I’m not a Tesla investor (nor a good fanboy) but I learned a lot during a recent project where I had to dig into some of their financial reports. Here’s what I learned about one of their profitability numbers, gross margin.
Thankfully, for you, this is not financial advice but observations from an amateur armchair analyst studying managerial finance. Thanks for reading!
Tesla provides a really nice, clear, shareholder presentation for each quarter. If you have not seen their summaries before, they are very accessible, e.g., see the PDF slides for Q3 2020 here. They include photos of construction projects, overviews of core technology, and more.
Even battery science geeks get a good overview of materials and how they impact range and $/kWh cost reduction:
“This was a record quarter on many levels”
- Strong order volume
- Total revenue up 39% year-over-year (despite some reduced vehicle pricing changes as mix shifts toward more affordable models)
- Strong vehicle deliveries and growth in other areas of the business
- Operating income at record levels: $809M
- Free cash flow of $1.4B, plus raising of $14.5B quarter-over-quarter, from successful new capital
In this exercise, I’m not looking at the stock market or performance predictions but wanted to dig into real revenue and associated costs of selling those goods and services.
If you do want to see how some writers (Zerohedge “On Tesla Believers…”) thought of Tesla from the market angle back in July, it’s an interesting contrast to this past quarter.
This graph is my snapshot gleaned from several quarterly reports, showing total revenues and the cost of revenues, as well as the gross margin ratio between them.
If you thought last quarter was soft due to retail chaos this summer, it sure looks more like a blip in the rearview mirror. Revenue values dipped slightly but stayed close to or above year-over-year.
However, the gross margin itself caught my eye. Year-over-year it is up 50% and was up 50% two quarters before that. All in all, doubling over a 1.5-year timeframe.
Part of this success is due to both revenue and revenue costs remaining in check during the unprecedented summer of 2020. Then those orders, deliveries, and services picked back up when the business started to open back up.
I can only imagine that many businesses had the impossible task of balancing these two line items during that time — especially in light of staff being moved around or sent home, facilities closed or upgraded, future business uncertainty, etc. due to lockdowns.
But it looks like Tesla found a way to do it and put forward an optimistic future outlook as well. Or was it all due to Musk’s push to open ASAP?
This report was only a personal exercise to understand a couple of key metrics. I’d love to hear from you if you had a different takeaway (or better metric) from their reports.