Tesla’s Earnings are Weighed Down by Their Cheaper Models

The past 2020 was a record year for Tesla: the American company produced more than half a million vehicles despite the global pandemic. It announced net benefits for the first time in its history. However, not everything has been good news for the manufacturer, as these benefits have remained closely linked to the sale of emission credits to other manufacturers.

On the other hand, the company’s earnings were lower than estimated by most experts, which caused a drop in its shares. This deficit was because the bulk of its sales corresponds to the Model 3 and Model Y, two cars much cheaper than the Model S and Model X, therefore with a lower profit margin.

According to Nicholas Hyett, an analyst at Hargreaves Lansdownm, Tesla’s weakened profit margins point to the company’s urgency to increase its sales globally before traditional manufacturers start flooding the market with their power offerings. This last fact will also cause the profits from the sale of emission credits to third parties to fall, which could increase the company’s pressure.

In the last quarter of 2020, Tesla obtained 575 million dollars of operating profit, of which 401 million correspondings to the sale of emission credits. It is to be expected that in the coming years, the income obtained by this last route will tend to decline notably so that the manufacturer will depend more than ever on the profitability of its operations.

This search for profitability is evident in the development of new production techniques such as the manufacture of frames from large functional parts, as well as in the increasing simplicity of the company’s cars (the disappearance of the levers behind the wheel on the new Model S and Model X, the flat shapes of the Cybertruck pick-up body, etc.).

During the fourth quarter of 2020, Tesla achieved $10.74 billion, a year-on-year increase of 46%. Its operating profit margin was 5.4%, higher than the 4.9% obtained in the same period of 2019, but much lower than the 9.2% achieved in the third quarter of 2020. The quarterly net income for its part passed from the 105 million dollars obtained in 2019 to 270 million.

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