One important variable that you can easily find in a company’s financials that tracks whether a company is growing or not would be the revenue. And yet, the revenue is also one variable that is the hardest to manipulate in the income statement. The management can easily cook up the expenses, the costs and all kind of stuffs in the financial statements, but not the revenue.
Yes, you can push out or pull in some recognition of revenue in a quarter or two but that’s just how far you can do it legally. Therefore, it’s meaningless to look at just one quarter or even a year of revenue for analysis purpose. With that said, it’s important to keep track of a company’s revenue growth for a certain period of time, preferably multiple years.
In this article, we will look at Tesla (NASDAQ:TSLA) total revenue over a 5-year period and the respective year on year as well as quarterly growth rate. Other than revenue, we will also look at the gross margin of the revenue to find out the pricing power of Tesla’s products.
Before going into that, let’s take a look at Tesla’s financial statements to find out where the sales comes from. The following snapshot shows the revenue portion in the income statement.
According to the snapshot above, Tesla’s total revenues come from a few business segments which are further elaborated below:
- 1. Automotive sales revenue (inclusive of regulatory credits)
- 2. Automotive leasing revenue
- 3. Services and other revenue
- 4. Energy business revenue
Tesla adds up all the sales from all business segments and arrives at a total sum of revenue as shown in the incomes statements. Having said that, I have created multiple charts below that break down and track Tesla quarterly total revenue, total revenue by segment and total revenue by region.
Furthermore, I have also created charts that measures the quarterly and year on year growth rates of total revenue to show readers what the growth rates are like over a period of multiple years.
Theses charts show how much money Tesla made and how profitable they were from a historical perspective. Just sit tight and read on!
Chart of Tesla Quarterly Revenue
The first chart above represents Tesla quarterly total revenue for the past 5 years from 2015 to 2019.
As seen from the chart, the long-term trend shows how much revenue has grown over the years from only $1 billion in 1Q 2015 to a staggering $7.4 billion in 4Q 2019. Of course, the growth has not been a bed of roses as there were hiccups along the plot. For instance, revenues declined by as much as 40% in 1Q 2019 compared to the prior quarter but was still up year over year by 12.5%. So it was not that bad after all.
The important thing to watch for when analyzing the revenue plot is to find out whether the long-term trend is on an up or down trend. A rising trend indicates a growing revenue and thus, a growing company. This is especially important for a growth company like Tesla. You may see revenue dropping in a quarter or two, but the long-term trend must be on an upward direction which is what we are seeing in Tesla revenue plot above.
When a company can successfully expand its sales over a period of time, it means only one thing: there is demand for the product. On the other hand, if the revenue trend has declined over a period of time, investors need to pay attention and dig out the reason of the drop.
There can be a few reasons for the decline in sales. One of which can be due to competitors taking a share out of the products or the company may have raised prices, causing a drop in demand. Whatever the reason is, management will be in a very tough spot to squeeze profits out of a declining revenue. Laying off employees is not a pleasant thing to do aside from the bad reputation the company may get.
On the other hand, management will have plenty of flexibility to squeeze profits out of an expanding revenue. Therefore, I would rather see a company’s revenue expanding than contracting and later on, hearing all sorts of excuses from the management aside from setting up a restructuring plan in the face of declining sales.
Fortunately, none of this has occurred to Tesla.
Chart of Tesla Quarterly Gross Margin
The second chart above represents Tesla quarterly gross margin for the past 5 years from 2015 to 2019.
The gross margin is an important metric that measures the pricing power of a company. The higher a company can price its product, the higher the gross margin will be and thus the higher chance of making a profit after accounting for all expenses.
As seen from the chart above, the long-term trend shows that the quarterly gross margin has trended lower over the 5-year period. From a comparison perspective, Tesla generated sales with higher gross margin back in 1Q 2015 compared to the figure in 1Q 2019 which was slightly below 15%.
From 1Q 2019 onward, quarterly gross margin was seen rising and reached nearly 20% in Q4 2019. This figure is sort of in line with Tesla’s guidance and the company foresees that gross margin will further improve in future along with the increasing Model 3 deliveries and the expansion of products such as the introduction of Model Y by the end of 2020.
