How Tesla Makes Money: All-Electric Cars

Tesla electric car sales make up the biggest share of revenue

Reviewed by Margaret James

Tesla Inc. (TSLA) has grown rapidly into one of the world’s largest all-electric vehicle companies through the sale of cars and pickup trucks in the U.S., China, and other countries throughout the world. It’s even become the most valuable automaker in the world by market capitalization. Tesla’s automotive segment accounts for the vast majority of its revenue and profits at the Austin-headquartered company.

Tesla faces growing competition from other major automakers who are developing and marketing electric vehicles including General Motors Co. (GM), China-based Nio Inc. (NIO), German-based automakers Volkswagen AG (VOW3), and Mercedes-Benz Group AG (MBGAF).

Key Takeaways

• Tesla makes, sells, and services all-electric vehicles in the U.S., Europe, and China. It also sells energy generation products.
• The company gets the vast majority of its revenue and all its profits from automotive sales.
• Tesla has experienced rapid growth in China.
• Tesla has faced investigations from regulators in different countries concerning safety-related issues with the electric automaker’s vehicles.
• The company was sued by a California regulatory agency in February 2022 on allegations of racial discrimination and harassment at its factory in Fremont.

Tesla Financials

Tesla announced financial results for its 2023 fiscal year (FY) in late January 2024. Its fiscal year ended Dec. 31, 2023.

Net income attributable to the company’s common shareholders rose 19.4% during the year to $14.99 billion. Revenue expanded to $96.77 billion, up 18.8% compared to the previous year. Tesla uses gross profit as a profitability metric for its business segments and this decreased 15.3% to $17.66 billion.

As much as 46.7% of Tesla’s revenue was generated within the U.S. in FY 2023, up 49.8% compared to FY 2022. Revenue from China accounts for about 22.5% of total revenue. The remaining 30.8% of annual revenue was generated in other countries throughout the world.

Tesla has said that its vehicle deliveries were down 5% in Q2 of 2024, however. The company is looking to increase its manufacturing capacity as quickly as possible. It’s begun to ramp up production at its factories in Austin, TX, and Berlin while attempting to maximize output at its established factories in Fremont, CA, and Shanghai.

Important

Tesla has also faced ongoing global supply chain challenges, however, limiting its ability to operate at full capacity.

Tesla Business Segments

Tesla operates through two business segments: automotive and energy generation and storage. The company provides revenue and gross profit metrics for each segment.

Automotive

Tesla’s automotive segment includes the design, development, manufacturing, sales, and leasing of electric vehicles as well as the sale of automotive regulatory credits. The segment accounts for 94% of total revenue and also includes non-warranty after-sales vehicle services, sales of used vehicles, retail merchandise, and vehicle insurance revenue.

The segment posted a gross profit of $16.52 billion in FY 2023, down 19.7% compared to the previous year. Revenue rose 17% to $90.74 billion.

Energy generation and storage

The energy generation and storage segment accounts for 6.2% of total revenue. It includes the design, manufacture, installation, sales, and leasing of solar energy generation and energy storage products and related services as well as sales of solar energy systems incentives. The segment posted a gross profit of $1.14 million in FY 2023, a significant increase from the gross profit of $288 million reported in FY 2022.

Tesla Recent Developments

The California Department of Fair Employment and Housing, a California regulatory agency, sued Tesla for alleged racial discrimination and harassment on Feb. 10, 2022. The allegation stated that the electric automaker ignored years of complaints from Black workers at Tesla’s main manufacturing plant in Fremont, CA.

A German newspaper reported on Feb. 21, 2022 that Tesla’s Autopilot technology was being probed by German regulators. The safety of the technology which functions as an automated lane-changing system is being investigated by the motor transportation authorities of Germany. Tesla also faces a second probe from the U.S. National Highway Traffic Safety Administration after reports of “phantom braking” of the company’s vehicles at high speeds.

The California Attorney General entered the fray in July 2023 after the owner of a 2018 Tesla Model 3 filed a complaint with the Federal Trade Commission alleging that they’d paid thousands of dollars for the company’s Autopilot driver assistance systems only to have it result in the phantom braking phenomenon. A U.S. District Court judge allowed a resulting lawsuit to proceed in November 2024.

Tesla announced in July 2024 that it would be recalling 1.85 million of its vehicles in the U.S. to address the issue of a software malfunction that was failing to detect unlatched hoods. The hoods could reportedly spring open unexpectedly, blocking the driver’s view. This came about after the company recalled 2.03 million U.S. vehicles in December 2023 to remedy the Autopilot system failures.

What Were Tesla’s Supply Chain Problems?

Tesla’s supply chain crisis dates back to 2022. It has recovered by creating certain necessary components itself rather than relying on manufacturers. The issue was a chip shortage.

What Is the Bestselling Car in the World?

Kelley Blue Book tagged the Ford F-Series truck in July 2024, reporting 352,406 of these vehicles sold. Tesla’s Model Y came in at fourth place as of that date with 198,030 sold.

Is It True that Tesla Lets You Design Your Own Car?

Yes and no. You can customize the roof style, paint, charger, and wheels if you purchase a Model X. You can’t design the car from the ground up, however.

The Bottom Line

Tesla is best known for manufacturing, selling, and servicing all-electric vehicles in major hubs all over the world. It’s experienced more than its share of regulatory issues regarding safety, however. They’ve included a software malfunction that caused hoods to fly open and unexpected, phantom braking problems.

It’s nonetheless been reported that the Tesla Model Y was the fourth bestselling vehicle in the world in 2024. It can’t hurt to test drive one to find out if this electric car option is right for you.