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TESLA Inc. 2019

2019 was a turning point for Tesla as the Company returned to GAAP profitability and generated $1.1 billion of free cash flow for the year

Tesla designs, develops, manufactures, and sells high-performance fully electric vehicles, solar energy generation, and energy storage products. The company also installs and maintains such energy systems and sells solar electricity. Tesla has two operating segments: automotive and energy generation & storage. Tesla is the world’s first vertically integrated sustainable energy company to offer end-to-end clean energy products, including generation, storage, and consumption. The company sells and leases retrofit solar energy systems for residential and commercial customers, alternatively providing certain customers with access to the company´s solar energy systems through power purchase or subscription-based arrangements. Since 2019 Tesla has been offering the Solar Roof, whose features are designed to complement the architecture of homes and building while turning sunlight into electricity. As of December 31, 2019, Tesla had 48,016 full-time employees.

According to the Annual Financial Report, consolidated revenues of the Company were $24.6 billion in 2019, compared to $21.46 billion in 2018 and to $11.76 billion in 2017, and increased by $3.1 billion or 14% and by $9.70 billion or 82% respectively, driven by increased automotive sales revenues. Tesla´s operating expenses decreased from $4.4 billion to $4.1 billion or by 7% from 2018 to 2019.

In 2019,the revenue growth was positively impacted by a strong increase in vehicle deliveries. GAAP gross profit of all segments of $4.1 billion remained essentially flat in 2019, compared to 2018.

Segmentally, automotive sales revenue increased by $2.32 billion, or 13%, in the year 2019, compared to the year 2018, primarily due to an increase of 137,969 Model 3 cash deliveries from production scaling.

Automotive leasing revenue decreased by $14 million, or by 2%, from $883.4 million in 2018 to $869.4 million in 2019.

Services and other revenue increased by $835 million, or by 60%, in 2019, from $1,391 million in 2018 to $2.226 million in 2019. The increase was primarily due to an increase in used vehicle sales.

Energy generation and storage revenue decreased by $24 million, or by 2%, in 2019 compared to 2018, from $1,555.2 million in 2018 to $1,531.2 million in 2019, primarily due to decreases in deployments of solar cash and loan projects. Energy generation and storage revenue includes sales and leasing of solar energy generation and energy storage products, services related to such products, and sales of solar energy systems incentives.

The cost of automotive sales revenue increased by $2.25 billion, or by 16%, in 2019, compared to 2018, primarily due to an increase of 137,969 Model 3 cash deliveries.

The cost of automotive leasing revenue decreased by $29 million, or by 6%, in 2019 compared to 2018. This was primarily due to a decrease in cumulative vehicles under resale value guarantee leasing programs.

The cost of services and other revenue increased by $890 million or 47% in 2019, compared to 2018. This increase was primarily due to the costs of used vehicle sales.

Gross margin for total automotive decreased from 23% to 21% in 2019 compared to 2018, primarily due to lower Model S and Model X.

Gross margin for total automotive & services and other segment decreased from 19% to 17% in the year 2019, compared to 2018.

The cost of energy generation and storage revenue decreased by $24 million or by 2%, in 2019, compared to 2018. This was primarily due to a decrease in deployments of solar cash and loan projects, partially offset by increases in deployments of Powerwall, Powerpack, and Megapack.

The cost of energy generation and storage revenue includes direct and indirect material and labour costs, warehouse rent, freight, warranty expense and other overhead costs.

Gross margin for energy generation and storage remained relatively consistent at 12% in the year 2019, compared to the year 2018, and decreased from 22% in 2017 to 12% in 2018. Energy storage gross margins improved in the current year as a result of lower costs of materials.

Research and development expenses as a percentage of revenue decreased from 7% to 5% in 2019, compared to 2018. This decrease was primarily from an increase in overall revenues from expanding sales, as well as from increasing operational efficiency and process automation. R&D expenses decreased by $117 million, or by 8%, in the year 2019, from $1,460.3 million in 2018 to $1,343.3 million in 2019. The decrease was primarily due to a $95 million decrease in employee and labour-related expenses from cost efficiency initiatives and a $26 million decrease in professional and outside service expenses. R&D expenses consist primarily of personnel costs for teams in engineering and research, manufacturing engineering and manufacturing test organizations, prototyping expense.

Selling, general and administrative expenses as a percentage of revenue decreased from 13% to 11% in 2019, compared to 2018. This decrease was primarily from an increase in overall revenues from expanding sales, as well as from increasing operational efficiency. Selling, general and administrative expenses decreased by $189 million or 7% in 2019, compared to 2018. This was primarily due to a $302 million decrease in employee and labour-related expenses. Selling, general and administrative expenses generally consist of personnel and facilities costs related to stores, marketing, sales, executive, finance, human resources, information technology and legal organizations.

As of December 31, 2019, Tesla had $6.27 billion in cash and cash equivalents. Net cash provided by operating activities increased by $307 million to $2.41 billion in 2019, from $2.10 billion during 2018. This favourable change was primarily due to the increase in net income.

Tesla expects operating expenses as a percentage of revenue to continue to decrease as thecompany focuses on increasing operational efficiency and process automation. It also expects overall revenues from expanding sales to increase in the future.