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Tesla Services Revenue In 2021 And Growth Rates

tesla gigafactory shanghai

Tesla Gigafactory Shanghai, China. Source: Tesla 3Q19 Update Letter.

The “Services and Other” is one of Tesla’s reportable business segments in the quarterly and annual reports.

However, Tesla’s “services and other” segment contributes only 7% of sales to the company’s total revenue and is one of the smallest business units in terms of the size of its sales.

Additionally, Tesla’s services sector also has been losing money for several years based on its negative gross margin.

The negative gross margin in the services sector implies that Tesla is selling below or at costs for its products or services in this particular business segment.

This literally means subsidizing customers for the products and services.

Tesla Services and Others

The following snapshot gives an overview of Tesla’s business segments.

Tesla business hierarchy

Tesla business hierarchy – Services and Other

As seen from the snapshot above, Tesla’s services segment is a stand-alone reportable unit and ranks at the same hierarchy as other business units such as the automotive and energy.

It gets its sales from a couple of activities.

These include repairs, warranty plans and sales of used cars.

How Tesla’s “Services and Other” Business Unit Makes Money

The “Services and Other” business segment derives sales from several activities shown as below:

  • 1. Repair and maintenance services
  • 2. Extended service plans
  • 3. Sales of merchandises
  • 4. Sales of used Tesla vehicles
  • 5. Sales of electric vehicle components to other manufacturers
  • 6. Sales of non-Tesla vehicle trade-ins

The following explanations detail the revenue recognition and how sales are recorded in the income statement for some of the activities shown above.

Repair and maintenance services

Revenue recognition for repair and maintenance services is done as soon as the services are provided to customers.

Extended service plans

Revenues for extended service plans are recognized over the performance period of the service contracts as the obligation represents a stand-ready obligation to the customers.

Sales of merchandises, used vehicles, components and trade-in vehicles

Revenues are recognized when payments for merchandise, used vehicles, components and vehicle trade-ins are received at the point when control is transferred to the customers or in accordance with payment terms customary to the business.

Tesla’s “Services and Other” Revenue (Quarterly)

Tesla's quarterly services revenue

Tesla’s quarterly services revenue

* Tesla’s services and others revenue is a GAAP measure and is obtained from the company’s consolidated income statements.
* Tesla’s fiscal year begins on Jan 1 and ends on Dec 31.

On a quarterly basis, Tesla’s “Services and Other” revenue has grown significantly over the years.

As of 2021 Q2, Tesla’s services revenue stood at $951 million, a record high for the company.

Tesla used to make less than $100 million in sales in the “services and others” sector back in 2015

However, this figure has jumped more than 500% in fiscal 2020 and even more in fiscal 2021.

As such, Tesla’s services revenue is on the cusp of reaching $1 billion per quarter as indicated in the chart.

Additionally, according to Tesla, the volume of its services and others business unit is a function of historical new car deliveries.

Therefore, over the years, Tesla’s services revenue has grown along with the growing vehicle deliveries which have reached more than 400,000 units by the end of 2020.

Tesla’s “Services and Other” Revenue (TTM)

Tesla's TTM services revenue

Tesla’s TTM services revenue

* TTM data is calculated by the author and is based on the sum of the quarterly data on a trailing 12-month or 4-quarter basis.
* TTM analysis is used to smooth out the quarterly plot and to better show the trend of a curve.

From a trailing 12-months (TTM) perspective, Tesla’s services revenue grew the most between 2015 and 2019, with sales reaching over $2 billion in 3Q 2019.

However, revenue from the services segment has remained flat throughout most of 2020 at slightly more than $2 billion on a TTM basis.

In subsequent quarters, Tesla’s services sales continued to expand.

As of 2021 Q2, Tesla’s TTM services revenue totaled $3.1 billion, a new record for the company, representing a growth rate of more than 40% on a year-over-year basis.

Tesla’s Services Revenue Gross Margin (Quarterly)

Tesla's quarterly services revenue gross margin

Tesla’s quarterly services revenue gross margin

* Tesla’s services and others gross margin is a GAAP measure and is calculated by the author using the quarterly services and others revenue as well as costs of revenue obtained from the company’s consolidated income statements.

Although revenue growth has been impressive for the “services and other” segment, the gross margin has suffered in most of the quarters.

From the chart, Tesla’s services gross margin has trended downward and plummeted to as low as -45% in 2018 before recovering to -4% in 2021 2Q.

At -4% gross margin, Tesla’s services revenue was below costs, indicating that the services business sector has already incurred a loss at the gross profitability level.

