Tesla’s return to big profit doesn’t come from cars

Tesla surprised investors and analysts by posting bigger-than-expected profits for the third quarter of 2024. Though the EV maker boosted deliveries in the past three months, the money comes from unexpected income like CO2 credits, cost cutting, and “services and others.” Interestingly, Elon Musk never favored the latter as an important revenue stream.

Tesla exceeded expectations in the third quarter, reporting a net profit of $2.18 billion (up 17% year-over-year), or €2.36 billion, surpassing analyst predictions by roughly 5%. The strong performance led Tesla’s stock to soar on yesterday’s trading, only missing its highest-year level by a hair.

EV market to grow “by 30%” next year

However, revenue reached $25.18 billion (€27,24 billion), an 8% increase, which landed slightly below projections. Tesla attributed this to promotions and attractive financing options, which lowered the average selling price per vehicle.

The company delivered 462,890 vehicles in Q3 and anticipates a slight increase in deliveries for the full year of 2024 despite challenging economic conditions. The company expects the EV market to accelerate strongly next year. Elon Musk sees potential growth of 20-30%.

Interestingly, zooming in on the good results, Tesla’s recent financials reveal a significant uptick in revenue streams outside of vehicle sales, notably in servicing and its Supercharger network – a departure from CEO Elon Musk’s long-standing philosophy.

Musk had frequently emphasized that Tesla would avoid making service a profit center, contrasting sharply with traditional automakers, who rely on maintenance and parts selling as a key revenue stream. However, rising profits in Tesla’s “services and others” division indicate a new direction, accounting for much of the company’s gross profit growth last quarter.

More income from energy and servicing

The latest figures show that gross profit has surged significantly year-over-year (nearly $250 million) from energy and Supercharging (+52%), higher service center margins (+22%), and additional revenue from parts sales and merchandise.

This growth has become a substantial part of Tesla’s gross profit increase ($800 million). Back in 2016, Musk publicly stated Tesla’s service philosophy as “not to make a profit from service,” arguing that it was “terrible” to profit from repairs. Tesla focused on creating reliable vehicles to limit the need for service.

Tesla’s Supercharger network also drives substantial income, despite Musk’s previous insistence that it would not be a profit center. Initially designed as a convenience for Tesla owners and later expanded to non-Tesla EVs, the network was intended to sustain itself while enabling more EV adoption. However, Tesla’s latest report highlights the network’s role in increasing the company’s profitability.

Another factor contributing to Tesla’s rising profitability is its emphasis on cost reduction and operational efficiency, especially in vehicle production. This year, the automaker has achieved a record low cost per vehicle, further driving earnings.

Additionally, Tesla continues to leverage revenue from emission credit sales, adding to its net profit and offsetting challenges from declining EV subsidies and heightened competition in markets like China.

What about the Roadster?

When asked about the prospect of an affordable Tesla, Musk answered during the earnings call he couldn’t see that project realized if it’s not autonomous driving. This basically confirms prior confirmation that its robotaxi, unveiled beginning this month, has eclipsed the smaller Model 2, even though definitive pricing of the Cybercab changes by the minute in the company’s communication.

Regarding the Roadster, which is slated for 2025 per the most recent timeframes, Musk said they were finalizing the design but didn’t commit to a launch.

Given Tesla’s rapidly increasing focus on autonomous driving, one can’t help but wonder how a superfast driver’s car fits into that scheme if it weren’t for some deposit holders already having coughed up 250,000 dollars for their vehicle.