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Does Tesla Operating Costs Compare Favorably With Sales?

A Tesla Model S cruising on a highway. Flickr Image.

As an investor myself, I am always interested in not only the operating costs of a company but also want to know how the costs have changed with respect to revenue.

To this end, the operating costs over revenue or sales ratio will do the job just fine.

From the operating cost over revenue ratio, investors can observe the trend of the ratio, whether increasing or decreasing over a certain period of time.

An increasing trend may imply that costs of operation have gone out of control.

On the other hand, a decreasing trend is almost always preferable as it indicates a growing revenue or sales but at a smaller cost.

For Tesla, the cost to sales ratio is the perfect metric to measure expenses against revenue as the company carries a significant amount of operating expenses.

For your information, Tesla’s operating expenses are made up of R&D, SGA and restructuring expenses.

For a detailed breakdown of Tesla’s operating costs, please visit this webpage: Tesla’s marketing expenses.

This article focuses purely on Tesla’s operating costs to revenue ratio and the comparison of Tesla’s operating costs with respect to revenue growth.

Let’s take a look!

Tesla’s Operating Costs (Quarterly)

Tesla's operating costs by quarter

Tesla’s operating costs by quarter

* Operating cost is a measurement determined in accordance with GAAP and is obtained from Tesla’s income statements.
* Tesla’s fiscal year begins on Jan 1 and ends on Dec 31.

Before diving into the ratio, let’s have a quick look at Tesla’s quarterly operating costs for the period from 2015 to 2021 which is shown in the above chart.

As seen from the chart, Tesla’s operating costs have gone up quite significantly over the last 5 years.

The company’s quarterly operating costs were less than $400 million back in 2015 but the figures have gone beyond $1.6 billion per quarter in 2021, a new high for Tesla.

Also, Tesla’s operating costs grew the most in the last few quarters, and it seems to set a new record in each quarter.

Tesla’s Operating Costs (TTM)

Tesla's TTM operating costs

Tesla’s TTM operating costs

* Operating cost is a measurement determined in accordance with GAAP and is obtained from Tesla’s income statements.
* TTM figures are calculated based on 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.

On a trailing 12 months (TTM) basis, Tesla’s TTM operating costs have, indeed, slightly declined in 2019.

However, Tesla’s TTM operating costs have picked up again in 2020 and 2021 as reflected by the rising figures in the chart.

As of 2021 1Q, Tesla’s TTM operating costs breached the $5 billion mark for the 1st time, representing a year-over-year increase of more than 30%!

Studying only the operating costs may not tell us about the big picture of how Tesla’s costs have changed with respect to sales.

In the following chart, we will dive into the ratio of Tesla’s operating costs over revenue or sales ratio.

Let’s get to it!

Ratio of Tesla’s Operating Costs to Revenue (Quarterly)

Tesla's operating costs to revenue ratio by quarter

Tesla’s operating costs to revenue ratio by quarter

* Ratio is calculated by the author and is based on Tesla’s quarterly operating costs with respect to quarterly sales.
* Tesla’s fiscal year begins on Jan 1 and ends on Dec 31.

On a quarterly basis, Telsa’s operating costs to revenue ratio has been on a declining trend over the shown period.

Between fiscal 2015 and 2016, the ratio fluctuated around 40%.

However, from fiscal 2016 and onward, Tesla’s ratio started to plunge.

As of 2021 1Q, Tesla’s operating costs to sales ratio further declined and reached around 15.6%, a 2 percentage point higher than the prior quarter.

The decreasing trend of the ratio implies that Tesla’s sales are growing at a much faster pace than operating costs.

Ratio of Tesla’s Operating Costs to Revenue (TTM)

Tesla's TTM operating costs to revenue ratio

Tesla’s TTM operating costs to revenue ratio

* Ratio is calculated by the author and is based on Tesla’s TTM operating costs with respect to TTM sales.
* TTM figures are calculated based on 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.

From a TTM perspective, the decreasing trend is much more obvious.

As of 1Q 2021, Tesla’s operating costs to sales ratio reached only 14.8%, a record low for the company.

Again, the decreasing trend of the ratio implies that Tesla’s sales have outgrown the respective costs at much faster rates.

Tesla’s Operating Costs vs Sales (TTM)

Tesla's operating costs vs. revenue growth

Tesla’s operating costs vs. revenue growth

* Operating cost and sales figures are measurements determined in accordance with GAAP and are obtained from Tesla’s income statements.
* TTM figures are calculated based on 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 plot above shows the comparison between operating costs and revenue on a TTM basis.

From the chart, it is very clear that Tesla’s sales are growing at a much faster rate.

That said, Tesla’s TTM revenue has been on an explosive growth.

In contrast, Tesla’s operating costs have been flat and have, in fact, declined slightly in fiscal 2019.

Tesla’s TTM operating costs clocked in at slightly above $5 billion for the 1st time in 1Q 2021.

Conclusion

In fiscal 2021, Tesla’s operating costs breached $5 billion for the first time from a TTM perspective, a 30% increase from a year ago.

While Tesla’s operating costs have risen drastically over the years, the company’s revenue growth is much faster.

As such, Tesla’s operating costs to revenue ratio has been on a decline and reached only 15% in fiscal 2021, a new low for the company.

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References and Credits

1. All financial figures in this article were obtained and referenced from Tesla’s financial statements available in Tesla Stock Information.

2. Featured images are used under Creative Common License and are obtained from Automotive Rhythms and voyagevixen2.

Disclosure

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