Tesla's Success Bolstered by Component Sales to Toyota, Daimler, and Solar City

By · December 12, 2013

By providing its powertrain to the Mercedes B-Class EV, Tesla supports its own vehicle program.

Solar City recently announced its plans to sell grid energy storage systems built out of battery packs sourced from Tesla Motors. That brings us back a few years to a debate about whether Tesla's best strategy was to skip manufacturing entire cars, and to focus on making components for major automakers.

At the time, there hadn't been a successful new auto start-up company in many decades. With the deck so heavily stacked against Tesla, conventional wisdom said Tesla should focus on becoming a supplier. As it turns out, Tesla Motor is taking both paths at once. While the company's flagship product, the Tesla Model S, is getting rave reviews around the world and taking a significant share of luxury car sales, component sales are also a growing part of the Tesla Motors corporate bottom line. That's remarkable.

Double Duty

While Tesla runs the risk of taking on too much, or getting distracted, simultaneously selling cars to the public and components to manufacturers adds up to a diversified income stream. Diversification should improve Tesla's overall chance of long-term success. At least that's the theory.

For a better picture, I turned to the company's quarterly SEC financial filings. In addition to the new deal with Solar City, the Q3 2013 filing shows deals with Daimler and Toyota. Total revenue for Tesla Motors in the first nine months of 2013 was $1.398 billion, which breaks down as $1.386 billion for "automotive sales" and $11 million for "development services."

Slicing automotive sales further, Tesla reported $1.351 billion in vehicle sales, and $35 million in powertrain component sales. That pencils out to $46 million of Tesla's revenue coming from components. Tesla Motors also earns revenue from selling ZEV Credits to other automakers, which totaled $129.8 million over the first nine months of 2013. This makes a total of $175.8 million in revenue from sources other than Model S sales, or about 12% of Tesla's revenue. Three percent is represented by sales to other carmakers.

Starting in Q4 2011, Tesla and Daimler executed a series of agreements to develop powertrain components. Daimler owns a chunk of Tesla stock, and a Daimler employee sits on Tesla's board. During 2013, so far, Tesla has completed enough milestones for Daimler to pay $11.3 million (the development services figure above) on what the filing describes as "a final development agreement."

According to reports from the 2013 Los Angeles Auto Show, an electric Mercedes Benz B-Class prototype vehicle was shown to journalists and Daimler is expected to launch sales of that vehicle in mid-2014. So Tesla will see additional revenue when it comes time to manufacture components for that car. Yet, Daimler's plans are pretty limited, with sales only in California and the Northeast.

The Toyota RAV4 EV also sports a Tesla powertrain.

Toyota Too

Tesla also supplies powertrain components to Toyota, which like Daimler, is an investor in Tesla. The components are used in the second-generation Toyota RAV4 EV. That electric SUV went on sale in mid-2012, in limited quantities only in California. Since first signing an agreement with Tesla in 2010, Toyota paid millions in development services revenue to Tesla. During the first nine months of 2013, Tesla earned $34.9 million in revenue from Toyota.

Meanwhile, revenue from sales of zero emission credits—earned for producing EVs in California, and sold to other automakers—is dropping. Tesla management has repeatedly warned about this trend, in which $67.9 million was earned in Q1; $51.5 million in Q2; and $10.4 million in Q3. While Tesla's management predicts they'll increase manufacturing efficiency enough to make up for the loss of ZEV credits, Tesla's component sales are also on the rise. While it seems unlikely Toyota will increase production of the RAV4 EV, the partnerships with both Solar City and Daimler show more promise.

To be clear, Tesla Motors earns most of its revenue by making and selling cars. That's job number one. But even if the vehicle business remains around 90 percent of the company's, that extra income will help Tesla's bottom line, make up for temporary shortfalls, and allow for continued growth.

Comments

· · 17 weeks ago

Toyota absolutely will NOT continue to produce the Rav4 EV. It is based on the 2012 body, which is no longer in use. Toyota announced from the very beginning of the project that a total of 2600 were to be sold in model years 2012 - 2014 to comply with California Air Resources Board - Zero Emissions Vehicle (CARB-ZEV) mandates and sold only in California.

Toyota actually goes through great pains to penalize buyers who ship the car out of state with denied warranty claims, denied dealer maintenance reimbursements, not offering special financing for out-of-state purchasers, and anything else hat their legal department will sign off on as legal for interstate commerce. The company is publically open about its aversion to battery electric cars.

Currently, with sales from the September 24, 2012 launch through November 30, 2013, a total of 1260 have been sold. Toyota has already announced the CARB-ZEV compliance car for 2015-2017, and it is hydrogen, not battery electric. Several other manufacturers like Honda and Hyundai have also announced their jump to hydrogen CARB-ZEV compliance.

The only thing different in the US market with the Daimler - Mercedes Benz B-Class ED is that it may be offered in other CARB states besides just California, and the company didn't have to comply to previous comply with CARB-ZEV until the 2015 model year. So, they will be on the same game as Toyota, just three years later.

Actually, of all the manufacturers, now or in the very near future, required to comply with CARB-ZEV, BMW, Fiat/Chrysler, Ford, General Motors, Honda, Hyundai, Kia, Mazda, Daimler/Mercedes, Nissan, Toyota, and Volkswagen, only Nissan is actually building ZEV's above the bare minimum required.

Neither Tesla, nor Mitsubishi are required to comply, yet they both are large EV proponents. The final large EV manufacturer in the world, Renault, is not offered in the USA.

· · 17 weeks ago

Actually, this article makes me more worried. Tesla may be trying to bolster its weak balance sheet with these non-Model S revenues. As Tony points out above, the Toyota revenue will probably not continue. And only a very small minority of Solar PV buyers opt to have batteries added to their systems since they greatly increase the cost, require periodic maintenance, and provide very little benefit.

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