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Does Tesla Solar Revenue Compare Favorably With Car Sales?

A Tesla battery from an electric car. Flickr Image.

While Tesla’s revenue comes mainly from its automotive segment, its energy business still makes serious money.

According to Elon Musk, Tesla’s solar segment could eventually grow to be the same size or even bigger than its automotive business.

Although Tesla’s energy business made up only a tiny 6% of total sales in Q2 2021 compared to 86% for the automotive sector, the energy segment is still an important segment of the company as it helps to complement the automotive business.

For example, Tesla’s existing Supercharger network could one day be powered by its own energy generation and storage systems.

Moreover, Tesla also cross-sells its solar products to its automotive customers.

In this aspect, Tesla has been promoting its energy storage and generation systems to its automotive customers.

Tesla highly encourages its automotive customers to charge their electric vehicles with solar energy instead of fossil fuel power.

By doing that, Tesla’s vehicle owners get to enjoy a complete renewable energy experience.

Speaking of Tesla’s solar sector, the company acquired SolarCity back in 2016.

Since then, Tesla’s energy generation and storage has become a wholly-owned subsidiary and a reportable business segment for the company.

The following snapshot shows the respective business segments and how each segment generates sales.

Tesla solar vs automotive sector

Tesla solar vs automotive sector

For example, according to the diagram, Tesla’s energy is one of the reportable segments and it gets revenue from the sales of energy generation and storage products.

Aside from sales revenue, Tesla’s energy also gets leasing revenue from the leasing of electricity and the leasing of energy generation systems.

In this article, we will look at and compare Tesla’s energy with automotive from the perspective of sales revenue and gross margin.

Additionally, we also will look at other aspects of the business, including the long-term revenue trend and the percentage of the segment revenue with respect to total sales.

Therefore, let’s take a look!

Tesla’s Energy vs Automotive Revenue (Yearly)

Tesla automotive revenue vs solar revenue (yearly)

Tesla automotive revenue vs solar revenue (yearly)

* Annual automotive and energy revenues are GAAP measure and are obtained from Tesla’s income statements.

Let’s first look at the comparison of Tesla’s automotive and energy revenue from an annual perspective.

Based on the chart, Tesla’s automotive revenue has been much higher than its energy counterpart over the last 5 years.

In fact, Tesla’s automotive revenue was nearly 14X larger than the energy revenue in 2020.

As of fiscal 2020, Tesla’s automotive revenue has reached $27 billion compared to only $2 billion for solar sales.

Between 2016 and 2020, Tesla’s automotive revenue had grown at a much faster rate than its solar counterpart, largely driven by the surge in Model 3/Y deliveries.

In contrast, Tesla’s energy revenue pales in comparison with that of its automotive sector and had even remained flat in 2019 compared to 2018.

Tesla’s Energy vs Automotive In Growth Rates

Tesla automotive vs solar in growth rates

Tesla automotive vs solar in growth rates

* Year-over-year growth rates are calculated by the author using Tesla’s annual automotive and energy sales figures obtained from the company’s income statements.

In terms of growth rates, Tesla’s automotive revenue grew much faster than the energy or solar revenue in 2018 and 2019.

In 2020, both Tesla’s automotive and solar sectors grew at about the same rate which was 30% year on year.

Tesla’s energy sales were back to the growth again in 2020 after experiencing a decline in 2019 at -1.5%.

Tesla’s Automotive Revenue (Quarterly)

Tesla's automotive revenue

Tesla’s automotive revenue

* Quarterly automotive revenue is a GAAP measure and is obtained from Tesla’s quarterly income statements.

On a quarterly basis, Tesla’s automotive revenue growth has been nothing short of exponential, growing from just $1 billion of sales in Q4 2015 to more than $10 billion as of 2Q 2021.

Year over year, Tesla’s automotive revenue compounded annual growth rate (CAGR) grosses 50% over the last 6 years between fiscal 2015 and 2020.

Although Tesla’s automotive revenue remained flat in 2019, its growth engine was back in 2021, with quarterly sales hitting a new high at over $10 billion USD reported in fiscal 2Q 2021.

The extraordinary growth in Tesla’s automotive revenue illustrates the undisputed EV monopoly that the company has enjoyed in the last 6 years.

Particularly, Tesla’s quarterly automotive revenue had experienced huge upsides between fiscal 2018 and 2021, largely driven by the surge in Model 3/Y delivery.

Additionally, Tesla has been building Gigafactory all around the world, indicating that the company’s growth story has only just begun.

Tesla’s Solar Revenue (Quarterly)

Tesla's solar revenue

Tesla’s solar revenue

* Quarterly energy or solar revenue is a GAAP measure and is obtained from Tesla’s quarterly income statements.

While Tesla’s solar revenue has remained flat prior to 2020, the growth came roaring back since 2020 and the sector has done particularly well in 2021.

In Q2 2021, Tesla’s solar or energy revenue reached a record high at over $800 million USD, representing a YoY growth rate of more than 100%.

A trend worth talking about is Tesla’s acquisition of SolarCity back in 2016.

