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CNN: Tesla's Net Profit 'Doesn't Come From Selling Cars' (cnn.com) 202

Posted by EditorDavid from the lines-of-credits dept.
"Tesla posted its first full year of net income in 2020 — but not because of sales to its customers," reports CNN: Eleven states require automakers sell a certain percentage of zero-emissions vehicles by 2025. If they can't, the automakers have to buy regulatory credits from another automaker that meets those requirements — such as Tesla, which exclusively sells electric cars. It's a lucrative business for Tesla — bringing in $3.3 billion over the course of the last five years, nearly half of that in 2020 alone. The $1.6 billion in regulatory credits it received last year far outweighed Tesla's net income of $721 million — meaning Tesla would have otherwise posted a net loss in 2020. "These guys are losing money selling cars. They're making money selling credits. And the credits are going away," said Gordon Johnson of GLJ Research and one of the biggest bears on Tesla shares...

Tesla also reports other measures of profitability, as do many other companies. And by those measures, the profits are great enough that they do not depend on the sales of credits to be in the black... Its automotive gross profit, which compares total revenue from its car business to expenses directly associated with the building the cars, was $5.4 billion, even excluding the regulatory credits sales revenue... But the debate between skeptics and devotees of the company whether Tesla is truly profitable has become a "Holy War," according to Gene Munster, managing partner of Loup Ventures and a leading tech analyst.

"They're debating two different things. They'll never come to a resolution," he said. Munster believes critics focus too much on how the credits still exceed net income. He contends that automotive gross profit margin, excluding those sales of regulatory credits, is the best barometer for the company's financial success. "It's a leading indicator," of that measure of Tesla's profit, he said. "There's no chance that GM and VW are making money on that basis on their EVs..."

Tesla shares are now worth roughly as much as those of the combined 12 largest automakers who sell more than 90% of autos globally. What Tesla has that other automakers don't is rapid growth...
Tech analyst Gene Munster also tells CNN "Something most people can agree on... Electric vehicles are the future. I think that's a safe assumption."
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CNN: Tesla's Net Profit 'Doesn't Come From Selling Cars' More

CNN: Tesla's Net Profit 'Doesn't Come From Selling Cars'

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  • Ah the trolls are EVERYWHERE. (Score:5, Insightful)

    by WindBourne ( 631190 ) on Sunday January 31, 2021 @05:39PM (#61013290) Journal
    So many bozos scream about everything.
    The fact is, that even these certificates are because they sold EVs. If they were selling LICE, then they would be buying the certificates as a cost of doing business. So, claiming that profits do not come from selling cars is just total BS.

    • Re: Ah the trolls are EVERYWHERE. (Score:5, Insightful)

      by saloomy ( 2817221 ) on Sunday January 31, 2021 @05:49PM (#61013316)
      Tesla is expanding and financing growth. To have a high degree of profit would sour the growth story. If they made a lot of money, they would owe a tax and some activist investors would demand distribution or buy backs. Tesla should spend its money building capacity to make vehicles and, based on the last earnings report, batteries. Lots of them. Then, it should spend its money buying raw materials and parts for more cars and energy products. Profit is a terrible metric to focus on in a growth industry. Capturing market share is WAY WAY more important. If selling credits helps them do that, great!

      • Re: (Score:2, Offtopic)

        by WindBourne ( 631190 )
        Mod Parent up please.
        He is also SPOT on.

      • Same story as Amazon. If investors had taken all the profits in the first decade, Amazon would never have grown to where it is today.

      • Exactly! During 2020 Tesla was building out three factories on three continents. This is why they didnâ(TM)t have a bigger profit. Gordon Johnson is a idiot. He is Ranked #7,046 out of 7,248 Analysts on TipRanks (#14,776 out of 15,145 overall experts). He has 53% success. Amazon didnâ(TM)t have much of a profit for years either. They were expanding like crazy. I bet Gordon was an Amazon bear too at some point.

