In Tesla’s second quarter earnings report final month the corporate reported a GAAP web revenue of $104M bringing the trailing-twelve-month interval to GAAP worthwhile for the primary time in Tesla’s historical past.Critics, nonetheless, have argued that Tesla was solely in a position to obtain profitability because of regulatory credit score gross sales to different automakers which may not proceed sooner or later. Over the identical 12-month interval, Tesla bought $1.05B in regulatory credit, all of which flowed by to the underside line. Excluding these credit score gross sales takes Tesla’s 12-month GAAP web revenue from $368M of revenue all the way down to $681M of loss. So is Tesla truly shedding cash on their core enterprise as soon as regulatory credit score gross sales are excluded? It isn’t fairly that easy.First, stock-based compensation (SBC) needs to be thought of. SBC is stock granted to staff of the corporate which vests over time. The corporate creates new shares to situation to staff as part of SBC, so whereas it provides dilution, it isn’t a cash value. During the last 12 months, Tesla’s SBC totaled somewhat over $1B. That is essential to account for, therefore the inclusion within the GAAP web revenue metric, however as a result of it isn’t a cash value it doesn’t affect whether or not or not Tesla is “earning money”.Tesla and lots of different firms report non-GAAP financials which exclude stock-based compensation so buyers can higher perceive the revenue assertion. Tesla’s non-GAAP web revenue over the trailing-twelve-months was $1.4B. Excluding regulatory credit, Tesla’s non-GAAP web revenue was $357M.Moreover, when discussing profitability, you will need to think about how Tesla has chosen to construction their enterprise model. Tesla has leveraged debt to allow sooner development with out diluting shareholders. That debt at present sits at about $8.5B. Every quarter, Tesla pays curiosity on that debt. For the final 12 months, that curiosity expense has totaled $694M.If Tesla had chosen to develop extra slowly, stockpile much less cash (at present at $8.6B), or raised extra capital through fairness quite than debt, Tesla might have fully eradicated these curiosity bills and posted a lot stronger web revenue outcomes. Excluding curiosity bills, GAAP web revenue during the last 12 months was $1.06B and non-GAAP web revenue was $2.10B. If regulatory credit are once more excluded, GAAP web revenue was a constructive $13M whereas non-GAAP web revenue was $1.05B. This gives an instance of the impacts excessive development can have on short-term profitability. Tesla might simply present robust GAAP revenue numbers even excluding regulatory credit score gross sales, however it will be detrimental to the enterprise total.With Tesla’s present $412B market cap, the corporate might elevate capital and erase the $8.5B of debt with simply 2% dilution, considerably bettering their quarterly web revenue within the coming quarters. Nonetheless, with entry to low-cost debt, the short-term curiosity bills may be preferable to shareholders who count on Tesla’s future revenue to develop considerably.Regardless of the choice, it needs to be clear that it’s inside Tesla’s energy to point out profitability even with out the good thing about regulatory credit score gross sales.For extra evaluation on Tesla, see the included video and observe Tesla Every day on TheStreet.—Disclosure: Rob Maurer is lengthy TSLA stock and derivatives.