One reason for the steady drop in gross margin can be attributed to the price reduction of electric vehicles that Tesla has been doing for years. Tesla has reduced the pricing of its electric vehicles, specifically Model 3, to perk up demand.
Since the introduction of Model 3 back in 2017, Tesla has aggressively reduced prices of Model 3 to make it more competitive against fossil fuel vehicles, hoping that mass adoption of electric vehicle can be achieved. Model 3 is targeted specifically for the mass market and to grab market share away from fossil fuel vehicles.
Chart of Tesla Revenue By Segment
The chart above shows Tesla total revenue breakdown into several business segments. The respective business segments have been briefly mentioned at the start of this article.
As seen from the chart, the bulk of the revenue came mainly from automotive sales which made up more than 80% of total revenue in Q4 2019. During the same quarter, automotive sales alone has contributed more than $6 billion of revenue to Tesla which is a record high for the company.
Other revenue segments such as automotive leasing and energy products made up only a tiny fraction of total revenue and they seem to be irrelevant with respect to automotive sales.
This situation is sort of expected as the company’s revenue has come almost entirely from electric vehicle sales. This shows just how critical the electric vehicles or perhaps Model 3, are to the company top line growth. At the same time, Tesla is dangerously walking on a fine line by counting on only a single product for growth. If the electric vehicles, specifically Model 3, failed miserably, so will the entire company.
Again, this situation is not happening to Tesla for now.
Tesla Revenue By Segment (Excluding Automotive Sales)
The chart above is similar to the chart of Tesla revenue by segment discussed in prior paragraph except that automotive sales revenue was stripped off in the current chart so that readers can clearly see the revenue contributions by other smaller business segments.
What’s left off in the current chart are the revenue segments that come from energy products, automotive leasing and services.
Based on the current chart, “services and other revenue” has been the largest component among the three segments and was seen rising significantly in recent quarters in 2019. Surprisingly, it is the second largest revenue contributor after automotive sales.
The growing importance of the “Services and Other” business segment is not a coincidence but is anticipated along with the growing revenue of automotive sales. In other words, when Tesla delivered more and more vehicles, Tesla will have to follow through with the services and maintenance of these vehicles, resulting in the expansion of this business segment.
In contrast, revenue from the energy business and automotive leasing has been sort of flat and may be heading for a short-term decline. Part of the reason of the decline can be attributed to the fact that Tesla has been focusing all its resources on Model 3 and the lack of new products for leasing. For your information, Tesla has only started the leasing of Model 3 in 2Q 2019.
Chart of Tesla Revenue By Region
The chart above shows Tesla total revenue breakdown by regions such as the United States, China, Norway and Netherlands for the previous 5 years from 2015 to 2019.
Please note that I have stripped out the revenues from “Others” in the chart above as I felt that it’s meaningless to include it in the chart as the company does not further break down the revenue from “Others”.
As the chart shows, sales from the United States contributed the most revenue to Tesla all these years which means that the US has been by far the largest market for Tesla over the 5-year period. As of Q4 2019, the second place went to China at slightly more than $800 million. After that, it was Netherlands and Norway in the third and fourth place at $800 million and $152 million respectively.
Having said that, the sales from the United States contributed the largest revenue growth to the company. As of 4Q 2019, US revenue has reached as much as $3.7 billion but it was still far from the new high of $5.6 billion recorded in 4Q 2018.
Although revenue from the US plunged significantly in 1Q 2019 compared to prior quarter, the trend throughout 2019 shows that revenue has been steadily rising and by the end of 2019, US revenue has almost doubled from $2.3 billion in 1Q19 to $3.7 billion in 4Q19.
The rising trend shows that the demand for Tesla products in the US is pretty much very strong and will likely trend higher in future. Furthermore, US revenue will further increase when Tesla launches the Model Y by the end of 2020.
Tesla Revenue By Region (Only China, Norway and Netherlands)
Since revenue from the US contributed such a large percentage to total revenue, I have stripped it out in the current chart so that readers can clearly see the revenue contributions by other regions such as China, Norway and Netherlands.
Among the 3 countries, China has contributed the largest revenue in most of the quarters. The second place went to Netherlands when it overtook Norway in revenue generation in Q4 2019. Revenue growth for Norway has been sort of flat in recent years and it got worst in Q4 2019 when it plunged to record low at only $152 million.
