They made $331M in “profit” on $397M in carbon credit sales at 100% margin...meaning their core business still loses money.
Also they have $14.5B in cash but only reporting $6M in interest income. Weird.
Also they have $14.5B in cash but only reporting $6M in interest income. Weird.
They made money doing a thing, and subsequently got to sell their product at a lower cost just as any competitors are able to do.
People keep saying this like it’s some kind of cheating.
I'm betting that this won't be the case until about two decades from now. Battery cell & pack production will be a strategic requirement for any vehicle manufacturer that wants to produce in volumes > 100,000 vehicles/year.
Also, the goal posts aren't fixed -- if your commodity battery packs cost 10% more than those the competition have access to, but are still expensive enough that they make up a substantial portion of the total vehicle cost, you won't be able to compete.
So even though battery cells will eventually reach a point where it's "easy" to make an EV, there will already be enough competitors that make it economically impossible for new entrants to compete.
i.e Elon's Time Scale are not very reliable. Although I have come to the conclusion he does it on purpose to push the team to come up with the results.
And even with FSD: if you look at the new beta release released two days ago, it is an amazing improvement, check out the first user reviews.
As an investor they are plenty appealing to me. They made 23% gross margin on their cars excluding credits, and operating margins have also increased every quarter, now at 9.2%. These kinds of numbers are unheard of for an automaker. And they achieved these numbers while building out three factories.
I take this as a good sign. The carbon credits will slowly reduce as other auto manufacturers introduce more electric vehicles, as long as Tesla's growth out paces that reduction. Based on current numbers, they reduced carbon credit sales by 8% while increasing automobile sales revenue by 45% (can somebody check my numbers).
For the long game, that seems fine to me. Good in fact.
> meaning their core business still loses money
Wrong. Even a cursory look at their earnings report would have told you so. They made 23% gross margin on automotive revenue excluding credits. How is making 23% gross margin "losing money"? The typical automaker makes single digit gross margins on their products.
And they did all this while building out factories on three continents.
In the last quarterly update Elon said that his goal was to have a profit margin of 1-2% with the rest going to R&D and expansion. So as long as carbon credit sales are more than 2% of revenue, we'll hear the same complaint.
And because of the amazing stock growth a huge amount of stock options had to be payed. This was a p eak payment and will go down again next quarter.
A 20%+ margin on automotive without credits is quite fantastic actually, and that really is the core buissness people should be paying attention to. What you mention as 'core buissness' includes building multiple new factories at the same time, its not really comparable with other companies in this buissness.
With Q4 we are looking at a further increase in overall sales, only slightly growing operational spending, and a drop in SGA. Q4 will finally stop the 'its only credits' storyline.
That said, even years after people said credits will soon be over, the reality is that they are gone continue to increase as Tesla delivers more vehicles they actually get more credits, even when the value per credit goes down. We have been hearing the 'credit end next year' story so often that its almost a meme now. With auto makers continuing to go into SUV and Europe, China and California making pushing up requirements, there is little indication that every car maker will always manage to balance their fleet.
People completely miss this point (some deliberately so). At least in Europe, as each year progresses, the number of grams/km allowed will keep going down. It is 95g/km for this year. Thos who miss will have to pay a fine. FCA is pooling with Tesla to avoid this. Ford will miss due to fire hazard debacle. So on. Now even if the ICE makers are able to meet 95 gms/kms now, next year it will become harder. ICE innovation is not fast enough to keep up with regulation. Only way to avoid fines is to accelerate the EV+ICE mix. Some will do this not all. And this will hit their profitability. They have huge sunk cost on ICE side. They can't willy nilly junk that investment and move over to EVs. This mostly implies the legacy car makers will have to keep paying fines to EU or to pool with Tesla and subisidies the competitors growth. Win win for Tesla.
Surely they won't repeat a payment like that every quarter from now on.
And of course, running the biggest growth business on Earth at a significant profit probably isn't the wisest decision.
That depends on how easily the growth is achieved, and whether growth is well-served by shoving more margin at it.
For a time Facebook was the fastest growth business on Earth, and they were carrying 50% operating income margins, because their growth didn't require them to cut into their profitability to accomplish it. Facebook increased sales 91 fold in ten years, from $777m to $70.7 billion. At their peak of profitability in 2017 (prior to the big spending expansion for network control & monitoring purposes) they had a 55% operating income margin. The growth came so easily their margin just kept expanding as they went.
Before Facebook, Google and Microsoft both accomplished something similar along their growth paths (before eventually sprawling and becoming obese). Those beautiful software margins.
;)
$331M GAAP - $397M credit sales + $280M Musk non-recurring non-cash option award => $214M core business profit.
For instance, accounts receivables goes up basically every quarter, but the reason for it always changes. People suspect large-scale fleet sales are being hidden in this term.
Plus their general dishonesty in how they are presenting numbers. They're greatly downplaying how all profits are coming from credit sales, and use an unusual definitions of "gross margin" which doesn't include R&D and sales related costs.
Genuinely curious, not much of a finance person.
In other words, it's a purely utilitarian argument. If Tesla is abandoning basic honesty in its accounting, then it's likely that there will come a day where, almost out of nowhere, the company collapses. We saw this with Wirecard recently, so this is not a unrealistic claim. This is arguably the worse possible outcome of an investment.
My own views are very much secondary to what could happen if this continues. You should view this problem entire on the premise of what the real-world risks are, and how it could affect investors.