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Tesla Energy Generation and Storage Revenue Recognition

Tesla solar panel. Flickr Image.

Tesla energy product revenue consists of the following segments:

1. Energy generation and storage sales
2. Energy generation and storage leasing

Energy Generation and Storage Sales

This segment of the revenue is generated from sales of solar energy system and energy storage products to residential, small commercial, and large commercial and utility grade customers.

Some sales in this segment are recognized immediately as revenue when the revenue recognition criteria have been met while others are recorded as deferred revenue in the balance sheet.

The deferred revenues are fees collected from customer prepayments and sales from monitoring, operation and maintenance services. Revenue will be recognized ratably from deferred revenues over the respective contract term.

Sales from Residential and Small Commercial Customers

For sales to residential and small commercial customers, both solar energy system and storage products revenue is recognized when control transfer is completed, which is when the solar energy system is installed and the system passes inspection or when the energy storage product has been delivered and accepted by the customers.

In addition, revenue is also earned when the customer is using Tesla proprietary monitoring system which captures and display historical energy generation data for solar energy system. These revenues are recognized ratably as a stand-ready obligation over the warranty period of the solar energy system.

Sales from Large Commercial and Utility Grade Customers

For sales to large commercial and utility grade customers, solar energy system and storage product revenue is recognized from payments in stages by customers that are consistent with contract specific phases of the projects. In other words, revenue is earned over time based on percentage of completion method. For example, the company earns revenue for 10% of the total contract cost when 10% of the project is completed.

There are projects where the percentage of completion method does not apply. For these projects, revenue is recognized when control transfer is completed, which is when the solar energy system is installed and the system passes inspection or when the energy storage product has been delivered and accepted by the customers.

Besides, revenue is also earned from large commercial and utility grade customers when the project contracts include operation and maintenance services. These revenues are recognized ratably over the contract terms.

Other revenue from energy generation and storage sales

For some project contracts, Tesla may provide customers with performance guarantees that warrant the underlying energy generation and storage system will meet or exceed the minimum energy generation or retention requirements. If the system performs above a specified level, Tesla may receive a bonus payment recognized as revenue. On the other hand, if the system does not meet the performance guarantee requirements, Tesla is required to pay liquidated damages which is recognized as cost incurred.

There are also variable customer payments for large commercial and utility grade energy generation and storage contracts that will be recognized as sales based on Tesla participation activities in the energy market.

Energy generation and storage leasing

For this segment of revenue where Tesla is the lessor and the customers are the lessees under operating lease agreement, revenues are recognized as lease revenue on a straight-line basis over the life of the lease term for both solar energy system and energy storage product.

Some Tesla customers are only purchasing electricity instead of leasing the entire solar energy system and storage products. For this kind of arrangement where both parties are under the Power Purchase Agreements (PPA), the revenue is recognized under operating lease based on the amount of electricity delivered at rates specified under the agreement.

In addition, some lease revenues such as lease prepayments and lease payments from operation and maintenance services are deferred and recognized ratably over the contract term.

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References:

1. Featured image was obtained from Can Pac Swire and Michael Coghlan.

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