Tesla is one of the fastest-growing automobile manufacturers in the world, and it produces more than just electric cars.
Over 80% of Tesla's 10.4 billion dollar quarterly revenue comes from the manufacture, sale, and distribution of four electric car models. The remaining 20% comes primarily from the manufacture of electrical storage and generating systems.
In this article, we'll discuss how Tesla makes its money and provide a detailed breakdown of its 2021 first-quarter financials. We'll also cover each of its most profitable products, along with how Tesla turns revenue into net profit.
We sourced the information in this article from publicly available balance sheets and revenue analysis. We also compared figures provided by other automotive companies, such as General Motors.
Tesla Revenue Sources Explained
Tesla is primarily an auto manufacturer engaged in the production of electric cars. You probably already knew that, but it's important to specify the primary purpose of the company. Tesla is, above all else, a car production company.
Even though it's an auto company, Tesla also generates revenue in other ways apart from producing cars. Tesla's total revenue from the first quarter of 2021 is 10.4 billion dollars, which can be divided into several distinct parts. Here are the primary sources that Tesla uses to earn revenue.
Automotive Sales: 81% of Tesla's Total Revenue
Automotive sales make up just over four-fifths, or the vast majority, of Tesla's total revenue in the first quarter of 2021. Total, they gross around 8.5 billion dollars. This is not unexpected, as Tesla's primary purpose is to produce cars. What may come as a surprise is that the number isn't greater, as Tesla's business model includes numerous services for its vehicles.
Tesla generates all of its automotive production revenue from the sale of only four vehicle types: The Model 3, the Model S, the Model X, and the Model Y. Tesla has always offered limited vehicle choices and options, which has become a hallmark of the brand.
Services: 8.6% of Tesla's Total Revenue
Services account for roughly 8.6% of Tesla's revenue and claim the second-largest share. Tesla generates about 893 million dollars from services and other related sources.
Tesla technicians, trained and paid by the company, are the only people authorized to work on Tesla vehicles. They have access to proprietary parts and equipment, which are often required to make basic repairs.
Tesla uses its proprietary systems to centralize the repair and maintenance of its vehicles. This helps the company claim the majority of the revenue generated by repairs. It's worth noting that this strategy, which is famously practiced by John Deere and other companies, has been heavily criticized by 'Right to Repair' advocates.
Regulatory Credits: 5% of Tesla's Total Revenue
Regulatory credits make up just shy of 5% of Tesla's remaining revenue. Regulatory credits, which are issued by the Federal Government, are designed to incentivize the manufacture of zero-emission vehicles. These credits add up to around 518 million dollars.
They're not 'Environmental Credits' per se, as they don't take into account all kinds of pre and post-consumer pollution, but they're intended to influence the market into reducing carbon emissions.
Energy Generation and Storage: 4.8% of Tesla's Total Revenue
Energy generation and storage account for about 4.75% of Tesla's total revenue. In addition to producing electric cars, Tesla also manufactures large-scale battery packs for grid power storage. They're also used on a smaller scale, such as in homes and office buildings.
These batteries have numerous public and private industrial applications. They're used in concert with energy generation (like solar) and the grid. This allows renewable power sources to store excess power for use when sources aren't active, such as at night or when the wind isn't blowing.
Tesla's energy packs include the Powerwall, the Powerpack, and the large appropriately-named Megapacks. In 2020, these systems deployed around 3,022 MWh of electricity; 1,584 MWh in the 4th quarter alone. These numbers continue to increase as Tesla power systems increase in popularity.
Unconventional Revenue Sources
Sometimes, it's helpful to view Tesla as a giant corporation with 'startup tendencies.' Tesla also generates revenue from some unconventional strategies, chief among which is the sale of Bitcoin.
In the first quarter of 2021, Tesla generated a profit of 101 million dollars from the sale of Bitcoin alone. For a while, Tesla accepted Bitcoin for the purchase of its cars, being one of the only major automakers to do so.
The future of Bitcoin at Tesla is unclear, but the company rode the recent crypto price hikes 'to the moon' and made a healthy profit.
Does Tesla Make a Profit?
Yes, Tesla has been profitable in the first quarter of 2021. Tesla is sometimes labeled as 'one of those tech boom money-burning factories' by critics, but that assessment is far from the truth.
In Q1, Tesla generated a gross profit of 2.2 billion dollars, which is 21% of the company's total revenue. The remainder of the company's income goes to revenue costs, and a sizable portion of its profit goes to administration and R&D.
Tesla Revenue Costs
The cost of revenue is the total cost required simply to deliver a product to consumers. In Tesla's case, revenue costs include the costs of materials, manufacturing, and delivery of its vehicles (among other similar things).
Tesla's cost of revenue also includes the cost of manufacturing its battery packs, which are notoriously expensive to produce. Batteries require rare and costly metals such as lithium, which are largely imported from other countries.
Unlike assembly, which occurs predominantly in the United States, the cost of raw materials is unstable and difficult to predict. Tesla benefits from being a large and reliable purchaser of these materials, which curry favor with offshore suppliers.
Tesla Profit Breakdown
Tesla and its shareholders don't pocket all of its 2.2 billion dollar Q1 profits. Instead, roughly half of its gross profit (about 1.1 billion dollars) goes to research and development, along with improving existing products for upcoming generational updates.
New Products and Products Under Development
Tesla is known for its innovations, and much of that progress comes directly from reinvesting profits. Upcoming projects that the company has been working on include a series of solar panels and an entire solar roof, which will be produced at Tesla's Gigafactory 2 in New York.
Tesla's Solar Roof is likely to be a big driver of revenue in the future. Designed to be paired with a Tesla battery system, the Solar Roof utilizes hundreds of tiny solar panels that closely resemble normal house shingles.
Some of the styles offered include traditional black asphalt-style shingles, red clay tiles, and weathered wood. Tesla began taking orders for its Solar Roofs in 2017, so the systems have already begun to contribute to Tesla's Energy Generation and Storage revenue.
Reinvested profits also go into the development of large-scale systems. A notable example of this is Tesla's 730MWh Megapack battery installation in California, which is set to be one of the largest in the world. Tesla tests many of its products before offering them to the large-scale market, such as a large Tesla Solar Roof recently constructed in Florida.
Sales, General and Admin Expenses
Sales costs, general expenses, and administrative costs take up a large share of Tesla's profits. These include paying salaries, covering office space and land rentals, advertising, and marketing expenses, setting up showrooms and distribution costs. Tesla spent a bit less than 670 million dollars on these expenses in the first quarter of 2021.
Operating Profit: What They Pocket
So, after 10.4 billion dollars in revenue, how much money does the company and the shareholders earn? The total operating profit of Tesla was 594 million dollars in the first quarter of 2021, which represents just 5.7% of the company's total revenue.
This money is the net profit of the company after all the bills are paid, and it's a good measure of the overall profitability of the firm.
It's a fraction of what other, more well-established automakers earn (for example, GM's operating profit in Q1 was 4.4 billion dollars), but it's impressive given the age of the company and its risk-taking behaviors. Tesla sells a niche product to a niche (but growing) market, and it generates a healthy profit doing so.
About THE AUTHOR
I've spent many years selling cars, working with auto detailers, mechanics, dealership service teams, quoting and researching car insurance, modding my own cars, and much more.Read More About Charles Redding