    • Same as GameStop (Score:2, Informative)

      by Okian Warrior ( 537106 )

      So many bozos scream about everything.

      The fact is, that even these certificates are because they sold EVs. If they were selling LICE, then they would be buying the certificates as a cost of doing business. So, claiming that profits do not come from selling cars is just total BS.

      Shorts have been attacking Tesla for several years now, it was exactly the same thing as hedge funds are doing to GameStop right now.

      Tesla used to be the most shorted stock in history - they've still got a significant short interest, but I think some of the shorts have been scared off. They're not over 100% like GameStop is, but it used to be over 25% shorted. It's now down around 5% short. (Unless I dropped a digit or something - can someone fact check?)

      Reading about Tesla was rife with blatant lies and er

      • Two completely different things (Score:5, Informative)

        by raymorris ( 2726007 ) on Sunday January 31, 2021 @06:45PM (#61013500) Journal

        GameStop was shorted because people believed the business was in trouble - because it is.

        Tesla is completely different situation.

        Consider this. Suppose I offered you this deal - you give me $10,000 today and I'll pay you back $10,000 in ten years. Would you take that deal? If you were a smart investor, you'd expect to get back $20,000 ten years from now. $1 today is worth $2 in ten years.

        Notice the summary mentions:
        --
        Tesla shares are now worth roughly as much as those of the combined 12 largest automakers who sell more than 90% of autos globally.
        --

        Tesla shares are currently priced as if they are worth as much as the entire global auto industry. More than all major car manufacturers *combined*.

        Musk has repeatedly pointed out how ridiculous the share price is.

        You say that valuation is based on where they'll be in ten years?
        That makes sense if they are guaranteed to be twice as big as the entire global auto industry ten years from now. On the other hand, if Tesla does phenomenally well and grows 10X over the next years, selling $20 BILLION of cars every year, it won't be worth today's price.

        Today's price needs them to be selling $40-$50 billion within ten years - twice as much as all the cars sold around the world. Which is a tall order since last I checked they aren't even the selling the most EVs. Last I checked, BVD sells the most EVs.

        If you are certain Tesla is going to do very well, maybe grow their business by 5X over the next years, you'd be willing to pay maybe $250 for the stock. Since it's currently selling at $793, if you think Tesla is going to do very well and end up worth $500 you'd short it at $793.

        That's not even considering that fact that even if you think they will do very well, and you're smart, you realize you could be wrong. Shit happens. Elon could fall dead tomorrow, maybe skydiving with Branson. So if you think Tesla will probably end up larger than the entire auto industry put together, you STILL wouldn't value the stock as if they already are - because it's possible that they won't be.

        • Re:Two completely different things (Score:5, Informative)

          by WindBourne ( 631190 ) on Sunday January 31, 2021 @07:10PM (#61013594) Journal

          Last I checked, BVD sells the most EVs.

          First off, it is BYD, and secondly, it is not even close. [statista.com] Tesla is the world's largest builder of EVs. [insideevs.com]
          OTOH, if you add in BYD's hybrids, then yes, BYD is bigger. But the fact is, BYD sells ICE, hybrids, and EVs.

        • Re:Two completely different things (Score:4, Insightful)

          by vix86 ( 592763 ) on Sunday January 31, 2021 @07:29PM (#61013622)

          That makes sense if they are guaranteed to be twice as big as the entire global auto industry ten years from now.

          Something to keep in mind though is that we're not just talking about the potential car industry though. Here are a few other sectors to consider:

          * Solar - This grew in Q4 and they plan to keep expanding on it and being one of a few companies offering roof tile based solar.
          * Batteries - They will continue to scale this sector up for their cars, powerwall, and megapack. They could potentially become a supply chain provider for other companies as well though.
          * Energy - They will be an energy provider through some of their solar plans and there is potential for an expansion on this through their battery tech but we haven't seen any guidance to suggest this yet.
          * Automated Driving Software - Musk said in the Q4 call that they could see themselves licensing the Autopilot suite to other companies. This could be a huge source of revenue if they get it to Level 4.
          * Robotaxi - Should be obvious.
          * Electric Motors and drive train packages - While they haven't mentioned doing this, they could sell their whole drive train to other car makers.