Right after the SolarCity acquisition, Tesla consolidated its income statements and this has resulted in a surge in the energy revenue in 4Q 2016 to $131 million from $23 million in the prior quarter.

Tesla has enjoyed robust energy revenue growth after the acquisition of SolarCity in 2016 as reflected in the burst of the solar revenue in the chart.

Tesla’s Automotive vs Energy Revenue (TTM)

Tesla's solar vs automotive revenue

Tesla’s solar vs automotive revenue

* TTM data came from the author’s own calculation and consists of the sum of the quarterly data on a trailing 12-month or 4-quarter basis.
* Both TTM automotive and energy revenues are GAAP measure and are computed using quarterly data obtained from Tesla’s income statements.

The TTM plots above smooth out the bumps in the quarterly plot and better display the long-term trend of both solar and automotive revenue.

According to the chart, Tesla’s solar revenue has been nearly flat while automotive revenue was growing almost exponentially on a TTM basis.

As of fiscal 2021 Q2, Tesla’s solar revenue clocked in at $2.6 billion on a TTM basis, a record high for Tesla but was still far behind that of the automotive sector.

In the same fiscal quarter, Tesla’s automotive revenue reaches $36 billion on a TTM basis, a 12X higher than the reported energy figure in the same quarter.

In short, it’s such a huge contrast between the 2 plots as shown in the chart above.

Gross Margin Comparison: Energy vs Automotive

Tesla's solar vs automotive gross margin

Tesla’s solar vs automotive gross margin

* TTM data came from the author’s own calculation and consists of the sum of the quarterly data on a trailing 12-month or 4-quarter basis.
* Both TTM automotive and energy gross margin are GAAP measure and are computed using quarterly data obtained from Tesla’s income statements.

In terms of gross margin, we can see that Tesla’s automotive gross margin has been relatively consistent without much dramatic fluctuation between 2016 and 2021.

Tesla’s stable or growing automotive gross margin points to the improving operating efficiency.

In other words, Tesla has managed to keep its costs of manufacturing under control and hence, the stable gross margin.

Additionally, Tesla has also achieved the needed sales volumes to maintain its costs of goods sold in the automotive segment and therefore, the resulting stable gross margin as seen in the chart.

On the flipped side, Tesla’s solar sector has been in the opposite direction, with gross margin plummeting to a new low as of 2021 Q2.

As of fiscal 2021 Q2, Tesla’s solar gross margin has plunged below 0% to -3.6% on a TTM basis, a record low for the company.

The reason behind the plummeting gross margin for Tesla’s energy sector can be due to a high overhead during the manufacturing or installation process.

One prime example is Tesla’s solar roof.

According to Green Tech Media, Tesla Solar Roof is both too costly to install and requires skillful contractors to execute at the level of a professional roofer, preventing leaks and ensuring decades of durability.

The high level of professionalism needed often means a high cost of goods sold for the company.

All in all, Tesla’s automotive segment has much better gross profitability compared to the energy segment due to the automotive higher gross margin.

Ratio of Tesla’s Automotive and Solar Revenue to Total Revenue

Tesla's solar and automotive revenue to total revenue ratio

Tesla’s solar and automotive revenue to total revenue ratio

* Ratio is calculated by the author based on Tesla’s TTM total revenue, TTM automotive revenue and TTM energy revenue/
* TTM data is computed based on the sum of the quarterly data on a trailing 12-month or 4-quarter basis.
* TTM total, automotive and energy revenue are GAAP measure and are computed using quarterly data obtained from Tesla’s income statements.

According to the chart above, Tesla’s automotive revenue makes up over 80% of total revenue, whereas the energy business takes up less than 10% of total sales.

The ratio has been relatively unchanged over the last 6 years, indicating that the automotive business has been the dominant revenue driver for Tesla.

Although the energy business contributes only 6% of revenue to Tesla all these years, this segment has been an essential part of the company.

As mentioned, Tesla’s automotive sector will not survive without its energy counterpart.

In this aspect, Tesla’s energy segment is key to advancing the company’s battery technology.

I foresee that all of Tesla’s Supercharger network will be powered by its own solar generation and storage systems in the near future.

In addition, Tesla may someday create a swappable battery that can be leased back to its automotive customers to generate a long-term and stable leasing revenue.

Conclusion

Tesla’s automotive sector has been the main revenue driver for the company’s growth.

However, its energy segment is fast catching up when annual solar revenue grew 30% in 2020, which was the same as the automotive segment growth rate.

And Tesla’s energy sector grew even more in fiscal 2021.

In the 1st half of 2021 alone, Tesla’s solar revenue has already grown more than 70% on a TTM basis compared to the 1st half of 2020.

There is vast opportunity ahead for Tesla’s energy segment especially when the world is racing to embrace green energy.

As pointed out by Elon Musk, the energy sector could one day become the same size or even bigger than its automotive sector.

This statement will very soon become a reality.

References and Credits

1. All financial figures were obtained and referenced from Tesla’s quarterly and annual statements available in: Tesla Press Releases.

2. Images were used under Creative Common Licenses and obtained from Niall Kennedy and National Renewable Energy Lab.

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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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