Tesla’s Revenue Has Skyrocketed, but It Has Almost Nothing to Do With Selling Cars

Tesla, the electric car giant, presented its latest quarterly results this week, not only delighting investors but also demonstrating that its fate doesn’t depend on vehicle sales. The company’s profits from alternative sources contributed significantly to its growth.

The numbers:

• Earnings per share: $0.72 (up 8% year over year)
• Production cost per car: $35,100 (an all-time low)
• Car sales growth: 6%.
• Growth in regulatory credits: 33%.

The big picture. Tesla improved its quarterly results not just by selling more cars (which it has done), but by becoming more efficient in production and maximizing other revenue streams.

The company led by Elon Musk has found the sweet spot between cutting costs and capitalizing on regulatory opportunities.

Behind the scenes. Tesla’s strong quarter reveals an unconventional strategy. On one hand, the company has reduced production costs per car to an average of $35,100, or $2,400 less than in the same quarter last year.

On the other hand, the company has significantly increased its revenue from selling regulatory credits to other manufacturers that don’t meet environmental requirements.

• This system works like an environmental offset market: The government requires automakers to sell a certain percentage of zero-emission vehicles.
• Those who don’t meet these targets because they rely on selling internal combustion vehicles must buy credits from companies with a surplus, such as manufacturers of 100% electric vehicles like Tesla.
• This is a convenient and attractive source of revenue for Tesla—money that comes in with no associated costs and is almost entirely reflected in net profit.

However, this advantage may decrease as traditional manufacturers improve their production of electric vehicles and require fewer credits.

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In detail. Tesla’s regulatory credits revenue increased by 33%, a significant jump compared to the 6% growth in car sales.

Additionally, revenue from its solar and battery segments, though less important to its bottom line, nearly doubled—up 93%. Below are Tesla’s revenues by division for the last full fiscal year:

The big question. Can Tesla sustain its strategy of cost optimization and alternative revenue maximization, especially in the medium term as traditional manufacturers ramp up electric vehicle production?

Musk is forecasting a 20% to 30% growth in car sales by 2025. That would mark a substantial shift from the current trend, but only time will tell.

Image | SCREEN POST (Unsplash

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