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Tesla’s TTM Energy Revenue Soared Beyond $2 Billion

Tesla battery. Source: Flickr Image.

The energy sector has been one of Tesla (NASDAQ:TSLA) major revenue contributors and has remained an important business segment for the company since the acquisition of SolarCity in 2016.

Although the energy business may not be as large as other business sectors such as the automotive, it’s still playing a very important role in the company’s ultimate goal of transitioning the world from fossil fuels to clean and renewable energy.

Aside from serving as an independent business itself, Tesla’s solar or energy business also serves to complement its automotive sector when it cross-sells its energy generation and storage products to the automotive customers.

Tesla wants its automotive customers to charge their vehicles using renewable energy which can now be easily installed and set up.

By doing that, Tesla’s automotive customers get to enjoy a fully renewable energy experience when they charge their electric vehicles with a Tesla solar-powered charging station.

Aside from home applications, Tesla’s energy generation and storage can also be applied at Tesla’s supercharger stations in which its electric vehicles are charged up using renewable energy.

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 its energy business has been doing in terms of profitability and growth.

For your information, the gross margin measures the gross profitability of the energy sector.

By looking at the gross margin across several fiscal periods, we can find out how Tesla’s energy business profitability has changed over time.

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 energy business hierarchy

Tesla energy business hierarchy

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 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 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 energy revenue (quarterly)

Tesla energy revenue (quarterly)

* Tesla’s quarterly energy revenue is a GAAP measure and is obtained from the company’s consolidated income statements.

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

Tesla’s energy is also called energy generation and storage revenue as its sales come mainly from the sales of 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.

That said, Tesla’s solar or energy revenue has grown quite a bit since 4Q 2016 but had remained flat thereafter.

Nevertheless, Tesla’s energy sales began to grow modestly in 2019 and reached a new high at $436 million by the end of 2019.

In subsequent quarters, Tesla’s sales from its energy unit fluctuated quite a bit.

By 1Q 2021, Tesla’s energy revenue stood at $494 million, driven mainly by a record YoY energy storage as well as solar deployments which hit 445MWh and 92MW, respective, in the same quarter.

For your information, Tesla’s energy storage and solar deployment grew 71% and 163% year-on-year in 2021 Q1.

Tesla’s Energy Generation and Storage Revenue (TTM)

Tesla energy revenue (ttm)

Tesla energy revenue (ttm)

* 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.

However, the TTM revenue remained flat in 2018 and has slightly declined in 2019.

Tesla’s energy sales were back to growing again in the 2nd half of 2020.

As of Q1 2021, Tesla’s TTM energy or solar sales soared beyond $2 billion for the 1st time and reached $2.2 billion, representing a year-on-year growth rate of 46%.

According to the 1Q 2021 earnings release, Tesla experienced strong demand for its Powerwall and Megapack energy storage products.

Tesla’s total storage deployment grew 71% YoY to 445MWh in Q1 2021.

Similarly, Tesla’s solar deployment also increased significantly in 2021 1Q by 163% YoY to 92MW.

As seen from the chart, Telsa’s TTM energy revenue was back to significant growth again in late 2020 and early 2021, driven by record storage and solar deployments.

Tesla’s Energy Gross Margin (Quarterly)

Tesla energy gross margin (quarterly)

Tesla energy gross margin (quarterly)

* Energy gross margin is a GAAP measure and is calculated by the author using Tesla’s energy revenue and energy gross income obtained from the company’s consolidated income statements.

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 that the specific products can command higher pricing relative to its competitors.

This competitiveness can come from a strong brand or a moat that the company has over its competitors.

All said, 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 the highest at almost 30% in 2017 but that has dropped drastically to only single-digit values in 2018 before recovering to 20% in 2019.

Again, the energy sales gross margin continued to slide throughout 2020 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.

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

At a -20% gross margin, Tesla is having a loss in the energy business.

Tesla’s Energy Gross Margin (TTM)

Tesla energy gross margin (ttm)

Tesla energy gross margin (ttm)

* 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 looks much better compared to the previous one without all the zig-zagging seen in the quarterly plot.

