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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 as of the latest quarter of Q4 2020, 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.

Tesla has been promoting its energy storage and generation systems to its automotive customers.

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

By doing that, Tesla’s vehicle owners get to enjoy a fully 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 reportable business segment in its financial reports.

The following snapshot shows an example of Tesla’s business segments and how each segment gets its sales.

Tesla solar vs automotive sector

Tesla solar vs automotive sector

In this article, we will do a comparison between Tesla’s automotive and solar business segment from the perspective of sales revenue and gross margin.

Additionally, we will also look at the long-term trend of both business segments to see how each segment stacks up to the other.

For your information, the gross margin measures a company’s profitability.

Therefore, the higher the gross margin, the better the profit is for a product or business.

Let’s do it!

Tesla’s Automotive vs Energy 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 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 Automotive vs Energy 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 quarterly automotive revenue

Tesla quarterly 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 $9 billion in 4Q 2020.

Year over year, Tesla’s automotive revenue growth rate has been about 900% over the last 6 years between 2015 and 2020.

Although Tesla’s automotive revenue remained flat in 2019, it grew again in 2020, hitting a new high at over $9 billion in 4Q 2020.

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

Particularly, Tesla’s quarterly automotive revenue had experienced huge upsides between 2018 and 2020, 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 quarterly solar revenue

Tesla quarterly 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 in 2020.

In Q4 2020, Tesla’s solar or energy revenue reached a record high at over $700 million, representing a YoY growth rate of more than 70%.

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.

Tesla’s Automotive vs Energy Revenue (TTM)

Tesla automotive vs solar revenue (TTM)

Tesla automotive vs solar revenue (TTM)

* 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.

To see how Tesla’s automotive revenue stack up to its energy or solar revenue, we look at the TTM plot which is shown in the chart above for the period from 2016 to 2020.

The TTM or trailing 12-month plot is best used to find out the long-term trend of Tesla’s revenue.

According to the chart, Tesla’s TTM solar revenue has been almost flat when compared to its automotive counterpart between 2016 and 2020.

In contrast, Tesla’s TTM automotive revenue has been surging relentlessly over the same period and reached as much as $27 billion in 2020 4Q.

Tesla’s TTM solar revenue has not even gone beyond the $5 billion levels as of 2020 4Q, indicating that the energy sector is still lagging quite far off from its automotive sector.

Gross Margin Comparison: Energy vs Automotive

Tesla automotive vs energy in gross margin comparison

Tesla automotive vs energy in gross margin comparison

* 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 2020.

Tesla’s stable or an increasing automotive gross margin points to 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.

In contrast, Tesla’s solar sector has been in the opposite direction, with gross margin plummeting to a new low in 2020 Q4.

As of the 4th quarter of 2020, Tesla’s solar sector gross margin has declined to only 1%, a record low for the company.

The reason behind the plummeting gross margin for Tesla’s energy sector can be due to a cost overrun 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 better gross profitability than the energy segment due to the higher gross margin.

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

Tesla automotive and energy revenue to total revenue ratio

Tesla automotive and energy revenue to total revenue ratio

* Ratio is calculated by the author using Tesla’s TTM total revenue, TTM automotive revenue and TTM energy revenue/
* TTM data consists of 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 6 years, indicating that the automotive business has been the dominant growth driver for Tesla.

Although the energy business contributed only 6% of revenue to Tesla in Q4 2020, this segment will remain an essential part of the company.

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

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.

Conclusion

Tesla’s automotive sector has been the main 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.

There is vast opportunity ahead for Tesla’s energy segment especially when the world is racing to reduce its carbon footprints.

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

References:

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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