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Tesla’s Energy Revenue, Gross Margin And Growth Rates

Tesla battery. Source: Flickr Image.

Tesla (NASDAQ:TSLA) energy has been an important business segment after the SolarCity acquisition in 2016.

Despite the expanding role of the energy sector, Tesla’s energy revenue actually made up only 4% of the company’s total sales as of fiscal 2Q 2022 and this ratio has been on a decline.

While the energy revenue contribution may look small, it has been growing at an average YoY growth rate of around 34% since fiscal 2017.

However, Tesla’s energy is still an unprofitable business and has reported negative gross margins in the past several quarters.

For your information, Tesla’s energy and automotive are separate business segments.

Despite being a separate business sector, Tesla’s energy and automotive have great synergy.

For example, Tesla cross-sells its solar and battery storage products to automotive customers so that they can recharge their vehicles with renewable solar energy instead of fossil fuel-generated energy.

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 on its own 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 find out how the energy business has been doing in terms of profitability and growth.

Apart from the revenue-related metrics, we also look at a number of other metrics, including solar and storage deployed numbers.

Without further ado, let’s get started!

Tesla’s Energy Business

Before we begin, let’s take a look at the following diagram that demonstrates 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 is located in the same hierarchy as the automotive sector.

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.

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 2022.

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.

However, after the SolarCity acquisition, Tesla’s energy revenue started to soar and continued to grow significantly as shown in the chart above.

As of fiscal 2Q 2022, Tesla’s energy revenue came in at $866 million on a quarterly basis, up 40% from the prior quarter or 8% year-over-year.

While Tesla’s energy revenue was great in 2Q 2022 year on year, it was triple of the number reported in 2020.

Therefore, on a long-term basis, Tesla’s energy revenue has been on a steady rise.

Tesla’s Energy Generation and Storage Revenue (TTM)

Tesla's TTM energy revenue

Tesla’s TTM energy revenue

* Energy revenue shown in the chart above is presented on a TTM basis.
* 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 fiscal year begins on Jan 1 and ends on Dec 31.

The TTM or trailing 12-month plot above is created to smooth out the quarterly curve and to better reflect 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 as shown in the chart above.

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

Nevertheless, Tesla’s energy revenue has returned to growth again in fiscal 2022 as shown in the TTM plot above.

As of Q2 2022, Tesla’s TTM energy revenue clocked in at $3 billion USD, up 13% from a year ago or 2% from the previous quarter.

At an average growth rate of 30%, Tesla’s energy revenue will exceed $3 billion on a TTM basis by the end of fiscal 2022, and most likely soars beyond $5 billion in fiscal 2023.

Tesla’s Solar Deployment (TTM)

Tesla's solar deployment

Tesla’s solar deployment

* Solar deployment data shown in the chart above is presented on a TTM basis.
* 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 fiscal year begins on Jan 1 and ends on Dec 31.

The discussion of Tesla’s energy without including the solar deployment would be incomplete because it is one part of the energy business that partially contributes to sales revenue.

Therefore, in this section, I have included a chart above that represents Tesla’s solar deployment presented on a TTM basis.

All said, according to the chart, Tesla’s solar deployment has significantly recovered in fiscal 2022 compared to a year ago.

You can see that Tesla deployed the least amount of solar power in fiscal 2020 when the COVID-19 outbreak was just starting.

However, Tesla’s solar deployment had significantly recovered in fiscal 2022 despite the ongoing pandemic and the supply chain crisis which has been impacting various economic sectors.

As of fiscal 2Q 2022, Tesla’s solar deployment clocked at 322MW on a TTM basis, a new high in 2022 and represents a year-on-year growth rate of about 1%.

Compare to fiscal 2020, Tesla’s solar deployment in 2022 was more than double the number reported in 2020.

In short, Tesla’s solar was back to growing again in fiscal 2022 after slipping considerably in fiscal 2020 and early 2021.

Tesla’s Energy Storage Deployment (TTM)

Tesla's energy storage deployment

Tesla’s energy storage deployment

* Storage deployment data shown in the chart above is presented on a TTM basis.
* 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 fiscal year begins on Jan 1 and ends on Dec 31.

Similarly, Tesla’s energy storage is another part of the company’s energy business that generates significant sales revenue.

That said, the TTM chart above shows that Tesla’s energy storage deployment has been on fire.

According to the chart, Tesla deployed a significant amount of energy storage over the years and the figures have been increasing.

