05.09.13 7:32 PM ET
Tesla Finally Makes Money
For years, the rap on electric cars has been that they are too expensive and it’s too hard to make money on them. And the evidence certainly seems to bear it out. General Motors says it loses money on every unit of the Volt, which is really a plug-in hybrid not a full-on electric car, and Nissan is has been cagey over whether it is making money on the small number of all-electric Leafs it produces and sells. Neither company specifically breaks out the profit and loss statement of its electric car production.
But Tesla Motors, the Silicon Valley electric sports-car manufacturer, is something of a pure play electric company. Its quarterly reports provide a window into the business of electric car manufacturing. And in the first quarter of 2013, at least, it showed that if you make and sell enough high-priced cars, you can make money in the electric car business. (The quarterly report can be seen here.) This is the first time the company has been in the black since it launched in 2003. The company didn’t deliver its first car until 2008 and has just started producing vehicles in large numbers. Total profit for the 2013 first quarter: $11 million.
Tesla has essentially three sources of revenue—all related to the manufacture of electric (and electrified) cars.
Its main line of business is selling the cars it makes under its own name—like the very expensive Model S, which has a base price of about $62,000. In the first quarter, it delivered 4,900 vehicles to customers—or about 1,600 per month. The great thing about manufacturing is that volume and scale really make a difference, not just in revenue but in the ability to turn a profit. The more units you make of anything (shoes, computers, cars) the easier it gets to make money on every single sale. And Tesla showed signs of scaling up. The company noted that it reduced the number of hours required to build a car by nearly 40 percent in recent months.
By turning over inventory and raw materials more quickly companies can save money. It means cash isn’t tied up in stuff that isn’t being used. Here, too, Tesla made progress. The company claims that better inventory added $30 million in cash to company coffers and reduced logistics costs. For the full year 2013, Tesla says it now expects to deliver about 21,000 cars.
Tesla has at least two other sources of revenue that also relate to electric cars – beyond sales of completed vehicles. The electrification of auto transport is a big theme, as all sorts of carmakers are looking to use batteries and other components that rely more on electricity and less on gasoline. Tesla makes the electric powertrains and battery packs that Toyota uses in the electric version of its RAV4 crossover. (Revenues for this line of business weren’t specified.) And Tesla does some development work for the Mercedes Benz B-Class electric program. Total revenue for this work came to about $7 million in the quarter.
There’s a third form of revenue that can derive from building electric cars that have nothing to do with the cars themselves and everything to do with policy. State and federal regulations provide manufacturers with lucrative tax credits when they manufacture and sell zero-emission vehicles. And rather than build green cars themselves to meet mandates, some manufacturers simply purchase credits from companies that make zero-emission vehicles—like Tesla. In the first quarter, Tesla said sales of such credits amounted to $68 million, or 12 percent of revenue.
But the bottom line is the bottom line. And the bottom line shows that, at least in the first quarter, Tesla actually made money building and selling electric car—and the products and tax credits that are created in the process. That’s something none of the other big carmakers can claim right now.