Comment by minhazm | Hacker News Reader

Comment by minhazm | Hacker News Reader

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This is a common misconception that keeps getting repeated for some reason. It's silly to exclude the regulatory credit income but then also count things like stock based compensation and capitol expenditures for new factory builds.

Tesla did $1.6 billion in regulatory credits in 2020. Tesla stock based compensation in 2020 was $1.7 billion due to Elon Musk's performance based compensation plan and TSLA skyrocketing. So the car business is clearly profitable.

Then there's the capitol expenditure on building out new factories and expanding their production capacity. From Tesla's 2020 Q3 10Q filing:

> we currently expect our capital expenditures to be at the high end of our range of $2.5 to $3.5 billion in 2020 and increase to $4.5 to $6 billion in each of the next two fiscal years.

They're planning on spending up to $12 billion between 2021-2022 to build out new factories and expanding their capacity. Their car business is clearly profitable, they're just spending all of the money to grow.

Is it a misconception? If the credit didn’t exist they would not be profitable. They lose money on the cars. They sell more cars, they lose more money. I like the company and I like electric cars, but I’m not stupid, I’m not misconceiving anything.

Yes it's a misconception. Their profit margin on cars is consistently over 20%. They have large overhead costs that are more or less fixed like R&D that get amortized more and more as sales go up. They have massive net free cash flow every quarter even while building out new factories that will increase production capacity by 50% every year for the next several years, further increasing economies of scale and operating margins.

You and GP are arguing two different things and are both right.

GP's claim is that Tesla would not be profitable without regulatory credit sales: this is true. Tesla's profit for 2020 is $721M and its credit sales for 2020 are $1.58B, just over double. It's fair to say that, were those credit sales to fall to zero, Tesla risks losing its profitable status. Here we're effectively discussing net profit margin for the company as a whole.

Your claim is that Tesla's automotive gross margin on car sales is 20%. This is also true, but only includes COGS (Cost of Goods Sold), so car parts and assembly costs. It does not include other expenditures such as CapEx or R&D. 20% sounds great (and it is), but when we look at the net profit margin, $721M of profit on $31.54B of revenue gives only a 2.2% net profit margin which is not as impressive.

It's therefore rather unfair to say that GP's claim is a misconception, it's actually perfectly true.

He said the more cars they sell, the more money they would lose without credits, which is a misconception.

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