          • You forgot Trucking which can be heavily automated, increase miles per day, decrease stop&go fuel costs, and cut down on maintenance.

            • Re: (Score:2)

              by vix86 ( 592763 )

              I doubt Tesla will go into Trucking within the next 10 years. They have enough on their plates right now and everything I mentioned are things that are easy to sell right this second. Starting up a freighting sector would incur a whole different set of costs and require building up different types of logistics and systems. If FSD comes fully online, it's possible they could do it, but I rank it low. It has been a moonshot idea of my own, especially when paired with Starlink, but it'd really stress the compa

        • I bought one share of Tesla at something like $26 just because I wanted to see what happened to the company. When that hit $400, I figured I'd just stay there and keep watching. When I found I had 5 shares worth $625 each, I sold three shares and kept 2 shares. I don't care if Tesla goes up 10x or even 100x, I'm perfectly happy with taking the profit I got and running, leaving the last two shares to keep watching how the roller coaster goes (as in, if I lose all value of those shares, I'm content, but do

          • Sounds like a very good plan. At $5 / share (split adjusted) you probably bought that at a reasonable valuation for the time.

        • Re: (Score:2)

          by N1AK ( 864906 )
          My main reason for posting is to say thanks for a really good summary. Tesla's market cap only makes sense if it can dominate auto-manufacture and a couple of other major industries, or show real promise in space mining or similar in the near future. No rational valuation of an automanufacturer in the current climate would be this high. So people buying Tesla shares either think they're buying into something bigger, or that "irrational" valuations will push the value higher so getting in now will allow them
        • Tesla sold 500,000 cars in 2020. You talk about tesla selling 10 times that much annually (that is, 5 million) by 2030. However, Musk has stated his ambition to sell 20 million annually by 2030, so you are off by a factor of 4. That by itself it not a big deal. What I think is more significant is that your argument seems to rely on the assumption that Tesla's sales will plateau. If that were the case, then I would agree that Tesla is way overpriced. However, what I (and I assume other Tesla investors) assum

      • In reality, in about 5 years Tesla will dominate auto manufacturing worldwide *and* own all the charging stations.

        Tesla will be in top 10 within 2-3 years. However, that will be only because the LICE makers have moved far too slowly to EVs, and will continue to lose sales.
        In 5 years, yeah. I would think that they will be in the top 3.

        But own all the charging stations? Not even close. Governments, businesses, etc will own plenty out there. Even now, their network is by far the best, BUT, in about another 2-4 years, Ionity/EA/EC will be FORCED to finally become decent.

      • Re: (Score:2)

        by ceoyoyo ( 59147 )

        7.43% short interest currently.

  • Elon has a philosophy on profit (Score:5, Insightful)

    by presidenteloco ( 659168 ) on Sunday January 31, 2021 @05:48PM (#61013310)
    His main objective is rapid growth of the output of the company, because, you know, we're way behind on our transformation of how we do things that is needed to slow global warming.

    He has explicitly stated that Tesla needs to be profitable (cause otherwise a company will eventually go under) but not very highly profitable (because that would be generating profit at the expense of funding rapid growth.)

    In short, he's totally on top of where Tesla is on profit, and as long as it's above 0, (from whatever revenue stream. It doesn't matter.), he's good with it. If one revenue stream dries up he will simply direct the necessary changes to control to achieve above 0 profit in another manner. He runs a learning and optimizing organization, and it is being optimized for maximum growth and above 0 profit. That's it. And it's working just fine and will continue to do so.

