Why Did Tesla’s Gross Margin Expand in 1Q17?



Tesla’s gross margin

Previously, we looked at how a significant rise in Tesla’s (TSLA) vehicle deliveries and higher revenues from energy products boosted its 1Q17 revenues. Along with higher deliveries, Tesla also continued to expand its production capacity. The company produced about 25,418 units, a YoY (year-over-year) increase of ~64%. These improvements also boosted investors’ confidence in Tesla’s ability to execute and deliver going forward. Now, let’s look closely at Tesla’s gross margin in 1Q17.

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Gross margins expanded in 1Q17

In 1Q17, Tesla’s consolidated gross profits stood at $667 million with a gross margin of 24.7% on a GAAP (generally accepted accounting principles) basis. This gross margin demonstrated a handsome expansion from the gross margin of 22.1% in the corresponding quarter of the previous year.

Moreover, Tesla’s first quarter consolidated gross margin was also much higher than the 19.1% gross margin in 4Q16.

Key driving factors

In the first quarter this year, Tesla’s gross margin from automotive and energy production stood firm at 27.1% and 29.1%, respectively. The company attributed this expansion to the improving ATP (average transaction price) of its vehicles and manufacturing efficiencies.

In contrast, Tesla’s 1Q17 gross margins continued to be negatively affected by unfavorable currency movement. The rising dollar stole about $35 million from the company’s gross profits.

Currently, Tesla’s margins from Model X are lower than its margins from Model S, which is mainly because the company hasn’t achieved the same production efficiencies for Model X that it has achieved for Model S.

Nevertheless, Tesla’s gross margins are still higher than those of legacy automakers (FXD) including Ford Motor Company (F), General Motors (GM), and Fiat Chrysler (FCAU).

In the next part, we’ll take a quick look at some other key highlights of Tesla’s 1Q17 earnings.


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