- There’s more to Tesla than just cars—this EV manufacturer has been bringing in money from regulatory credits and energy storage.
- Tesla struggled with production issues and factory closures during the lockdowns. However, according to the most recent earnings report, Gigafactory Berlin hit the milestone of 1,000 vehicles produced in a single week.
- Tesla ended 2021 with a net income of $5.51 billion (a 665% increase from 2020).
Aside from the constant swirl of buzz that surrounds Tesla’s founder, the recent stock split and Inflation Reduction Act have drawn more eyes to the electric vehicle (EV) maker than normal, which is saying something – something substantive for a change. Since we have already taken a deep dive into the financials behind the Tesla stock split, we wanted to look at the company’s financials and revenue streams to see how the actual business, the fundamentals of the operation, have been performing.
While everyone associates Tesla with electric vehicles, it’s well-known that the company also has other revenue streams that have kept it afloat while struggling with production issues and the inability to turn a profit for most of its 19 year history.
Does Tesla Make Money?
It took Tesla 17 years to turn a profit when it announced that 2020 was the first full year of profitability in the company’s history. While the company generates substantial revenue from automotive sales and regulatory credits, it took some time to profit due to production costs and supply chain issues.
Until recently, the car factories in Texas and Berlin were losing billions of dollars due to a shortage of batteries and other supply chain issues in China (pandemic restrictions actually closed the factories temporarily).
When looking at any company, it’s essential to consider the different revenue streams and the expenses associated with them. While most of Tesla’s revenue comes from automotive sales, the energy side of the business is making meaningful progress.
What really kept Tesla afloat were emissions credits, namely the sale of these credits. Since Tesla manufacturers electric vehicles, it receives carbon credits from various clean energy government incentives. Tesla then turns around and sells these credits to other automakers in the field, like General Motors for instance. Critics are quick to point out that these competing automakers will eventually figure out how to create electric vehicles without the support of Tesla’s regulatory credits.
It’s worth noting that in 2020 the company was able to increase sales in Europe and China while adding a fourth vehicle to production, the Model Y. Tesla also recently announced that new factories in Berlin and Austin could finally ramp up production. According to the Q2 earnings report, the Berlin factory produced 1,000 vehicles in one week, a significant milestone for Tesla.
The company spent loads of cash ramping up production, and it struggled with manufacturing problems. Tesla turned its first full-year profit in 2020 when it brought in $31.5 billion in revenue (only $1.58 billion coming from regulatory credit payments from other automakers) and a net income of $721 million. This was a huge swing into profitability compared to the previous year’s loss of $862 million in 2019.
Around this time in 2021, many experts wondered if Tesla could still turn a profit solely from automobile sales instead of relying on emission credits. However, an expansion into China led to a $5.51 billion profit on automobile sales while delivering 936,172 cars in 2021, up from 499,550 vehicles in 2020.
Tesla then took profitability to the next level when it announced a $1.19 billion profit in the second quarter of 2021 (with $354 million coming from credit sales). Tesla ended 2021 with a net income of $5.51 billion (a 665% increase from 2020).
Tesla Business Lines
During the 2022 second-quarter earnings report, Tesla announced that total revenue was up 42% YoY to $16.9 billion due to growth in vehicle deliveries, an increased average selling price, and growth in other aspects of the business.
You may associate Tesla only with electric vehicles, but the company has multiple revenue streams boosting its profitability.
The majority of Tesla’s revenue comes from automotive sales. As outlined above, the company delivered almost one million electric vehicles in 2021, and it projects to reach 1.5 million cars delivered in 2022.
Tesla produced over 258,000 vehicles and delivered over 254,000 cars during the second quarter of 2022. June of 2022 was the highest vehicle production month (estimated at 120,000 total) in the company’s history.
Governments worldwide have incentivized automakers to develop electric vehicles in exchange for credits. Since Tesla only sells electric cars, it can receive these credits for free and then turn around to sell them at a substantial profit to other automakers that aren’t yet able to meet the regulatory requirements.
It’s worth noting that Tesla generated about $344 million in automotive regulatory credits revenue during the second quarter of 2022. Zoom out further and we see that Tesla generated $1.46 billion from regulatory credits in 2021.
The company lists automobile revenues together with regulatory credits in its financial reports, and these credit sales generated much-needed revenue for the company over the years. We have included this revenue stream as a separate section because the SEC asked about these regulatory credits in April of 2021, wanting to know why the company wasn’t listing these on a separate line.
The SEC also pointed out that the inclusion of the sales of regulatory credits in Automotive Sales was favourably impacting the company’s gross profit. Regulators brought up how the sales of credits had surpassed other revenue streams like automotive leasing.
Tesla defended this move, saying that one item can be combined with another if the income derived from it isn’t more than 10% of the other (with regulatory credit sales representing about 6% of total auto sales in 2020), which would justify the company combining that figure.
Energy Generation and Storage Revenue
Tesla has three main products that produce revenue from energy generation and storage. The company is devoted to creating a sustainable energy system, leading to the production of Powerwall, Megapack, and Solar Roof.
Here’s a quick breakdown of these three products:
- The Powerwall storage device is for homes and businesses. This rechargeable home battery system stores energy from solar power and makes it available on demand. This battery system can power your home at night or work as a backup generator in the event of a power outage.
- The Megapack is a utility storage unit that stores energy for the grid safely and reliably. Each unit can hold over 3MHw of energy (enough to power an average of 3,600 homes for one hour).
- Designed to maximize your home’s energy production, the Tesla Solar Roof is supposed to enhance the aesthetic of your home while slashing your energy bill. Tesla reported that the solar installation team continues to improve the efficiency of installations to enable higher volumes.
The company recently announced that it’s ramping up production at the dedicated Megapack factory to match the increasing demand for storage products. Still, demand for storage products is currently more than the supply.
The total energy revenue for Tesla in 2021 was $2.78 billion. However, the cost of the energy revenue for the year was $2.91 billion, leading to a $129 million loss in this sector.
Services and Other
Tesla’s final revenue stream is labeled on reports, “Services and Other.” This stream includes servicing older Tesla vehicles, and the company is also looking to grow merchandise, Tesla-owned collision centers, and relative services. Tesla stated that the used car business remains strong since interest in electric vehicles continues to increase.
Supercharger stations would also fall under this services category. Tesla continues to serve its customers and non-Tesla users to speed up the transition to sustainable energy.
While this move is not reflected in company revenue, Tesla announced it converted 75% of its Bitcoin into fiat currency by the end of the second quarter. The conversion of Bitcoin to cash led to the company adding $936 million to its balance sheet.
Should you invest in Tesla? The company recently split shares to make the stock more affordable for retail investors. There are also many eyes on the electric vehicle market while Tesla’s automobile sales increase yearly. If you believe in clean energy and feel electric vehicles and green energy are the future, you may want to consider investing in Tesla.
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