    • Re: (Score:2, Insightful)

      by quonset ( 4839537 )

      You conveniently forget Musk is the same guy who whines about socialism while receiving billions in taxpayer subsidies. And no, I don't mean all the clean energy tax credits people buying the cars receive. I mean direct to company subsidies from both the federal and state governments.

      In fact, as this, and many other articles, point out, were it not for these tax credits, Tesla would have been bankrupt long ago. With the expiration of these credits, the real balance sheet will come to light. And it won't b

      • Re: Elon has a philosophy on profit (Score:5, Insightful)

        by crmarvin42 ( 652893 ) on Sunday January 31, 2021 @06:11PM (#61013356)
        Which is why those tax credits exit.

        I will never understand people who try to claim they are the ones who understand capitalism, and then try to use the fact the a government somewhere has a policy that creates a benefit to an industry as evidence of some sort of uncool shenanigans.

        No, this is smart people in government using the naturally rebalancing nature of economics to drive a desired outcome without having to try and take control of the affected industry direct. It is capitalism being used as intended. Not some socialist trick. Socialism would have the Government taking direct control of the means land production and doing it themselves. If they are not doing that, no matter your opinion of the policy direction itself, itâ(TM)s not socials. It is capitalism.

        • Re: (Score:2)

          by khchung ( 462899 )

          I will never understand people who try to claim they are the ones who understand capitalism, and then try to use the fact the a government somewhere has a policy that creates a benefit to an industry as evidence of some sort of uncool shenanigans.

          It is very easy to understand.

          Just imagine it were a Chinese company receiving government subsidies from the Chinese government instead, I can probably hear your screams of "uncool shenanigans" about now.

          • Well, I guess the old adage about assumptions is true.

            That's the problem with most people learning about economics not from a teacher in HS, or a professor in college, or even a few scholarly books on the topic read in their free time for personal improvement, but from talking heads on TV and in the news. They get a flawed understanding of what economics is (such as the idea that Emissions credits are any less valid of a market manipulation as temporary monopolies, such as patents or copyrights), and how

            • Re: (Score:2)

              by khchung ( 462899 )

              Bravo, it is no everyday that one can get a objective, level-headed reply after China was brought into the discussion.

              I totally agree with you, and I have no problem with Tesla factoring subsidies into their business plan. The reason of my previous reply was that you point about "a government somewhere has a policy that creates a benefit to an industry as evidence of some sort of uncool shenanigans" was exactly the logic a lot of Americans used when criticising Chinese govt & companies, so it pique my

              • I am an American (with all that usually implies), but what I'm not is an idiot (which is unfortunately true of many of my more vocal countrymen).

                The first part of that line was supposed to make it clear I didn't agree with that interpretation of government intervention as shenanigans. That I thought that was stupid, precisely BECAUSE we do it all of the time.

                The TPP and other trade pacts, we sell them to the world and the US voters as "free trade", but that carrot comes with a very big stick, the imposi

        • No, this is smart people in government...

          Sorry you lost me...

        • Re: (Score:2)

          by N1AK ( 864906 )
          I think the credit system is actually a pretty dumb solution. You sell really efficient cheap ICE cars? Tough shit, you're treated the same as a manufacturer making 6 litre engine SUVs. In Europe we've seen an endless cycle of hybrids designed to hit regulations, often at the expense of environmental impact. An extreme example: In the UK you are charged for having a company car, but if it hit certain criteria then it was effectively free. BMW being smart launched e versions of their car which have smaller p
          • I don't follow here. You say the credits are dumb, and then give an example of an alternative to the credit system that was ALSO dumb as proof? They can BOTH be dumb, but for different reasons, or one can be dumb and the other not, even if they are aimed at addressing the exact same issue.

            You sell really efficient cheap ICE cars? Tough shit, you're treated the same as a manufacturer making 6 litre engine SUVs.

            I agree that would be stupid, but that isn't how it works at all.

