Tesla Margin Per Car, Vehicle Margin And Profit Margin

Electric vehicles for hire. Source: Flickr Image

Over the past several years, Tesla has made tremendous progress, not only in vehicle shipment volumes but also profitability.

In terms of cash, Tesla’s operations generated positive free cash flow in fiscal 2022.

Additionally, Tesla also has expanded outside of the U.S. by having its Gigafactory constructed all around the world.

In short, Tesla has drastically expanded its operations and this has resulted in margins expansion for the company.

In this article, we are going to look at Tesla’s margins and find out how the company’s margins have changed over the past couple of years.

In particular, we will take an in-depth look at Tesla’s gross margin, operating margin, net profit margin, EBITDA, and some other non-GAAP margins.

Gross Margin

Tesla’s gross margin

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Let’s first look at Tesla’s gross margin which is calculated based on the company’s consolidated revenue and gross income.

Tesla’s gross margin has dived considerably in post-pandemic periods since fiscal 2022 and reached a record low of 21.5% as of 2Q 2023.

Tesla achieved a peak gross margin of 27% in fiscal 2022 before plunging to the latest result.

Tesla’s declining gross margin can be partly attributed to the company’s declining vehicle average sale price as depicted in this article – Vehicle Average Sale Price.

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Operating Margin

Tesla’s operating margin

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Tesla’s gross margin considers only the costs of goods sold while leaving out other expenses, including the R&D, SG&A, etc.

When these expenses are taken into consideration, Tesla’s operating margin is much smaller compared to the gross margin.

As shown in the chart, Tesla’s operating profit margin hovered around 13.5% as of 2Q 2023 on a TTM basis, a slightly lower figure compared to the same quarter a year ago.

Tesla achieved a record operating margin of 16% in fiscal 2022.

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Net Profit Margin

Tesla’s net profit margin

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The net profit margin accounts for all costs and expenses of doing business, including costs of goods sold, R&D, SG&A, taxes, and interest expenses.

As seen, Tesla’s net profit margin is nearly comparable with the operating profit margin and the latest figure came in at 13%, only marginally below that of the operating margin.

The continuous rise of net profit margin after fiscal 2020 shows that Tesla has managed to turn around from being an unprofitable company to a highly profitable one.

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Adjusted EBITDA Margin

Tesla’s EBITDA margin

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The EBITDA is the cash earnings before changes in working capital and is similar to net cash provided by operating activities.

However, the EBITDA is a non-GAAP measure in which certain expense items are excluded during the adjustment.

For your information, the EBITDA margin shown in the chart above is adjusted by the company based on criteria determined by Tesla’s management.

That said, Tesla’s adjusted EBITDA margin also has risen dramatically in the period shown.

As of fiscal 2023 Q2, Tesla’s adjusted EBITDA margin reached 20.5%, down slightly from the same quarter a year ago.

At an adjusted EBITDA margin of 20%, Tesla generates a significant amount of cash earnings, notably at $0.20 of cash out of $1.00 of revenue.

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Vehicle Margin

Tesla’s vehicle margin

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Tesla’s vehicle margin shown in the chart above is represented by the gross margin per car sold.

It is measured by using only the automotive sales revenue excluding regulatory credit and automotive leasing revenue and involves only vehicles delivered not subject to lease accounting.

All told Tesla’s vehicle margin on a gross basis totaled 21% as of fiscal 2Q 2023, down significantly from the 28% measured a year ago.

Tesla attained a peak vehicle margin of 28% in fiscal 2022 but the result has since been on the decline, driven primarily by the lower vehicle average selling price as depicted in this article – Vehicle Average Sale Price.

For profit per car, Tesla managed to earn a gross profit of more than US$10,000 per vehicle sold as of 2023 as presented in the article – Tesla Profit Per Car.

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Gross Margin Excluding Regulatory Credits

Tesla’s gross margin excluding regulatory credits revenue

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For your information, Tesla gets a portion of its revenue from regulatory credits sales.

Investors argued that the regulatory credit sales have artificially boosted Tesla’s margins as these sales were not related to Tesla’s core business of car making and distribution.

Additionally, Tesla’s regulatory credits sales may not be sustainable in the long run and may disappear once EV sales from other automakers catch up to the same level as Tesla.

Without regulatory credit revenue, Tesla’s gross margin may decline.

For example, Tesla’s gross margin clocked 21.5% in Q2 2023 with regulatory credit sales.

Without regulatory credits revenue, Tesla achieved a gross margin of only 19.8% in the same fiscal quarter.

Therefore, Tesla’s regulatory credit sales boosted its gross margin by nearly 2%.

In short, Tesla’s gross margin is artificially inflated by the regulatory credits revenue.

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Operating Margin Excluding Regulatory Credits

Tesla’s operating margin excluding regulatory credits revenue

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Similarly, Tesla’s operating margins without regulatory credit sales are much lower as seen in the chart above.

As of 2Q 2023, Tesla presented an operating margin of only 11.8% without emission credits revenue and a margin of 13.5% with emission credits revenue.

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Net Profit Margin Excluding Regulatory Credits

Tesla’s net profit margin excluding regulatory credits revenue

In terms of net profit margin, carbon credit sales help Tesla attain profitability.

In other words, Tesla would have been unprofitable without the help of carbon credits revenue.

However, since fiscal 2021, Tesla has been able to become profitable even without adding regulatory credit revenue.

For instance, Tesla pulled off a net profit margin of 13% in Q2 2023 on a TTM basis inclusive of regulatory credits revenue.

Without regulatory credits revenue, Tesla’s net profit margin still came in at an impressive figure of 11.3% in the same fiscal quarter.

Therefore, Tesla can still make pretty handsome profits even without regulatory credit sales.

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Conclusion

Although most profit margins dipped slightly in fiscal 2023, Tesla was still a highly profitable automobile company as of fiscal 2023.

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References and Credits

1. All financial figures presented in this article were obtained and referenced from the company’s SEC filings, earnings releases, investors presentations, update letters, quarterly and annual reports, etc., which are available in Tesla Press Releases.

2. Featured images in this article are used under Creative Commons licenses and sourced from the following websites: brx0 and David Davies.

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Disclosure

References and examples such as tables, charts, and diagrams are constantly reviewed to avoid errors, but we cannot warrant the full correctness of all content.

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