What's Driving Tesla's Profits?

No. It's not those super cars.

While 2021 doesn’t seem to be any better for most of us, Tesla kick-started the year with a profit of $438 mn (Jan - March 2021), beating all its previous records. But, what led to this amazing performance in such unusual times?

Let’s go back to the basics.

Profit = Income - Expense

For profits to increase, income has to go up or expense has to come down. And for Tesla, its income was the key to success. But, it wasn’t its revenue from the core sports car business that led to its increased profitability. It was something else...

Well, technically they did sell more vehicles. But, not the more expensive or revenue-generating ones (Model S and X). In fact, its automotive revenue fell from $9,314 mn to $9,002 mn!

But then, how did its earnings go up?

Reason 1: Bitcoins.

In February 2021, Tesla purchased Bitcoins worth $1.5 bn. Then, this happened in March:

And well, Tesla also sold 10% of its Bitcoin holdings (as per Tesla’s Minister of Coins) in March, which fetched the company a cool $122 mn in profits (before tax). This amount is almost 80% of Tesla’s increase in profits before tax ($154 mn) in Q1- 2021 as compared to Q4- 2020 (Oct-Dec ‘20).

Elon Musk’s tweets have a manipulative effect on the markets. The same happened with Bitcoin. Although the company claims: “So we do believe long term in the value of bitcoin. So it is our intent to hold what we have long term and continue to accumulate bitcoin from transactions from our customers as they purchase vehicles.”

But, this is not it. There is more to Tesla’s profit saga.

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It has revolutionized the electric car space like no other company and is also making profits. Things look very rosy until you touch the thorns.

This brings us to Reason No. 2.

See what just happened in the above graph? Let us explain.

Almost 100% of Tesla’s profits are equal to the sale value of “regulatory credits.” 

Credits are given under environment emission programs to automakers for promoting environment friendly behaviours. Eligible companies need to have some minimum credit balance. Now, Tesla has plenty of those and can sell surplus credits to other automakers who don’t meet the threshold.

Now you see how Tesla’s driving its profits? Not so cool, after all, Musk.

Now that the results are out, do you think the Musk-effect was deliberately unleashed so that Tesla could make some quick bucks? Or was it pure coincidence?