How will Tesla make money in 2022, numerically?

Key takeaways:

  • Tesla isn’t just cars — the electric car maker has been getting its money from regulatory credit and energy storage.
  • During the lockdown, Tesla has been grappling with production issues and factory closures. However, according to the latest earnings report, the Berlin Gigafactory has reached the milestone of producing 1,000 cars in a single week.
  • Tesla ended 2021 with net income of $5.51 billion (up 665% from 2020).

Aside from the ongoing buzz around Tesla’s founder, the recent stock split and inflation reduction bills that have drawn more attention than usual say something — there’s something substantial about change. Since we’ve delved into the financials behind Tesla’s stock split, we wanted to look at the company’s financials and revenue streams to see how the actual business, operating fundamentals are performing.

While everyone associates Tesla with electric vehicles, the company is known to have other revenue streams that keep it afloat while struggling with production issues and being unprofitable for most of its 19-year history .

Is Tesla making money?

When Tesla announced that 2020 would be the first full-year profit in the company’s history, it took 17 years to turn a profit. While the company generates significant revenue from car sales and regulatory credit, it will take a while to become profitable due to production costs and supply chain issues.

Until recently, auto factories in Texas and Berlin lost billions of dollars due to battery shortages in China and other supply chain issues (epidemic restrictions effectively shuttered factories temporarily).

income

When looking at any company, it is important to consider the different revenue streams and the expenses associated with them. While most of Tesla’s revenue comes from car sales, meaningful progress is being made on the energy side of the business.

What really keeps Tesla afloat are emissions credits, the sales of those credits. Because Tesla makes electric cars, it gets carbon credits from various clean energy government incentives.Tesla then turns around and sells those points to other automakers in the space, like General Motors
General Motors
E.g. Critics are quick to point out that these competing automakers will eventually figure out how to make electric cars without Tesla’s regulatory credit backing.

Notably, the company was able to increase sales in Europe and China in 2020, while ramping up production of its fourth model, the Model Y. Tesla also recently announced that new factories in Berlin and Austin could eventually ramp up production. According to the Q2 earnings report, the Berlin factory produced 1,000 cars a week, which is an important milestone for Tesla.

Profit Trend

The company is spending a lot of cash to ramp up production and has struggled with manufacturing issues. Tesla posted its first full-year profit in 2020, posting $31.5 billion in revenue (just $1.58 billion from regulated credit payments from other automakers) and $721 million in net income. That’s a huge earnings turnaround from the previous year’s loss of $862 million in 2019.

Around this time in 2021, many experts wonder if Tesla could still make money from just car sales, rather than relying on emissions credits. However, the expansion into China brought in a profit of $5.51 billion in auto sales, while 936,172 vehicles were delivered in 2021, up from 499,550 vehicles in 2020.

Tesla then took profitability to a new level by announcing a profit of $1.19 billion in the second quarter of 2021 ($354 million of which came from credit sales). Tesla ended 2021 with net income of $5.51 billion (up 665% from 2020).

Tesla Business Line

In its second-quarter 2022 earnings report, Tesla announced a 42% year-over-year increase in total revenue to $16.9 billion, driven by higher vehicle deliveries, higher average selling prices, and growth elsewhere in the business.

You might only associate Tesla with electric vehicles, but the company has multiple revenue streams that boost profitability.

car sales

Most of Tesla’s revenue comes from car sales. As mentioned above, the company delivered nearly 1 million electric vehicles in 2021 and plans to deliver 1.5 million vehicles in 2022.

Tesla produced more than 258,000 vehicles in the second quarter of 2022 and delivered more than 254,000 vehicles. June 2022 was the highest month for vehicle production in the company’s history (estimated at 120,000 units).

Regulatory credit

Governments around the world are encouraging automakers to develop electric vehicles in exchange for credit. Since Tesla only sells electric cars, it can earn those points for free, which it can then sell at a lucrative profit to other automakers that have yet to meet regulatory requirements.

Notably, Tesla generated about $344 million in auto regulatory credit revenue in the second quarter of 2022. Zooming in further, we see Tesla generating $1.46 billion in 2021 from regulatory credit.

In its financial reports, the company lists auto revenue and regulatory credits, and those credit sales have generated much-needed revenue for the company over the years. We included this revenue stream as a separate section because the SEC asked about these regulatory credits in April 2021 and wondered why the company didn’t list these on a separate line.

The SEC also noted that the inclusion of regulated credit sales in auto sales had a favorable impact on the company’s gross profit. Regulators lay out how credit sales outpace other revenue streams such as car rentals.

Tesla has defended the move, saying one can be combined with the other if one does not earn more than 10% of the other (regulatory credit sales make up about 6% of total vehicle sales in 2020). A merger that would justify the company combined this number.

Energy production and storage revenue

Tesla has three main products that generate revenue from energy production and storage. The company works to create sustainable energy systems, producing Powerwall, Megapack and Solar Roof.

Here’s a quick breakdown of the three products:

  1. Powerwall storage devices are suitable for home and business. This rechargeable home battery system stores energy from the sun and delivers it on demand. This battery system can power your home at night or be used as a backup generator during a power outage.
  2. A Megapack is a practical storage unit that safely and reliably stores energy for the grid. Each unit can hold over 3MHw of energy (enough to power an average of 3,600 homes for one hour).
  3. Designed to maximize your home’s energy production, the Tesla Solar Roof is designed to enhance the aesthetics of your home while cutting your energy bills. Tesla reports that the solar installation team continues to improve installation efficiency to achieve higher yields.

The company recently announced that it will ramp up production at its dedicated Megapack facility to meet growing demand for storage products. Still, demand for storage products is currently greater than supply.

Tesla’s total energy revenue in 2021 is $2.78 billion. However, the cost of energy revenue that year was $2.91 billion, resulting in a loss of $129 million for the industry.

Services and others

Tesla’s final revenue stream is labeled “Services and Others” in the report. That business stream includes servicing older Tesla vehicles, and the company also hopes to develop merchandise, Tesla-owned crash centers and related services. Tesla said its used-car business remained strong as interest in electric vehicles continued to grow.

Booster stations also fall into this service category. Tesla continues to serve its customers and non-Tesla users to accelerate the transition to sustainable energy.

While the move wasn’t reflected in the company’s revenue, Tesla announced it would convert 75% of its bitcoin to fiat by the end of the second quarter. Converting bitcoin to cash added $936 million to the company’s balance sheet.

bottom line

Should you invest in Tesla? The company recently split its stock to make the stock more affordable for retail investors. While Tesla vehicle sales are growing year by year, the electric vehicle market is also in the spotlight. If you believe in clean energy and think electric vehicles and green energy are the future, you might consider investing in Tesla.

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