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Note that Tesla doesn't just exclude R&D from gross margins, they also exclude unit marketing costs as well. (Tesla doesn't spend money on ads, but they spend $

Note that Tesla doesn't just exclude R&D from gross margins, they also exclude unit marketing costs as well. (Tesla doesn't spend money on ads, but they spend $50-100 million annually on marketing.) Additionally, a number of QC-related costs (like taking back lemon cars, or paying for repairs before cars are accepted by customers) are excluded from the calculation of automotive sales revenues. But that's not all: Tesla adds regulatory credit sales to their "automotive" gross margin figures. Yes, that's right, Tesla's "automotive" gross margin isn't just vehicle sales like it is for other car manufacturers. For example, look at Q2 2020 filings. The clean-car credits that they sell to other manufacturers are treated as automotive revenue, and that accounting chicanery is entirely what lets Tesla claim a 20+% gross margin on their vehicles. (The clean-car credits are also what lets Tesla claim to be profitable, though it has yet to make a profit actually selling cars.) Without treating the sale of clean-car credits as automotive revenue, Tesla's gross margins are at best in line with industry gross margins (and fall below industry margins once you apply automotive GAAP to standardize the financials).

cptskippy 6y ago
So you're arguing that Tesla should apply R&D costs to vehicles but not count credits directly resulting from the sale of a vehicle? The sale of a vehicle results in a credit that can then also be sold, so why can't that profit be tied to the vehicle? On the flip side, the company can spend lots on R&D that never makes it way into a vehicle. Why should that then count against the profit from selling a vehicle?
- reitzensteinm 6y ago
  Unlike parent, I agree credits should be included in gross margin, whether positive or negative. Companies in Europe facing significant CO2 fines should have that reflected in their reported margins. I don't understand your R&D point though. It's perfectly logical either way to include or exclude it. There's nothing wrong with how Tesla does it, and there's nothing wrong with how the rest of the auto industry does it. It just means you can't blindly compare the figures.

cptskippy 6y ago

So you're arguing that Tesla should apply R&D costs to vehicles but not count credits directly resulting from the sale of a vehicle? The sale of a vehicle results in a credit that can then also be sold, so why can't that profit be tied to the vehicle? On the flip side, the company can spend lots on R&D that never makes it way into a vehicle. Why should that then count against the profit from selling a vehicle?

reitzensteinm 6y ago
Unlike parent, I agree credits should be included in gross margin, whether positive or negative. Companies in Europe facing significant CO2 fines should have that reflected in their reported margins. I don't understand your R&D point though. It's perfectly logical either way to include or exclude it. There's nothing wrong with how Tesla does it, and there's nothing wrong with how the rest of the auto industry does it. It just means you can't blindly compare the figures.