Meanwhile, Tesla has only started to disclose the revenue from Netherlands since 3Q 2018. While there is not much data from Netherlands to talk about, its revenue contribution grew exponentially in 2019 when it went from only $100 million in 1Q 2019 to as much as $800 million in 4Q 2019.
At this rate, Netherlands will most likely overtake China in 2020 as the largest revenue contributor to Tesla outside the US. As of Q4 2019, we can see that sales from Netherlands has already gotten so close to China.
When you combined both Norway and Netherlands, together they contribute close to $1 billion of revenue to the company’s coffer. As a result, the Europe will most likely become the biggest market for Tesla’s products after the US in future.
Tesla Total Revenue Sequential Growth
The chart above shows the quarterly growth rate of Tesla total revenue for the past 5 years from 2015 to 2019.
While most quarters in the chart show positive quarterly growth rates, there are still a handful of them with minor negative growth rates and most are in the low single digits except for 1Q 2019 quarter when revenue plunged by a large percentage at -37%.
The reason for the large drop in sequential growth rate is primarily due to the pull-forward sales of electric vehicles to 1Q19 from 4Q18 which was caused by the reduction in government subsidies (mostly California and Federal level) starting 2019.
Although government subsidies, largely California, has been cut starting 2019 and Federal Tax credits had been totally phased out, demand for Tesla electric vehicles is still going strong as seen from the impressive double digit quarterly growth rates in 2Q19 and 4Q19 at 40% and 17% respectively.
The results proved that Tesla’s products are still pretty much in high demand and not as bad as claimed by some critics.
Tesla Total Revenue Year Over Year Growth
Similarly, the chart above shows the year over year growth rate of Tesla total revenue for the past 5 years from 2015 to 2019.
The results of the current chart are rather impressive as most quarters show positive growth rates and some of them are even in triple digits regions.
As of Q4 2019, year over year growth has dropped to record low at only 2%. In prior quarter of 3Q19, comparable sales was even worse at -8%. As mentioned, these negative results are primarily due to the pull-forward of sales in 2018 which is caused by the reduction in government incentives.
As seen from the chart, both 3Q18 and 4Q18 quarters recorded triple digits year over year growth rates as customers were rushing to order electric vehicles before the running out of incentives and tax credits in 2019.
As of 4Q 2019, Tesla total revenue has grown to $7.4 billion, representing a year on year growth rate of only 2% but a quarterly growth rate of 17%. The lower year on year growth rate was vastly attributed to the pull-forward of sales in 2018 because of the expected reduction in government incentives and federal tax credits for electric vehicles in the US.
Tesla revenue gross margin has trended lower over the 5-year period from 2015 to 2019 and reached close to 20% as of 4Q 2019. While gross margin has declined, it’s still in line with Tesla’s guidance and may rise in future when the company rolls out Model Y which is expected to significantly grab market share from traditional fossil fuel burning vehicles.
Automotive sales, one of Tesla’s largest business segment, has contributed roughly 80% of sales to total revenue in 4Q19. Total revenue from automotive sales alone has reached $6.1 billion in the same quarter which is a new record high for the company.
The United States has been Tesla’s largest market over the 5-year period and revenue generation from the US alone made up more than 50% of total revenue in 4Q19. While US revenue has declined slightly in 2019 compared to the prior year, it has almost doubled to $3.7 billion by the end of 2019.
As of 4Q 2019, China still represents Tesla’s largest oversea market, with a total revenue of $841 million. However, Netherlands is fast catching up and revenue from this tiny European country alone has contributed more than $800 million of sales in 4Q19 alone, a figure that is not so far away from that of China.
The Europe may soon surpass China as the largest oversea market for Tesla’s products as the respective revenue contribution has already reached $954 million in Q4 2019 when revenue from Norway is included in the measurement.
References and Credits
1. Financial figures for Tesla was obtained from Tesla Investor Relationship.
- Tesla Liquidity Analysis
- Tesla Automotive Revenue and Gross Margin
- Comparing GM and Tesla Automotive Revenue
- Tesla Vehicles Production and Deliveries Numbers
- Tesla Capital Structure Analysis
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