From a TTM perspective, Tesla’s energy gross margin has been on a decline since 2017 from about 25% reported in 2017 3Q to nearly -4.3% as of 2021 1Q.

The decline in Tesla’s gross margin for the energy segment was the steepest in 2020.

In the subsequent quarter, Tesla’s solar TTM gross margin continued to plunge and reach its lowest at only -4% as of Q1 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 achieve the scale required for mass production.

For this reason, Tesla has yet to reach the economies of scale in the energy segment which is necessary to keep the costs of production low.

While Tesla’s energy may have hit the $2 billion sales from a TTM standpoint, its gross margin has continued to decline and even plunge below 0% in Q1 2021, suggesting that Tesla’s solar or energy sector makes little to no profit.

Ratio of Tesla’s Energy Revenue to Total Revenue

Tesla energy revenue to total revenue ratio

Tesla energy revenue to total revenue ratio

* Ratio is calculated by the author using 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 Q1 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 energy vs automotive revenue

Tesla energy 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 far 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.

Based on an absolute value comparison, Tesla’s automotive segment was 14X bigger than its automotive counterpart in terms of sales number in 2021 1Q.

For example, in 2021 Q1, Tesla’s TTM automotive revenue totaled $31 billion while the TTM energy revenue was only $2.2 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.

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

Tesla energy revenue QoQ growth

Tesla energy revenue QoQ growth

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

The chart above shows Tesla’s quarterly (QoQ) growth rates of the energy revenue for the previous 3 years from 2017 to 2021.

In the last 3 years, Tesla’s quarterly solar revenue has grown both positively and negatively, with positive numbers slightly more than the negative numbers.

Sequential growth was the worst in 2018 when 2 out of 4 quarters were seen having negative growth rates.

However, energy business revenue improved tremendously at the start of 2019 when 3 out of 4 quarters reported positive growth rates. Throughout 2019, we are seeing near double-digit growth rates.

Solar revenue declined the most in Q1 2020 at nearly 33% on a quarterly basis, marking the end of a streak of revenue growth seen in 2019.

Tesla’s energy revenue grew again at the start of 2020, reaching as much as 56.5% and 30% quarterly growth rates in 3Q and 4Q 2020, respectively.

In the 1st quarter of 2021, Tesla’s energy sales declined 34% sequentially, one of the worst the company has ever reported.

Tesla’s Energy Revenue Year Over Year Growth

Tesla energy revenue YoY growth

Tesla energy revenue YoY growth

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

On a year over year (YoY) basis, the chart shows that most of Tesla’s energy revenue growth occurred in the early stage of the energy business.

In this case, Tesla’s solar sales grew in the high double-digit between 2017 and 2018.

However, Tesla’s YoY energy revenue growth came to a stop in 2019 when most quarterly results reported negative YoY growth rates.

The company reported a YoY growth rate of -10% in Q1 2020 for the energy segment, indicating that the solar business has declined considerably in 2020.

While YoY growth rates were negative at the start of 2020, Tesla managed to turn to a positive growth rate by 2020 3Q and 4Q at 44% and 72.5%, respectively.

Tesla continued to report positive growth rates that totaled nearly 70% in its solar business sales in the 1st quarter of 2021.

Conclusion

As of 2021 Q1, Tesla’s energy segment is a low profitability business as seen from the declining gross margin from 2018 to 2020 to below 0% in the latest quarter.

Tesla energy gross margin plunged to -20% in Q1 2021.

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

Moreover, Tesla’s solar or energy revenue growth has been stagnant from 2019 to 2020 on a TTM basis.

Tesla’s energy growth only came roaring back in the 2nd half of 2020 and early 2021.

Tesla’s energy may grow again going into 2021 considering that its TTM sales had been on a rise again in late 2020 after remaining flat for quite a few quarters.

All in all, Tesla’s energy has so much potential going into the future and may someday grow bigger than its automotive counterpart.

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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