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Tesla’s Energy Revenue 2021, Gross Margin And Growth Rates

Tesla battery. Source: Flickr Image.

Tesla (NASDAQ:TSLA) energy has been one of the company’s major business segments after the SolarCity acquisition in 2016.

As of 2Q 2021, Tesla’s energy revenue made up only 6% of the company’s total sales.

While the revenue contribution may look minuscule, it has been growing at an average YoY growth rate of 40% since 2017.

Despite the incredible sales growth, Tesla’s energy is still unprofitable as of 2Q 2021 and has a gross margin that is below 0%.

While the energy and automotive sectors are separated, they have great synergy.

For example, Tesla wants its automotive customers to re-charge their vehicles from renewable energy obtained from its solar and battery setup.

By doing that, Tesla not only gets extra sales revenue but also provides a complete renewable energy experience to its automotive customers.

Aside from home applications, Tesla’s solar and battery technology also is applied at its supercharger stations to provide renewable energy for charging purposes.

All told, in this article, we will look at several sales-related metrics of Tesla’s energy, including the gross margin and growth rates, to see how the energy business has done in terms of profitability and growth.

Without further ado, let’s get started!

Tesla’s Energy Business

Before we begin, let’s take a look at the following diagram that explains a bit about Tesla’s business segments.

Tesla business segments

Tesla business segments

As shown in the snapshot above, Tesla’s energy is one of the main business segments that stands at the same hierarchy with other segments such as the automotive.

Tesla’s energy sector gets its sales from two major sources:

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

Tesla’s energy generation and storage sales revenues come from the sales of solar energy systems and energy storage products to residential, small commercial and large commercial and utility grade customers.

On the other hand, Tesla’s energy generation and storage leasing revenues come from the leasing of solar energy systems as well as electricity to commercial and retail customers.

In this case, Tesla is the lessor and it owns the assets.

Additionally, Tesla’s leasing revenues also come from solar energy systems where customers purchase electricity from Tesla under a power purchase agreement.

It looks like we are all set.

Let’s move on to look at the company’s energy revenue or sales numbers.

Tesla’s Energy Generation and Storage Revenue (Quarterly)

Tesla's quarterly energy revenue

Tesla’s quarterly energy revenue

* Tesla’s quarterly energy revenue is a GAAP measure and is obtained from the company’s consolidated income statements.
* Tesla’s fiscal year begins on Jan 1 and ends on Dec 31.

The chart above shows Tesla’s total energy or solar revenue for the period from fiscal 2017 to 2021.

As mentioned in prior discussions, Tesla’s energy or energy generation and storage revenue comes from the sales and leasing of solar energy systems, electricity and energy storage products such as batteries and large-scale battery packs.

For your information, Tesla completed the acquisition of SolarCity in 3Q16 and consolidated the financial results from SolarCity starting in 4Q16.

Prior to the SolarCity acquisition, Tesla’s sales revenue from the energy business was insignificant.

After the SolarCity acquisition, Tesla’s energy revenue started to soar and continued to grow quite significantly.

As of 2Q 2021, Tesla’s energy revenue came in at $801 million on a quarterly basis, a new record for the company.

In the same fiscal quarter, Tesla deployed as much as 85MW of solar power and 1.3GWh of storage capacity, representing a year-on-year growth rate of more than 200%.

In short, Tesla’s energy revenue grew the most in fiscal 2021, beating all prior quarters’ results on a year-on-year basis.

Tesla’s Energy Generation and Storage Revenue (TTM)

Tesla's TTM energy revenue

Tesla’s TTM energy revenue

* TTM data is a GAAP measure and consists of the sum of the quarterly data on a trailing 12-month or 4-quarter basis.
* Tesla’s quarterly energy revenue is a GAAP measure and is obtained from the company’s consolidated income statements.

The TTM or trailing 12-month plot above is created to smooth out the quarterly curve and to better show the trend of Tesla’s energy sales.

From a TTM perspective, Tesla’s energy revenue grew the most in the early stage of the business which was right after the SolarCity acquisition.

Thereafter, Tesla’s TTM revenue has remained flat in fiscal 2018 and has even declined slightly in fiscal 2019.

Nevertheless, Tesla’s energy revenue was back to growing again in the 2nd half of 2020 as shown in the chart.

As of Q2 2021, Tesla’s TTM energy revenue soared to a record-high of $2.6 billion, representing a year-on-year growth rate of more than 70%.

Tesla’s Energy Gross Margin (Quarterly)

Tesla's quarterly energy revenue gross margin

Tesla’s quarterly energy revenue gross margin

* Energy revenue gross margin is a GAAP measure and is calculated by the author based on the ratio of Tesla’s energy gross income to total energy revenue obtained from the company’s consolidated income statements.
* Tesla’s fiscal year begins on Jan 1 and ends on Dec 31.

As mentioned, the gross margin is a metric that measures the gross profitability of a product.

In Tesla’s case, the gross margin includes only costs of revenue while leaving out R&D as well as sales, general and administrative expenses.

A high gross margin usually indicates a competitive advantage a company has over its competitors.

All told, on a quarterly basis, Tesla’s energy gross margin has been on a roller-coaster ride in the last 3 years, bouncing dramatically between -20% and 30%.

The quarterly gross margin was at almost 30% in 2017, one of the new highs, but that has dropped drastically to only single-digit values in 2018 before recovering to 20% in 2019.

Again, the energy sales gross margin has slid to a new low in fiscal 2021 and reached as low as -20% in 1Q 2021, indicating that the costs of production in the energy sector had increased dramatically in recent quarters.

As of 2Q 2021, Tesla’s energy gross margin recovered dramatically to 2.5% compared to the prior quarterly result of -20%.

