Is Tesla making a profit?
This is probably one of the most asked questions about Tesla.
Folks who are considering buying Tesla’s stocks may want to see profitability first before jumping on the bandwagon.
The reason is that a profitable company could pay out a dividend and buy back shares.
It’s no exception for Tesla (NASDAQ:TSLA).
That said, in this article, we will explore Tesla’s profitability from a top-down perspective.
We will start with looking at Tesla’s gross profit and subsequently, follow by its operating profit, pre-tax profit, net profit and finally, the earnings per share (EPS).
Let’s soldier on!
Tesla’s Gross Profit (Quarterly)
Let’s first dive into Tesla’s gross profitability which is shown in the chart above for the period from fiscal 2015 to 2021.
Tesla’s gross profit is measured by taking into account the company’s costs of revenue while excluding other expenses, including research and development and selling, general and administrative (SGA) costs.
Tesla’s cost of revenue comes mainly from material and labor as well as manufacturing overhead, including depreciation costs of tooling and machinery, shipping and logistic costs, warranty, and so on.
That said, Tesla’s quarterly gross profit has been on a significant rise between fiscal 2015 and 2021, with 3Q 2021 being the best quarter ever when the reported gross profit soared to $3.7 billion which is a record high for the company.
While Tesla reported a number of gross profits that topped more than $2 billion per quarter, the journey has not been a smooth sail.
Between 2015 and 2021, Tesla saw some of its quarterly gross profits dived significantly, on a sequential and year-on-year basis.
Additionally, Tesla’s gross profits have remained flat for a couple of quarters between fiscal 2019 and 2020.
However, on a long-term basis, Tesla’s quarterly gross profit has been on a rise.
And that’s what matters the most as the uptrend shows that Tesla has been growing in profitability.
Tesla’s Gross Profit (TTM)
To smooth out the quarterly plot and to better show the trend, the trailing 12-months (TTM) plot above was created.
From a TTM perspective, Tesla’s gross profit growth has been extraordinary.
As seen from the chart, Tesla’s gross profit reached as much as $11 billion as of 3Q 2021 on a TTM basis, a new high for the company.
The 3Q 2021 result represents a year-on-year growth of over 80%!
Additionally, the TTM plot clearly shows the rising trend of Tesla’s gross profit in the last 6 years.
While Tesla’s profitability reached record highs in terms of gross income, it does not necessarily mean profitability at the operating and pre-tax income.
Bear in mind that the gross profit has only taken into account the costs of revenue while leaving out the operating costs and interest expenses.
Let’s move on to find out Tesla’s profitability from operating activities.
Tesla’s Operating Profit (Quarterly)
The operating profit is another metric that tracks profitability as a result of core business operations.
In Tesla’s case, the company’s core business operations are related to its core operating activities and that includes the manufacturing, selling and distribution of its automotive and energy products.
For this reason, Tesla’s operating profit is inclusive of expenses such as R&D and SGA aside from the earlier costs of revenue.
Bear in mind that the operating profit still does not take into consideration expenses such as interest costs and taxes.
For this reason, the operating profit is also called earnings before interest and taxes or EBIT.
All told, according to the chart above, Tesla has been operating at a loss in most of the quarterly results, with some of them losing as much as $600 million in a single quarter.
As worst as the results may seem, Tesla’s operating losses have actually been narrowing over the years and reversed to profitability since fiscal 2019.
On an annual basis, Tesla’s operating loss has narrowed to only $69 million in fiscal 2019 compared to $388 million and $1.6 billion losses reported in fiscal 2018 and 2017 respectively.
As of Q3 2021, Tesla successfully generated an operating profit of almost $2 billion on a quarterly basis, representing a year-on-year increase of more than 100%.
The operating profits in which Tesla has consistently achieved throughout fiscal 2021 were unprecedented for the company.
Tesla’s Operating Profit (TTM)
From a TTM perspective, Tesla managed to flip the plot from negative to positive, implying operating profitability since 2020 as seen in the chart above.
Again, the operating profit is a crucial profitability metric that basically evaluates the operating efficiency of a company.
As mentioned, the operating efficiency lies in Tesla’s manufacturing and retail operations.
Accordingly, Tesla’s TTM operating profit reached a record high of $4.5 billion in 2021 Q3.
Since fiscal 2020, Tesla has managed to achieve consistent operating profitability in all quarters.
The achievement has been a major milestone for the company.
Tesla’s Pre-Tax Profit (Quarterly)
Also referred to as the earnings before tax (EBT), Tesla’s quarterly pre-tax profit surged to $1.9 billion in 2021 3Q.
Prior to 2020, Tesla’s pre-tax profits have consistently been in the red, with some quarterly results plunging to as low as $800 million.
However, Tesla managed to turn the business around starting in fiscal 2019.
Between 2019 and 2021, Tesla reported many quarters of consecutive pre-tax profitability, with 3Q 2021 being the best performer when the reported profit before tax surged more than 200% year over year.
Tesla’s Pre-Tax Profit (TTM)
The profit before tax takes into account Tesla’s interest expenses in addition to all the operating expenses as well as costs of revenues.
