes, Tesla has been fast catching up in both revenue growth and gross margin as seen from the results.
However, there is a lot of room to improve on the part of Tesla, especially in revenue growth when Tesla’s sales are still considerably less than that of GM.
However, Tesla has been fast closing the gap with General Motors in revenue and even gross margin.
Over the 6 years, Tesla has managed to reduce the revenue difference from 35X in 2015 to just 5X as of 2021.
During the same period, GM’s automotive revenue has been stagnant and has even declined since 2017.
I believe it is just a matter of time before Tesla finally reaches the size or even outgrows GM in sales and revenue.
Although Tesla’s revenue was far less than that of GM, Tesla could achieve an adjusted gross margin, which is about the same as GM in Q1 2020 and surpassed GM by Q1 2021 on both TTM and quarterly basis.
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 which is the same as General Motors.
Therefore, Tesla’s valuation of over $500 billion in market capitalization is more or less justified judging from its growth potential in the future.
References and Credits
Other Stock Analysis That You May Enjoy
If you find the information in this article helpful, please consider sharing it on social media and also provide a link back to this article from any website so that more articles like this one can be created in the future.