Last quarter, Tesla reported a $2.29 billion net profit. While Toyota’s earnings were reported to be roughly $3.15 billion USD. Despite Toyota’s delivering almost eight times more cars than Tesla, the profits per car are higher for Tesla. Japan is starting to notice the difference in profits now.
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.”
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, but it’s also 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.
Delivering more cars
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. Toyota is one of the largest automakers in the world, and we can certainly assume that after all these years, the Japanese company has a firm grasp on how to build successful products that also allow it to make a profit. Moreover, while Toyota hasn’t moved forward quickly with fully electric cars, it sells a vast lineup of vehicles, most of which are available with fuel-efficient hybrid powertrains, and a few of which come with a plug.
“The decreased profit in July-September does not equate to a decline in Toyota’s actual earnings potential,” said Kota Yuzawa at Goldman Sachs Japan. Toyota came out ahead in terms of operating profit, at the equivalent of $4.08 billion to Tesla’s $3.69 billion. Tesla’s profit per vehicle has grown especially quickly since April-June 2021. Investors have responded favorably to the gains, and the company’s market capitalization was roughly triple Toyota’s as of Monday at around $655 trillion.