Basically, the pre-tax profit covers all costs of a company except taxes.
From a TTM standpoint, Tesla’s profits before tax have consistently ticked higher since fiscal 2020 and reached a record high of $4 billion as of 3Q 2021.
In other words, Tesla made more than $4 billion in pre-tax profit in the past 4 quarters as of Q3 2021, a new achievement in the entire history of the company.
Tesla’s stellar performance in 2020 and 2021 has mainly been driven by a strong volume of vehicle production and deliveries, particularly after the Gigafactory Shanghai started producing the Standard Range Plus version of Model 3 in 1Q 2020.
Tesla’s Net Profit (Quarterly)
Also referred to as the bottom line or profit after tax (EAT), Tesla’s net profit takes into account all costs of doing business, including interest expenses as well as taxes paid.
In general, the net profit is the profit available to shareholders.
A company can make use of the net profit in any way it wants.
For example, the company can re-invest the profits back to the company for expansion, pay down debts or even pay out a dividend.
Similarly, Tesla has managed to eke out consistent net profits, averaging more than $500 million per quarter since fiscal 2020.
As of 3Q 2021, Tesla’s profit after tax surged to $1.6 billion, representing a year-on-year increase of nearly 400%.
A year ago, Tesla made only $331 million in net profit in 3Q 2020.
The net profit reported in fiscal 2021 Q3 was a record quarter for the company.
Tesla’s Net Profit (TTM)
Tesla’s TTM net profit is nothing short of breathtaking as seen in the chart above.
Accordingly, Tesla’s net profit swelled to as much as $3.5 billion as of 3Q 2021 on a TTM basis, a record quarter in the last 6 years.
Year over year, Tesla’s TTM net profit reported in Q3 2021 represents an increase of more than 500% from a year ago.
A year ago, Tesla’s TTM net profit totaled only $556 million in fiscal 2020 Q3.
Tesla’s net profitability may grow to a greater high going forward, considering that the building of the Gigafactory Berlin and Texas, as well as the expansion of the existing Shanghai factory, are taking place simultaneously and will complete in the near future.
Tesla’s Earnings Per Share (Quarterly)
Earnings per share are calculated by taking net profit and dividing it by the weighted average shares outstanding.
Bear in mind that the results in the chart above have been adjusted to reflect the 5-to-1 stock split which occurred in 3Q 2020.
That said, according to the chart, Tesla’s diluted earnings per share were mostly in the red in quarters prior to fiscal 2020, implying the losses per share that the company has incurred in the past.
However, Tesla has clearly demonstrated profitability improvement in earnings per share when the company successfully reported positive earnings per share since 3Q 2019.
In Q3 2021, Tesla reported one of the highest quarterly earnings per share of $1.44 compared to only $0.27 reported in the same quarter a year ago.
Tesla barely made any profits in terms of EPS prior to 2020.
Tesla is a totally different company now compared to a year ago in terms of profitability.
Again, I expect to see a significant upside in earnings per share in the near future considering that several high-profiled Gigafactory located in Berlin, Texas and China will go into production boost in the foreseeable future.
Tesla’s Earnings Per Share (TTM)
On a TTM basis, Tesla’s EPS reached a record high of $3.09 as of Q3 2021, indicating unprecedented profitability for the company since its IPO.
The TTM plot clearly displays Tesla’s uptrend in terms of profitability, its earnings per share or EPS in this case.
The EPS is important as it gives investors an idea of where Tesla’s stock valuation stands.
That said, Tesla’s PE or price-to-earnings ratio comes into play when we talk about EPS.
In this case, Tesla’s PE is measured based on the TTM EPS shown in the chart.
As of Q3 2021, Tesla’s PE stood at a massive 355X on the back of a stock price of $1,100 USD per share reported in November.
Moving forward, Tesla needs to control its operating expenses and be vigilant in terms of capital expenditures if it expects to earn consistent profitability.
As long as Tesla can operate efficiently in the near future and stay on track in expanding its production capacity, I believe Tesla will have more upside not only in earnings per share but also in the stock price.
Of all the profitability charts that we have seen, Tesla has only managed to be profitable in gross income from fiscal 2015 to 2021.
For the rest of the profitability charts, Tesla has either made a loss or been downright unprofitable in some of the quarters.
Nevertheless, Tesla has improved drastically and been able to produce consistent profits in recent years.
Additionally, Tesla has achieved record profits in several quarters since fiscal 2020.
Moving into 2021, Tesla’s profits continued to surge from gross income to net profits.
Additionally, Tesla’s EPS reached a record high in 3Q 2021 on a quarterly and TTM basis.
More upside in profitability is expected in the near future judging from the fact that the Gigafactory Berlin and Texas will go into production soon while the Gigafactory Shanghai is in the midst of expansion.
Additionally, the highly anticipated Model Y in which Tesla is producing in several locations around the world will absolutely drive the company’s profitability and subsequently, its stock price higher.
Therefore, Tesla is not just a profitable company but also a highly profitable one as of 3Q 2021.
References and Credits
1. All financial figures in this article were obtained and referenced from Tesla’s annual and quarterly statements available in Tesla Annual and Quarterly Results.
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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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