Though Tesla is selling more vehicles, energy solutionsand tequila than ever before, it is not the reason for the company’s increasing valuation. Rather, the reason behind it is Tesla's unmatched use of data!
From the very beginning, Tesla has been prioritising the collection and utilisation of all possible data analytics from their car owners. In fact, since 2018, Tesla has collected over 3 billion miles of real world driving data.
With Tesla’s approach, every human interaction with the vehicle generates a data point that is analysed and used to improve or create new algorithms which are sent back down to the vehicle via the air updates. So, in essence, Tesla owners are not just driving a car to commute to work or to run errands, but are simultaneously training the Tesla AI engines as they go. As a result, Tesla has created “one of the most effective crowd-sourced AI training initiatives” around today.
One of the other major factors fueling Tesla stock prices is their innovative approach to monetize its 3 billion miles worth of driver data. Tesla CEO, Elon Musk, announced that he’ll be building a “major insurance company” which would use driver data to determine payment rates based on how rashly or safely a person drove. It could also leverage the massive amounts of comprehensive driver data and warn drivers of the potential driving risks.
Another area of data monetization which has a lot of potential is hyper-targeted advertising. Tesla not only records human-car interactions and where a person travels to, but also their in-car conversations, texts and calls. With the help of this information, Tesla could easily structure and categorise the data acquired, to understand drivers' consumption and travelling habits. Using these insights, they could alert the driver to nearby places of interest via text, mobile app, etc., or display paid ads on the vehicle's infotainment system.
In fact, according to a report by Mckinsey, the "car data market" could be worth around $750 billion by 2030. Although Tesla is one of the more high profile examples of this newfound data-centric approach, they are far from the only automakers experimenting with data monetization and driver analytics.
Being a profitable company, Tesla has two more chief items to thank for: Sales of emissions credits to other automakers and the sales of its bitcoin holdings.
Emissions credits accounted for $518 million in revenue in a quarter that saw a pretax income of $533 million and a net income of $438 million on a GAAP basis. Needless to say, the credits account for almost the entirety of Tesla's profit for that quarter—in fact, sales of emissions credits have been a major source of revenue for Tesla for quite some time, contributing to hundreds of millions of dollars in income for the past few quarters. The automaker accumulates regulatory credits because it produces only EVs and sells them for a profit to other automakers who are in need of these credits.
The second item that helped Tesla was the sales of bitcoin, the profit of which amounted to $101 million. The automaker purchased some $1.5 billion worth of the cryptocurrency at the end of 2020, and had begun accepting the cryptocurrency for sales of its cars. It has now sold about a tenth of its bitcoin holdings, which helped its position in the first quarter of 2021, proving to be a bet that has paid off really well amid a sharp rise in the cryptocurrency's value. There came a time when CEO Elon Musk had repeatedly mentioned bitcoin and other cryptocurrencies on social media.
So, overall we see how Tesla, an electric car company, has gained enormous profit through the sale of emission credits as well as its bitcoin holdings. In addition, the way they monetised their AI technology in self-driving car systems is quite commendable. Nonetheless, Elon Musk’s social media strategy to manipulate cryptocurrency prices also largely contributes to the company’s profits.