As of fiscal 2Q 2022, Tesla’s energy storage deployment grew 5% year-over-year to as much as 4,252 MWh on a TTM basis, one of the best figures since 2021.

Unlike the solar deployment which we saw in prior discussions, Tesla’s energy storage deployment has never slipped even during fiscal 2020 despite having the COVID-19 as well as the supply chain headwinds.

More importantly, Tesla deployed a record amount of storage in fiscal 2021, more than double that of 2020.

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 excluding 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%.

Despite achieving a high gross margin back in fiscal 2017 in the energy segment, the figure slowly declined to less than 5% and even to the negative region as of fiscal 2022.

A likely cause of the declining gross margin may have been the growing costs of production/installation in the energy sector.

One notable example is the solar roof in which Tesla needs to painstakingly train its staff for the installation to prevent years of leaks as well as damages down the road.

In fiscal 2Q 2022, Tesla’s energy gross margin came in at 11% compared to the prior result of -12%, indicating that the company’s energy sector profitability has significantly improved.

From a comparison perspective, Tesla’s automotive sector, including the automotive sales and automotive leasing revenues, generates a gross margin between 20% and 40%, underscoring the unprofitable nature of the energy segment compared to the automotive.

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 based on the ratio of TTM energy gross income to TTM energy revenue.
* Tesla’s fiscal year begins on Jan 1 and ends on Dec 31.

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

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

Since fiscal 2017, Tesla’s energy gross margin has been on a decline from about 25% to about -1% in the latest quarter.

Despite having a positive quarterly gross margin in 2Q 2022, Tesla’s energy gross margin was still in the red, notably at -1% on a TTM basis.

The decline in Tesla’s energy gross margin was the steepest in fiscal 2020 and it further slipped to the red in fiscal 2021.

Tesla’s declining gross margin may have been attributed to the company’s major expansion in the energy segment.

For your information, Tesla has been pouring in huge resources into the energy segment and is in the process of building a dedicated Megapack factory according to the 4th quarter earnings release.

Tesla’s huge investment in the energy segment may have driven the sector to become unprofitable in fiscal 2021.

However, once Tesla achieved a certain amount of return on investment, the energy segment gross margin will recover and may head to profitability again, just like what it did to the automotive segment.

While Tesla’s energy gross margin has been in the red in the last several quarters, it did improve in the latest quarter in 2Q 2022 to -1%.

Tesla’s Energy Revenue To Total Revenue Ratio

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.
* Tesla’s fiscal year begins on Jan 1 and ends on Dec 31.

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

This figure dropped dramatically in recent quarters and reached as low as 4% as of Q2 2022.

Tesla’s soaring automotive revenue may have caused the decline of the ratio over the years.

While Tesla’s energy revenue has been increasing, the ratio decreases, illustrating that other revenue streams grow at a much faster rate.

At only 4% 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.
* Tesla’s fiscal year begins on Jan 1 and ends on Dec 31.

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 2022, Tesla’s automotive segment was nearly 20X bigger than its energy counterpart in terms of sales figures.

For example, in 2022 Q2, Tesla’s TTM automotive revenue totaled $59 billion while the TTM energy revenue clocked in at only $3 billion in the same quarter.

Prior to 2022, 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.

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 2022, Tesla’s energy sales increased 41% sequentially compared to the prior result of -11% reported in 1Q 2022.

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 at 8% in solar revenue in the 2nd quarter of 2022 compared to a much higher growth rate of 25% reported in the prior quarter.

Conclusion

As of 2022 Q2, Tesla’s energy revenue came in at $866 million on a quarterly basis or $3 billion on a TTM basis.

While revenue has been on a rise, Tesla’s energy gross margin has been on a decline, clocking in at 11% in Q2 2022 on a quarterly basis or -1% on a TTM basis.

At a negative gross margin, Tesla energy is an unprofitable business.

Also, the declining gross margin over the years may have been driven by the increasing costs of investments in the energy segment where Tesla has been pouring in resources to drive growth.

For example, Tesla is in the midst of building a dedicated factory for Megapack production.

Despite the unprofitable nature of the business, Tesla’s solar and energy storage deployments continued to soar as of Q2 2022, reportedly at 322MW and 4.3GWh, respectively, on a TTM basis.

Similar to what it did in the automotive sector, Tesla is in the midst of an expansion in the energy segment as reflected in the declining gross margin while having a growing revenue.

Once a breakeven point is achieved, Tesla’s energy will become profitable and may even outgrow its automotive sector someday to become the largest business 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 which are 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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