Tesla Doesn't Sell Cars, They Sell Government Subsidies

The big news everyone touted after Tesla Motors released its quarterly report was that it posted big net losses. Most of those losses, of course, were due to acquisitions and other costs. Tesla rarely posts a profitable quarter, though this doesn't seem to have deterred many on Wall Street from being bullish on the company's stock. For the first time, however, Tesla has broken down its revenues and costs into business activity groups. The company has separated its powertrain sales and service revenues and costs from its pre-owned vehicle sales and its newly-minted Tesla Energy venture. The breakdown makes it easier to analyze the profits and losses that hinge solely on automotive sales versus those from other aspects of the company's endeavors.

Using generally accepted accounting pricinples (GAAP), the first quarter 2015 automotive revenues were listed at $893.320 million, about 52 percent above the first quarter of 2014 and about three tenths of a percent up from the fourth quarter of last year. Breaking down those revenues, though, we see that only $63 million of that was from direct leases of Model S cars to customers (the most profitable way Tesla sells the Model S).

Another $66 million was gained from regulatory credits and a further $51 million from the sale of zero emissions vehicle (ZEV) credits to other automakers. Both of these are near-direct payments from government to Tesla Motors. In previous years, we've seen a similar trend where ZEV credits and regulatory credits make up a large portion of Tesla's income. For a long while, in fact, ZEV credits were the primary source of income for the company.

Turning back to these numbers, we can see that about 13 percent of Tesla's total automotive-related revenues come from government-based credits or payments. These credits, the company shows, are despite a 25 percent profit margin on the Model S. Add in those ZEV credits and the profit margin grows further.

Overall, Tesla's total income year-on-year was a phenomenal fifty percent growth to $1.1 billion. Most of that revenue went into research, development, and expansion. A large chunk is paying for the Gigafactory being built to produce batteries, another chunk to improving production capabilities at the old NUMMI plant where the Model S and (soon) the Model X are built, and more towards the development of the new power storage systems that make up the new Tesla Energy spinoff. Of total revenues for the company altogether, about ten percent (that we know if) was thanks to government-based handouts. No one can blame Musk and his company for taking advantage of those handouts, but we must question how necessary they really are.