Tesla (TSLA) is now earning eight times more per car than Toyota, and they are starting to notice back in Japan.
The list of things that could have led to Tesla’s demise used to be longer than my arm. For most investors, the amount of money that the company was losing was at the top of that list.
Not only is it not on top anymore, it’s not even on the list.
Over the last two years, Tesla has been able to consistently deliver profits every quarter with increasingly impressive free cash flow, which reached a record of over $3 billion last quarter.
For years, many automotive investors decided to invest in legacy automakers instead of Tesla because they would deliver millions more vehicles than Tesla and make money doing it.
While it’s still true that some of the biggest automakers, like Toyota, deliver millions more vehicles than Tesla, it’s not true that they necessarily make more money doing so.
For example, Tesla reported $3.29 billion in net profit last quarter compared to Toyota earning 434.2 billion yen (roughly $3.15 billion USD). That’s despite Toyota delivering almost eight times more cars than Tesla during the same time.
This milestone of Tesla beating Toyota in earnings during a quarter is especially impressive when you consider that just a decade ago, Toyota owned about 3% of Tesla with just a $50 million investment. Now Tesla generates $50 million in free cash flow almost every other day.
Toyota divested and completely cut ties with Tesla in 2017.
While Toyota is still only tentatively entering the battery-electric vehicle space, people are starting to see times changing in Japan since the Nikkei, the country’s biggest business newspaper, led with “Tesla earns 8 times more profit than Toyota per car.”
While it is making waves in Japan, it feels like the Japanese auto industry might still have their head in the sand.
That’s partly because Tesla beating Toyota on earnings is partially due to the latter seeing earnings go down due to “increased material and electricity costs for its suppliers.”
But personally, I think the trend of Tesla catching up to Toyota’s earnings might be one that will keep going. To me, it’s as simple as one producing compelling all-electric vehicles in large volumes while the other isn’t.
Now that trend might not currently be reflected in Tesla’s stock price, but that’s another story entirely.
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