From a comparison perspective, Tesla’s automotive sector, including the automotive sales and automotive leasing revenues, generates a gross margin between 20% and 40% respectively, indicating that the energy segment is less profitable compared to the automotive products.

At below 0% gross margin, Tesla was incurring a loss in the energy business but made a small profit at 2.5% of gross margin in fiscal 2Q 2021.

Tesla’s Energy Gross Margin (TTM)

Tesla's TTM energy revenue gross margin

Tesla’s TTM energy revenue gross margin

* TTM data is a GAAP measure and consists of the sum of the quarterly data on a trailing 12-month or 4-quarter basis.
* Tesla’s TTM energy gross margin is computed using the company’s quarterly energy revenue and quarterly energy gross income obtained from the company’s consolidated income statements.

The TTM chart above looks much smoother compared to the quarterly plot.

As seen, the TTM plot depicts a downtrend of Tesla’s gross margin on a long-term basis.

Since 2017, Tesla’s energy gross margin has been on a decline from about 25% reported in 2017 3Q to -4% reported in fiscal 2021 2Q on a TTM basis.

The decline in Tesla’s gross margin for the energy segment was the steepest in 2020 but the gross margin had slightly recovered going into fiscal 2021.

Tesla’s declining gross margin can be due to a couple of factors.

The major one can be attributed to a lower sales volume.

In Tesla’s case, its energy segment is still relatively small and has yet to reach the scale required for mass production.

For this reason, Tesla’s cost of production in the energy sector is still relatively high as of fiscal 2021, and hence, the negative gross margin.

Ratio of Tesla’s Energy Revenue to Total Revenue

Tesla's energy revenue to total revenue ratio

Tesla’s energy revenue to total revenue ratio

* Ratio is calculated by the author based on Tesla’s TTM total revenue and TTM energy revenue obtained from the company’s consolidated income statements.
* TTM data consists of the sum of the quarterly data on a trailing 12-month or 4-quarter basis.

Tesla solar business has contributed around 10% of sales to total revenue as shown in the chart above prior to 2019 on a TTM basis.

This figure dropped considerably in recent quarters and reached as low as 6% as of Q2 2021.

Tesla’s ratio of energy sales to total revenue has maintained at the 6% level for quite a few quarters.

The decline of the ratio may have been caused by Tesla’s continuous focus on the automotive sector, specifically, the Model 3 and Model Y ramp-up in recent years which have significantly bumped up the automotive revenue.

At only 6% of total revenue in the latest quarter, Tesla’s energy sector does not seem to be a major growth driver for the company at this moment.

Nevertheless, Tesla’s energy business will remain an integral part of the company’s strategy in transitioning the world to using renewable energy.

Tesla’s Energy vs Automotive Revenue

Tesla's energy revenue vs automotive revenue

Tesla’s energy revenue vs automotive revenue

* Energy and automotive revenues are GAAP measures and are obtained from Tesla’s consolidated income statements.
* TTM data consists of the sum of the quarterly data on a trailing 12-month or 4-quarter basis.

To get an idea of how much Tesla’s energy business has progressed with respect to automotive revenue, the chart above shows the revenue comparison between the energy and automotive segment on a TTM basis.

That said, the chart above depicts a huge contrast between Tesla’s energy and automotive revenue and the gap is growing.

As of fiscal 2Q 2021, Tesla’s automotive segment was 14X bigger than its energy counterpart in terms of sales figures.

For example, in 2021 Q2, Tesla’s TTM automotive revenue totaled $36 billion while the TTM energy revenue clocked in at only $2.6 billion in the same quarter.

Prior to 2021, the gap between Tesla’s automotive and energy sales was much smaller compared to its latest result, illustrating that Tesla’s automotive segment had grown at a much faster pace than its solar business.

That said, Tesla’s energy may grow much faster in the future considering that it is still in its infancy now.

Tesla believes that the energy business may ultimately grow to be as huge as or even bigger than the automotive business someday in the future.

Tesla’s Energy Revenue Sequential Growth Rates

Tesla's energy revenue QoQ growth rates

Tesla’s energy revenue QoQ growth rates

* Quarterly growth rates are calculated by the author based on Tesla’s quarterly energy revenue obtained from the company’s consolidated income statements.

In the 2nd quarter of 2021, Tesla’s energy sales grew 62% sequentially, one of the best quarterly growth rates the company has ever reported.

Tesla’s Energy Revenue Year Over Year Growth Rates

Tesla's energy revenue YoY growth rates

Tesla’s energy revenue YoY growth rates

* Year-over-year growth rates are calculated by the author based on Tesla’s quarterly energy revenue obtained from the company’s consolidated income statements.

Tesla continued to report a positive growth rate that clocked in at 116% in solar revenue in the 2nd quarter of 2021.

Conclusion

As of 2021 Q2, Tesla’s energy segment is a low profitability business as seen from the declining gross margin from 2018 to 2021 to below 0% in the latest quarter.

Tesla’s energy gross margin came in at -4% in Q2 2021 on a TTM basis.

At a negative gross margin, Tesla loses money for every single energy product that gets sold.

The declining margin has to do with the low sales volumes in the energy sector, thereby causing costs of production to be on the high side.

Despite having a growth rate that averages more than 40% since 2017, Tesla’s energy sector continues to incur losses.

While the energy sector is still relatively small at only 6% of total sales as of 2Q 2021, it has a lot of potentials and may even out-grow its automotive sector someday to become the most important segment in the company.

References and Credits

1. All financial figures in this article were obtained and referenced from Tesla’s quarterly and annual reports available in Tesla Update Letters and Presentations.

2. Featured images were used under Creative Common License and obtained from Dave Dugdale and Nick Ares.

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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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