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Tesla Makes a Profit, But Not from Selling Cars

Photo Credit: Dennis Larson via Compfight cc

As a number of high profile EV startups have folded one after another, such as Fisker, Better Place, and Coda, Tesla seems to be unstoppable, reaching for ever higher heights, having completely repaid its $465 million DOE loan, and posting its first ever profit of $11 million in Q1.

As shares of the company reached and surpassed the $100/share mark, Tesla is the hottest hottest name in the EV, no scratch that, entire auto market. They made the EV cool. But it’s important to take a step back and note that, as Green Car Reports excellently explains, Tesla did not make a profit from it’s core business, its Model S electric sports-sedan.

What the EV startup did make its money from, is selling its zero-emission vehicle credits, a by-product (and legitimate part) of its main business. In doing so Tesla made $68 million from these credits, as well as a further $17 million from selling Greenhouse Gas emission credits. It should also be noted that $91 million was spent on making and selling the vehicles. And yes, Tesla shares did reach $100/share, but it has also been volatile, surging 174% over 2 months and then falling 13% in one day after hitting $114.90.

That said, it doesn’t mean that Tesla is doing badly either. As the company is reducing staff hours and parts costs to build the Model S, which will make its core business profitable eventually, but these numbers won’t show up until later.

I hope that this may shed some light on where the startup is at on the path toward profitability, and clear up any misunderstanding that the Model S is already profitable and get people more excited than is warranted. It will surely be interesting to see how and what Tesla does in the coming year to turn the company into a consistently performing, profitable business.

Sandy Tung's picture

Thank Sandy for the Post!

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Discussions

John Miller's picture
John Miller on Jun 2, 2013 9:15 pm GMT

Sandy, Tesla has been successful based on a business model that ideally positions this company to take full advantage of California’s ‘Zero Emission Vehicle’ (ZEV) program.  This program requires larger Automobile manufactures to either produce and sell ZEV’s within California or purchase ZEV credits from companies such as Tesla.  This regulatory process effectively forces other Auto Manufacturers to very generously subsidize companies like Tesla.  The real unknown and risk for future investors is how many $60K-$80K Model S Tesla’s will continue to be sold vs. alternatives such as $20K Nissan Leafs/Honda Fits and $30K GM Volts (EV’s priced at levels more consistent with average buyers).  At some point the California rich/elite EV market will be saturated with expensive Tesla Model S’s. 

John Miller's picture
John Miller on Jun 3, 2013 3:57 pm GMT

Willem, you and I are on the same page here.  I wonder if the California ZEV credits accurately take into account all carbon emissions (auto production and recharging power supply carbon emissions)?

George Stevens's picture
George Stevens on Jun 8, 2013 2:03 am GMT

The ZEV credit program was launched without any concern as to how money can most effectively be invested to cut emissions. Willem would be the first to demonstrate ways that the money could have been more wisely spent.

This kind of government meddling in private business is far too much for my taste. Not that I have anything against Tesla or EVs, but it seems that CA based Tesla has been given an unfair advantage by the CA government. The whole business plan was built around the existence of this taxpayer funded ZEV credit program. Seems quite corrupt to me.

George Stevens's picture
George Stevens on Jun 8, 2013 4:20 pm GMT

A credit has monetary value one way or another (avoidance of tax etc), the value of which to Tesla was some $68 million is outlined in the above article. This all rolls back to the taxpayer, make no mistake about it.

US Federal and state governments do not put forth a price on carbon emissions, if they did then perhaps things would be a lot more simple. But that issue is all complicated by the unknown severity of the warming that is happening, and the fact that we live a capitalist world where being environmentally conscious can be costly and have ill effects on a national economy.

But the bottom line is that per dollar EVs are far from the most effective way to cut emissions, and whats more is that this program was created with Tesla in mind and other EV manufacturers didn’t live to benefit from it. The whole thing seems highly unethical.

Robert Bernal's picture
Robert Bernal on Jun 9, 2013 3:31 pm GMT

My stomach kinda sank when I read this…

It would be FAR better if the regulatory process could have directed the credits towards the actual process of developing the advanced machine automation <i>required</i> to begin the exponential climb out of a carbon based society.

I like Tesla and all, but we need to replace the li-ion with the safer, longer lasting, but slightly less energy dense lifepo4 (or equivalent). The only way is to have them machine made as cheap as possible. Or, those credits should go towards other means such as for really dirt cheap solar manufacturing, or perhaps, even to an American company that can really propel electric cars and hybrids up that climb…

Lewis Perelman's picture
Lewis Perelman on Jun 10, 2013 2:29 am GMT

Good reality check from the whole collection of comments here.

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