In other words, Tesla bleeds money for every part, component and used vehicle that it sells under the service business sector.

Also, Tesla has been subsidizing the service business segment with its own money since 2017 considering that the gross margin never recovers to the positive figure.

Tesla’s Services Revenue Gross Margin (TTM)

Tesla's TTM services revenue gross margin

Tesla’s TTM services revenue gross margin

* 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 analysis is used to smooth out the quarterly plot and to better show the trend of a curve.

From a TTM perspective, Tesla’s service and others gross margin is seen declining over the years and reached as low as -38% in 2018.

However, Tesla’s services gross margin has improved steadily since then and reached about -16% in 2020 on a TTM basis.

As of Q2 2021, Tesla’s services gross margin further improved to -10% on a TTM basis.

While Tesla has improved the gross margin of the services sector tremendously, it was still highly unprofitable at -10% of gross margin.

Again, the negative gross margin may have been attributed to the sales of some items that Tesla wants to get rid of quickly.

For example, Tesla’s used vehicles is one such item that Telsa certainly wants to get rid of quickly.

There are significant costs associated with keeping used car inventory as they take up a lot of space and depreciate fairly quickly.

For this reason, Tesla may have been selling used vehicles below costs and thus, the negative gross margin.

Ratio of Tesla Services Revenue to Total Revenue

Tesla's services revenue to total revenue ratio

Tesla’s services revenue to total revenue ratio

* Ratio is calculated by the author using Tesla’s quarterly services and others revenue and total revenue obtained from the company’s consolidated income statements.

The plot above shows the ratio of services and other revenue to total revenue expressed in percentage.

As seen from the plot, the percentage has remained rather flat for the period from 2015 to 2021.

Between 2015 and 2021, Tesla’s services sales contributed about 8% of revenue on average to the company’s total sales.

As of 2Q 2021, Tesla’s “services and other” revenue ratio stood slightly above 7%, illustrating the modest role of this business segment towards revenue generation.

Although Tesla’s services sales have expanded to $951 million on a quarterly basis or $3.1 billion on a TTM basis as of 2Q 2021, its ratio total revenue has maintained at 7%.

Tesla Services Revenue Sequential Growth Rates

Tesla's services revenue sequential growth rates

Tesla’s services revenue sequential growth rates

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

On average, Tesla’s service revenue sequential growth for the past 20+ quarters is about 15%.

The quarterly growth for services sales was particularly impressive in 2018 when Tesla was ramping the production and delivery of Model 3.

However, the quarterly growth rate for services revenue tapered down in 2019 and subsequently dropped to -13% in 2Q 2020.

The sequential growth rates recovered to growth again in 2020, driven mainly by the record vehicle delivery in the same year.

As of 2021 Q2, Tesla reported a QoQ growth rate of only 6.5% for the services and other sales, one of the lowest sequential growth rates ever reported.

Tesla Services Revenue Year On Year Growth Rates

Tesla's services revenue YoY growth rates

Tesla’s services revenue YoY growth rates

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

Year over year, Tesla managed to generate an average sales growth rate of 61% for its services and other business units.

This figure demonstrates the strong year-on-year growth of Tesla’s services segment.

Of all the fiscal quarters, Tesla reported only a single quarter of negative growth for the services sales which happened in 2Q 202.

This was actually during the onset of the COVID-19 pandemic.

As of 2021 2Q, Tesla’s services revenue grew 95% year over year, illustrating the resilience of the automotive sector even during a pandemic outbreak.

In short, Tesla’s services and others sales growth has been massively impressive at over 60% on average.

Conclusion

Tesla has been consistently losing money in the “Services and Other” business segment due to its negative gross margins.

A negative gross margin implies that Tesla is selling below costs.

However, the “services and other” gross margin has improved tremendously between 2018 and 2021, growing from -45% in 1Q18 to -4% in 2Q21 on a quarterly basis, indicating the narrowing losses over the years.

Despite being non-profitable, the “Services and Other” revenue growth has been trending upward and reached a record high of $951 million in 2Q21, representing year-on-year growth of 95%.

Sequentially, Tesla’s services sales growth averages about 15% while its year-on-year growth averages 60%.

On a long-term basis, Tesla’s services revenue has been expanding, driven mainly by the growing vehicle deliveries in the last 5 years.

References and Credits

1. All information including financial figures in this article were obtained and referenced from Tesla’s financial statements available in Tesla Investor Overview.

2. Featured images were used under Creative Commons Licenses and were obtained from Wes Gill.

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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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