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Tesla Inc. (TSLA) has grown rapidly into one of the world’s largest all-electric vehicle companies though the sale of cars and pickup trucks in the U.S., Europe, and China. The automotive segment accounts for the vast majority of revenue at the Palo Alto-headquartered company, and the U.S. accounts for more than half of sales. Tesla faces growing competition from other major automakers who are developing and marketing electric vehicles, including General Motors Co. (GM), China-based Nio Inc. (NIO), and Volkswagen Group and Daimler AG, both headquartered in Germany.
- Tesla makes, sells and services all-electric vehicles in the U.S., Europe, and China. It also sells energy generation products.
- The company gets vast the majority of its revenue from automotive sales, which are growing rapidly.
- Tesla is focusing on international expansion, especially in China.
- The company has posted annual losses since going public in 2010, but losses narrowed in 2019.
- Tesla shut its Shanghai factory for 10 days, starting in late January, in a government-mandated closure due to coronavirus. The virus could hurt its 2020 results.
Tesla’s revenue has more than tripled from $7.0 billion in FY 2016 to $24.6 billion in FY 2019. Revenue jumped nearly $10.0 billion alone between in FY 2018 due to the release of the mass-market Model 3 sedan to the public, but sales growth slowed to just $3.1 billion in FY 2019 as a result of production issues. In FY 2019, Tesla also posted meager gains in gross profit, a key measure of operating efficiency, which rose less than 1% to $4.1 billion. Despite that slow growth, gross profit in FY 2019 still was more than four times higher than FY 2015. Gross profit grew at a steady pace in the 2016, 2017, and 2018 fiscal years.
The company has reported a loss in each of the last 5 fiscal years but the shortfall has been shrinking since FY 2017, when it reported a $2.2 billion net loss. That number shrank by nearly two-thirds to $775 million in FY 2019, and the company says it posted both GAAP and non-GAAP profits in Q3 and Q4 of FY 2019. Despite that progress, high debt levels have impaired Tesla’s profitability since the company’s inception, and it’s scheduled to make $11.2 billion in debt payments in the next 5 fiscal years.
Tesla’s U.S. revenue, which accounted for 51% of total worldwide revenue in FY 2019, fell 14% to $12.7 billion after seeing rapid gains in recent years. Start-up production problems with its Model 3 line helped cause the FY 2019 decline. Tesla’s revenue in China, a key foreign market, rose 70% to $2.9 billion in FY 2019. The company’s new Shanghai production facility, which delivered its first vehicle in Dec. 2019, has the potential to boost Tesla’s China sales. Worldwide, Tesla’s car deliveries ended FY 2019 on a high note, with Q4 deliveries increasing 23% year-over-year, underpinned by sales of the Model 3.
Tesla Business Segments
Tesla operates through two main business segments: Automotive and Energy Generation and Storage. The company breaks them down into revenue and gross profit, as we show below and in the pie charts above: Tesla does not detail operating profit for each segment.
Tesla’s Automotive segment comprises the design, development, manufacturing, sales, and leasing of electric vehicles and automotive regulatory credits. The segment, which accounts for 94% of total revenue and 95% of total gross profit, also includes non-warranty after-sales vehicle services, sales of used vehicles, retail merchandise, and vehicle insurance revenue. The company’s auto revenue has risen 117% between FY 2017 to $23 billion in FY 2019 while gross profit nearly doubled during the same period. Despite this, gross margin for the automotive segment held firm at 23% in FY 2017 and FY 2018 but dropped to 21% in FY 2019 due to lower selling prices tie to the less expensive Model 3 sedan.
Energy Generation and Storage
Tesla’s energy generation business also is seeing sustained growth, though not as fast as autos. The Energy Generation and Storage segment, which accounts for 6% of total revenue and 5% of total gross profit, includes the design, manufacture, installation, sales, and leasing of solar energy generation and energy storage products, services. Between FY 2017 and FY 2019, the segment’s sales rose 37% to $1.5 billion. But gross profit fell from $242 million to $190 million both FY 2018 and FY 2019.
Tesla Recent Developments
Tesla’s Model 3, first delivered in July 2017, has greatly expanded overall production capacity globally, with a new Shanghai factory originally scheduled to roll out up to 150,000 vehicles per year. Tesla shut down the Shanghai factory for 10 days in late January and early February, following a Chinese government order due to the coronavirus. Tesla hasn’t updated its Q1 2020 outlook to include the outbreak’s financial impact, but the virus may affect FY 2020 financial results.
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