Benefit from Local Sourcing and Production in China Tesla Automotive Gross Margin Enters the 30% Range

Economic Observer Network reporter Wang Shuaiguo On February 7, Tesla, the world's largest electric vehicle manufacturer, submitted a 10-K annual report to the US Securities and Exchange Commission (SEC). The documents show that in 2021, the gross profit margin of Tesla's automotive business reached 29.3%, an increase of 3.7 percentage points compared with 2020. Among them, the gross profit margin of bicycles reached 30.6%.

"Despite rising costs for raw materials, commodities, logistics, etc., the average unit cost of model 3 and Model Y has decreased significantly due to localized sourcing and manufacturing in China. In addition, Model Y gross margin benefited from model 3 shared manufacturing and an increase in improved production processes." Tesla said.

It is worth mentioning that the gross profit margin of 29.3% has made Tesla the world's most profitable car brand. Relevant statistics show that the gross profit margin of most car companies in the world is below 20%. Toyota is known as the most profitable car brand, and its automotive business gross margin in the first quarter of 2021 was 19.2%; Daimler, BMW and Mercedes-Benz in the luxury car camp were also far surpassed by Tesla in terms of gross profit margin. The gross profit margin of Porsche, the most profitable brand under the Volkswagen Group, has experienced a decline, and it is only about half of Tesla's level. In China, Beijing Benz has maintained the highest gross profit margin level, with a gross profit margin of 27.1% in the first half of 2021, which has also been surpassed by Tesla.

Overall, the gross profit margin of new car manufacturers is generally higher than that of traditional car companies, but at present, the gross profit margin of Weilai and the ideal bicycle is still 18%-19%, and it has not yet exceeded 20%. The gross profit margin of a large number of traditional car companies is still below 10%, such as Ford Motor's gross profit margin in the second quarter of 2021 is only 7.1%. The gross profit margin of China's own brands is also mostly below 10%.

In 2021, GM CEO Barra has said that "the gross profit margin growth momentum of electric vehicles will continue into 2030." Tesla's rising gross margin also confirms Barra's view.

Another data to pay attention to is the large difference between Tesla's revenue share and sales volume in China. According to the regional division, Tesla's revenue in the Chinese market in 2021 was $13.844 billion, accounting for 25.7% of the company's revenue, an increase of 107.8% year-on-year. In contrast, Tesla China delivered 484,100 vehicles last year (including 320,700 units sold in China and 163,400 exports), accounting for 51.7% of Tesla's global 936,200 deliveries. That said, Tesla China contributes only a quarter of its revenue with more than half of its deliveries.

"There are two reasons, one is that Tesla's deliveries in China include exports, and the annual revenue corresponds to the deliveries in China. The second is point income, Tesla has more carbon credit income overseas. Bai Yiyang, a researcher at CMB International and an analyst in the automotive industry, told the Economic Observer Network reporter.

In the 10-K annual report file, Tesla also stated that the source of revenue in the Chinese market is limited to the products it sells in China. From this perspective, Tesla's sales in China account for 34.3% of global sales. Coupled with the difference in carbon credit revenue; the price of the domestic version of the model is lower than that of the American version; and the difference between the sales structure of China and the world, it is normal that there is a certain gap between the proportion of revenue and the proportion of sales in China.

Even excluding sales exports to Europe, the Chinese market already accounts for more than a third of Tesla's market share. The Shanghai Gigafactory has become an indispensable and important force for Tesla to occupy the global electric vehicle market.

Overall, in 2021, Tesla achieved total revenue of $53.82 billion, an increase of 71% over the previous year; net profit attributable to common shareholders of $5.52 billion, an increase of $4.80 billion over the previous year, an increase of 667% year-on-year. This is also the second consecutive year that it has achieved profitability.

Tesla said in the document that the sharp improvement in the company's performance in 2021 is mainly due to the ramp-up of production capacity at the Shanghai Gigafactory and Fremont plants. Tesla's previously disclosed data shows that in the whole year of 2021, 936,200 cars were delivered, which is about 500,000 vehicles in 2020. If it were not for capacity constraints, Tesla's sales in 2021 would have exceeded 1 million.

The increase in Tesla's average selling price and the decline in car return rates have also contributed to its revenue growth. Tesla said in its annual report that the average selling price of the company's automotive products has increased due to the increase in the proportion of Model Y sales. Due to the lower than expected return rate and the increase in the resale value of vehicles in 2021, Tesla's sales return reserve released a net of $365 million, which also conveyed a positive signal from one side that Tesla's vehicle quality has improved.

However, similar to other auto companies, the global COVID-19 pandemic has had a greater impact on Tesla's ability to improve its own production and marketing capabilities. Tesla's acceleration of capacity construction around the world has become its main means of responding to the new crown epidemic.

It is understood that at the end of 2021, Tesla began to produce Model Y in the Texas Gigafactory and conducted equipment tests on the vehicle production process of its Gigafactory in Berlin, Germany.

Tesla said it has focused its capacity growth on Berlin and Texas. "The next phase of production growth will depend on testing and capacity ramping at the Berlin Gigafactory and the Texas Gigafactory, as well as increasing existing sources of battery supply by manufacturing our own batteries." Our goal is to improve vehicle performance, reduce production costs and increase affordability. ”

In the face of the accelerated movement of traditional car companies around the world to electrification, Tesla will also accelerate the introduction of more models to the market in order to occupy a first-mover advantage in various segments. Known Tesla product plans include the Electric Pickup Truck Cyber truck, the electric semi-trailer Tesla Semi, and the new Tesla Roadster.

However, because the volume model Model 3 and Model Y are still in strong demand but insufficient production, Tesla decided to postpone the launch of the above new models and concentrate on increasing the production of Model 3 and Model Y.

In the future, Tesla will also enter the online ride-hailing market. "We intend to build an autonomous Tesla ride-hailing network in the future, which we expect will also allow us to reach a new customer base as transportation patterns continue to evolve." This will be another important means for Tesla, which never advertises itself to the public.