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Is Tesla A Profitable Company?

Tesla Motors in Menlo Park. Source: Flickr

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).

If Tesla had been highly profitable, the company would most likely pay out a dividend and/or buy back its own shares, just like what its peers have been doing.

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)

Tesla gross profit (quarterly)

Tesla gross profit (quarterly)

* Gross profit is a GAAP measure and is obtained from Tesla’s consolidated income statements.

Let’s first dive into Tesla’s gross profitability which is shown in the chart above for the period from 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 2015 and 2021, with 1Q 2021 being the best quarter when the reported gross profit soared to $2.2 billion which is a record high for the company.

While Tesla reported a number of gross profits that topped more than $2 billion, 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 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)

Tesla gross profit (ttm)

Tesla gross profit (ttm)

* TTM data is calculated by the author and consists of the sum of the quarterly data on a trailing 12-month or 4-quarter basis.
* TTM gross profit is a GAAP measure and is computed using the quarterly gross profit obtained from Tesla’s consolidated income statements.

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 the highest at $7.6 billion as of 1Q 2021, representing a year-on-year growth of over 60%!

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)

Tesla operating profit (quarterly)

Tesla operating profit (quarterly)

* Operating profit is a GAAP measure and is obtained from Tesla’s consolidated income statements.
* Operating profit is also refered to as EBIT or earnings before interest and taxes.

The operating profit is another profitability measurement 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 2019.

On an annual basis, Tesla’s operating loss has been narrowed to only $69 million in 2019 compared to $388 million and $1.6 billion losses in 2018 and 2017 respectively.

As of Q1 2021, Tesla successfully generated an operating profit of almost $600 million, representing a year-on-year increase of more than 100%.

The operating profits which Tesla has consistently achieved throughout 2020 were unprecedented for the company.

Tesla’s Operating Profit (TTM)

Tesla operating profit (ttm)

Tesla operating profit (ttm)

* TTM data is calculated by the author and consists of the sum of the quarterly data on a trailing 12-month or 4-quarter basis.
* TTM operating profit is a GAAP measure and is computed using the quarterly operating profit obtained from Tesla’s consolidated income statements.

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 measurement 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 $2.3 billion in 2021 Q1.

Throughout 2020, Tesla has managed to achieve consistent operating profitability in all quarters.

The achievement was a major milestone for the company.

Tesla’s Pre-Tax Profit (Quarterly)

Tesla pre-tax profit (quarterly)

Tesla pre-tax profit (quarterly)

* Pre-tax profit is a GAAP measure and is obtained from Tesla’s consolidated income statements.
* Pre-tax profit is also refered to as EBT or earnings before taxes.

Also referred to as the earnings before tax (EBT), Tesla’s quarterly pre-tax profit surged to $533 million in 2021 1Q.

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 2019.

Between 2019 and 2021, Tesla reported 5 consecutive quarters of pre-tax profitability, with 1Q 2021 being the best performer when the reported profit before tax surged more than 100% year over year.

Tesla’s Pre-Tax Profit (TTM)

Tesla pre-tax profit (ttm)

Tesla pre-tax profit (ttm)

* TTM data is calculated by the author and consists of the sum of the quarterly data on a trailing 12-month or 4-quarter basis.
* TTM pre-tax profit is a GAAP measure and is computed using the quarterly pre-tax profit obtained from Tesla’s consolidated income statements.

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 throughout 2020 and reached a record high of $1.6 billion in 1Q 2021.

In other words, Tesla made more than $1.6 billion in pre-tax profit in the past 4 quarters as of Q1 2021.

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)

Tesla net profit (quarterly)

Tesla net profit (quarterly)

* Net profit is a GAAP measure and is obtained from Tesla’s consolidated income statements.
* Net profit is also refered to as EAT or earnings after taxes.

Also referred to as the bottom line or profit after tax (EAT), Tesla’s net profit takes into account all cost 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 managed to eke out consistent net profits, averaged around $230 million, from 1Q20 to 1Q21.

As of 1Q 2021, Tesla’s profit after tax surged to $438 million, representing a year-on-year increase of more than 100X.

A year ago, Tesla made only $16 million in net profit in 1Q 2020.

Tesla’s Net Profit (TTM)

Tesla net profit (ttm)

Tesla net profit (ttm)

* TTM data is calculated by the author and consists of the sum of the quarterly data on a trailing 12-month or 4-quarter basis.
* TTM after-tax profit is a GAAP measure and is computed using the quarterly after-tax profit or profit attributable to Tesla obtained from Tesla’s consolidated income statements.

Tesla’s net profit swelled to as much as $1 billion in 1Q 2021 on a TTM basis.

Year over year, Tesla turned from being loss-making to profit-making in the latest quarter of 2021.

A year ago, Tesla’s TTM net loss totaled as much as -$144 million in 2020 Q1.

I foresee that Tesla’s net profitability will increase to greater highs moving forward, considering that the Gigafactory Berlin, Germany will be expected to start producing cars for the European market by the end of 2021.

Tesla’s Earnings Per Share (Quarterly)

Tesla EPS (quarterly)

Tesla EPS (quarterly)

* Earnings per share or EPS is a GAAP measure and is obtained from Tesla’s consolidated income statements.
* Earnings per share or EPS shown is adjusted for 5-to-1 stock split.

Earnings per share are calculated by taking net profit and divide 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, Tesla’s diluted earnings per share were in the red in most of the quarters, implying the losses per share that the company has incurred from 2015 to 2019.

However, Tesla has clearly demonstrated profitability improvement in earnings per share when the company successfully reported positive earnings per share since 3Q 2019.

In Q1 2021, Tesla reported one of the highest quarterly earnings per share of $0.39 compared to only $0.02 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 the highly anticipated Gigafactory Berlin will start producing vehicles for the European market in late 2021.

Tesla’s Earnings Per Share (TTM)

Tesla EPS (ttm)

Tesla EPS (ttm)

* TTM data is calculated by the author and consists of the sum of the quarterly data on a trailing 12-month or 4-quarter basis.
* TTM earnings per share is a GAAP measure and is computed using the quarterly EPS obtained from Tesla’s consolidated income statements.

On a TTM basis, Tesla’s EPS reached a record high of $1.00 as of Q1 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 speak of its EPS.

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 operating 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.

Stay tuned!

Summary

Of all the profitability charts that we have seen, Tesla has only managed to be profitable in gross income from 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 in 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 1Q 2021.

More upside in profitability is expected in the near future judging from the fact that the Gigafactory Berlin will be ready by the end of 2021.

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.

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.

2. Featured images were used under Creative Common Licenses and obtained from Wesley Fryer and Thomas Hawk.

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{ 1 comment… add one }
  • Vafer May 4, 2021, 12:09 am

    Great write up. Why not also discuss the gains from bitcoin sales and ev-credits? That would help address all the nay-sayers and negative articles claiming that Tesla loses money on every car they sell. thanks!

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