            The US system requires automobile manufacturers to use their fleet averages as the basis. And that average is based on what they actually sell. Design an EV

      • So tax credits == socialism to you? Interesting that the definition of socialism can change so easily to suit any particular political argument.

        There are reasonable arguments for and against giving companies tax rebates as incentives to invest in the local economy. There are examples like the Foxconn factory in Wisconsin and the second Amazon headquarters that were clearly bad. But some can be quite good and serve to really inject a stimulus in the local economy. There was nothing in Sparks, NV before Tesla

        • So tax credits == socialism to you? I

          Didn't read what I wrote, did you? Here, let me copy and paste my exact words:

          And no, I don't mean all the clean energy tax credits people buying the cars receive. I mean direct to company subsidies from both the federal and state governments.

          That said, according to Republicans, giving people money so they can buy food or have a roof over their head is socialism, but when companies receive billions in taxpayer money, it's capitalism. Let me know which definition of socialism you want to use.

          • Re:Elon has a philosophy on profit (Score:5, Insightful)

            by Rutulian ( 171771 ) on Sunday January 31, 2021 @07:04PM (#61013580)

            Neither is socialism and you know it, so stop pretending otherwise.

            You said,

            You conveniently forget Musk is the same guy who whines about socialism while receiving billions in taxpayer subsidies

            You are clearly trying to equate tax rebates to socialism, which it isn’t. If you have an argument to make against tax rebates, make it, without resorting to vapid sophistry.

      • is that the political leadership of the world (partly because of embarrassment by a very bright Swedish kid, it must be admitted) are ever so slowly coming around to an appreciation of the speed of transformation to zero emission economy that is required by the physics of the planet.

        A summary of what is required (and no, you can't negotiated with physics) is roughly 50% GHG emissions reductions over the next decade, and elimination of all the remaining emissions (and going to net negative) in the 2 decades

    • Re: (Score:2)

      by hey! ( 33014 )

      This is pretty standard business philosophy. A low-growth business (e.g. a consultancy where you sell your labor and expertise) needs to be profitable to justify its existence. A high-growth doesn't need to be very profitable as long as it sustains its growth, because while it is not very impressive relative to its revenue in absolute terms it's making a lot of money.

  • It's not a "real" business (Score:4)

    by locater16 ( 2326718 ) on Sunday January 31, 2021 @05:57PM (#61013328)
    The "news" saying repeatedly that Tesla's profits aren't a "real" business is just the corporation version of old parents telling their kids to get a "real" job even as they earn money streaming or something.

  • Aha! Revenge (Score:5, Insightful)

    by ickleberry ( 864871 ) <web@pineapple.vg> on Sunday January 31, 2021 @05:58PM (#61013330) Homepage
    For the Gamestonk tweet no doubt

  • Gordon Johnson?! (Score:5, Funny)

    by BLToday ( 1777712 ) on Sunday January 31, 2021 @05:58PM (#61013332)

    Isn’t he the constant Tesla bear? I guess like a broken clock, he’s occasionally right. Like -9.4% in the last year in a bull market. Any idiot can make money in a bull market, it takes a real genius to lose it.

  • If you are concern-trolling over Tesla making money on this meaning the stock is too high - well do you think with a Biden/Democratic administration there will be more, or less of such income for electric car makers?

    Tesla is in a prime position to make money from the direction the US and world are taking right now re: electric cars.

    • I think outfits like Tesla are going to do quite well under a Biden administration for the same reason I think that woke HR consulting operations are going to do quite well.

      Trolling aside, the concern with this, as with all other government-mandated market distortions, is that finite resources are being distributed suboptimally resulting in some connected few doing well at the expense of the rest of us in a way that would not fly in a free market governed by the choices and voluntary associations of many se

  • Wait, so GM and VW are not receiving those credits? How come?

  • Schwinn (Score:5, Funny)

    by PPH ( 736903 ) on Sunday January 31, 2021 @07:06PM (#61013584)

    Auto makers couldn't just bundle a bicycle with each SUV?

