Growing Tesla Revenue Puts the Company on Firm Ground to Maintain High Profitability
2021 has been a milestone in the history of Tesla as the company sets to rest all doubts about its profitability. During the preceding years, there was high skepticism about Tesla’s profitability. But the company’s recent earnings report proves the skeptics wrong as Tesla makes a turnaround and establishes its identity as a profit-making company with bright prospects ahead. A quick look at the Tesla revenue figures will help identify the strong positive profitability signals.
Tesla revenue figures
In 2021 Tesla achieved the highest operating margin among all other volume OEMs. It helped Tesla establish that EVs can be more profitable than CE (combustion engine) vehicles. Tesla generated an additional GAAP net income of $5.5 billion and recorded a free cash flow of $5 billion. Do the figures answer those who keep asking how profitable is Tesla? Tesla could achieve the margins despite spending heavily toward capital expenditures, including building new factories.
How Tesla passed the breakeven point?
Tesla had to wait until 2018 to pass the breakeven point of production. On tracking the average price of Tesla vehicles since 2015 and the average cash from operations up to 2021, it will become evident that the unit price of vehicles decreased steadily during this period while the cash from operations kept increasing. The cost per vehicle kept rising from about $80,000 in 2015 to reach a high of $ 115,000 in 2018 and then started declining every year to set a price slightly below $60,000 in 2021, a massive reduction of 47%. At the same time, cash from operation kept increasing steadily to reach the $5 billion mark in 2021. It clearly shows that Tesla’s production cost kept decreasing, which boosted cash from operations.
Profit is going to rise
The figures show that Tesla has got over the pivot point of the critical scale. From here, its profit will keep rising as the company keeps harvesting the benefits of the production scale accompanied by expanding margin. As Tesla could overcome the barrier of fixed cost, additional Tesla production costs will consist mainly of variable costs, and naturally, profits will increase at a very fast pace.
The other point of optimism about Tesla’s growing profitability stems from the company’s valuation, which is valued expensively. The company’s valuation reached an incredible figure of 18 times the sales value both in absolute and relative terms. The average valuation of companies is usually three times the sales value, and Tesla has beaten other EV OEMs ‘ hands down.
Going by the accelerated pace of profitability that will continue in the future, it is not hard to see that the company will outgrow its current valuation in the next few years.
A peek into the future
Assuming that Tesla would hold on to the trend of reduced vehicle cost, which is likely to remain constant at around $58,000 at least for the next three years, there is enough reason to believe that the addition of new manufacturing units in Shanghai and Fermont will boost the vehicle production figure dramatically.
Therefore, Tesla revenue will only experience an upward surge in the years to come.