    • Needs to be an e-bike. I'd like to think that the government is not incompetent enough to leave that as a loop hole, but really after the past few years all bets are off.

  • Of course they post little profit. This is like "Amazon did not post profits for years". Well, duh! They are growing at an explosive rate. They double the production every 2 years or so, and are currently building many new giga-factories and several new models including the "cyber" truck and the highly ambitious semi.

    They only need to make enough profit to cover salaries and other expenses. Every other dollar goes to investments. If that was not the case people would be up in the neck of Elon Musk.

  • So, wait (Score:2, Funny)

    by LeeLynx ( 6219816 )
    This company, run like a personal hobby at the whims of a man who apparently thinks that HVAC systems and medical ventilators are the same technology, who in an effort to avoid being near poor people has poured money and regulatory-ducking efforts into building giant tunnels that are, essentially, monumentally inefficient versions of subways, that company, is actually a financial house of cards?

    Pshaw.
    • Where's YOUR trillion dollars, LeeLynx?

    • Re: (Score:2)

      by olau ( 314197 )

      What do you have against the tunnels? It looks like they're going to build more of them in Las Vegas. Sure, you can stuff more people in a train, but trains aren't good everywhere.

    • HVAC systems and medical ventilators are the same technology

      They are as far as a CEO is concerned. They are electro mechanical devices that move air around. The devil is in the details, but that's what engineers are for. And regardless of what you think, Tesla actually delivered functional units to hospitals which did get used.

      It's quite clear from your post that you are neither an engineer nor have any idea about businesses or the role of a CEO.

  • $1.6Million for each car sold in 2020 (Score:4, Insightful)

    by cnaumann ( 466328 ) on Sunday January 31, 2021 @10:18PM (#61013944)

    Telsa’s current market valuation is $800B. They sold 500K cars last year. That comes to $1.6M per car sold in 2020. I think their cars are great. I think they are doing a good job expanding and I think there will be a market for everything they build. I don’t care about their net profits at this point.

    But I do not think the company is worth $800B.

    • You could literally put your money where your mouth is and short their stock. The more certain you are of your position the more money you are likely to make.

  • I don't understand why the credits don't annoy owners, the current outcome of paying more to buy an ev is that someone else gets to pollute more.

  • Could be okay... (Score:4, Interesting)

    by ndykman ( 659315 ) on Monday February 01, 2021 @01:59AM (#61014426)

    I'm not going to comment on the stock. Okay, I think it is overvalued. Tesla is not going to replace all automakers. But, Tesla still has lots of opportunities.

    Tesla doesn't need to be a automaker. If it stays one, it's in trouble. Now, if it works on standardizing electric motors, battery technology and form factors, regen braking systems and advanced drive assistance, then Tesla technology could be in most every car. And charging stations, the grid and so on.

    Here what I think almost nobody has figured out yet. You should be able to swap out the motors and braking systems and control center (the touchscreen and related buttons) quick and easy because it's all standardized in terms of layout, mounts, tolerance, performance and so on. Remember upgrading radios in a car? Think that.

    That allows companies to focus on design and the overall experience, enables a huge customization market and drives the costs down and accelerates the adoption of the new tech. And Tesla could ride that wave and do very, very well.

  • Not an expert. But who is this guy? In a week of news about the GameStop revenge against Melvin, who shorted Tesla, another guy appears out of nowhere who sounds similar.

    Hmm... According to LinkedIn, Gordon Johnson was a VP at Lehman Brothers until Lehman Shock, so he was partly responsible for that.

    LinkedIn says his success rate is 53% with average return at -9.4%. I wouldn't hire him. The summary on the below link is also pretty damning.

    https://www.youtube.com/watch?... [youtube.com]
    "Tesla Short Seller Analyst Gordon J

  • This "story" is only breaking b/c Musk is supporting the WSB GME efforts and this is the big hedge fund companies retaliating by proxy. CNN *is* in their pockets.

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