Tesla depended on selling zero emissions credits to other car manufacturers to make a net profit for the first time – despite its soaring share prices.
The electric car maker recorded a net income of $721million in 2020, from a gross profit of $5.4billion.
But the company’s revenues show Tesla would have noted a net loss for 2020 if it had not relied on its lucrative $1.6billion in sales of regulatory zero emission credits to other carmakers.
Regulatory credits are given by the state and federal government for contributing zero pollution to the environment. Carmakers must hold a certain number of credits or face hefty fines or have their business licenses revoked.
Tesla can bank and sell to other carmakers that need help complying with emissions regulations to avoid the heavy fines.
The findings indicate that other carmakers could seriously affect Tesla if they begin taking their zero emissions responsibility seriously.
Tesla reported a staggering $1.6billion in sales of regulatory credits in 2020, a major source of income for the company
Tesla shared have reached $793.53 cents in this chart showing the stocks performance this year
Tesla stocks, shown over the course of last year, have risen astronomically as the company has reached a nearly $700billion valuation
The comparatively small take home profits come in stark contrast to Tesla’s staggering performance on the stock market. Tesla’s stocks, up 743% in 2020, are now worth roughly as much as those of the world’s 12 largest automakers combined, CNN reported.
Tesla, which sells around half a million cars annually, is worth about $700billion and was recently added to the S&P 500 index as its fifth largest member, The Motley Fool reported.
Gordon Johnson of GLJ Research told CNN that Tesla is ‘losing money selling cars.’
‘They’re making money selling credits. And the credits are going away,’ he said.
CNN noted that Tesla does not entirely need to depend on credit sales, as other measures show profitability.
Even excluding credits sales, the company’s automotive gross profit was $5.4billion – a measure that compares total revenue from its car business to expenses directly associated with building them.
The revelation of Tesla’s income from credit sales comes as a surge in Tesla shares has shot Elon Musk’s net worth to a whopping $184.5billion
New entrants to the electric car market are expected to take a hit on the sales of Tesla’s electric cars and its regulatory credits
Eleven states mandate that a certain percentage of yearly sales from car manufacturers must come from selling zero-emissions vehicles by 2025 in order to curb pollution caused by cars.
The regulatory credits program, which originated in California, has since been adopted in ten other states: Oregon, Colorado, Maryland, New Jersey, New York, Connecticut, Rhode Island, Massachusetts, Vermont, and Maine.
The U.S. Environmental Protection Agency and National Highway Traffic Safety Administration operate a similar greenhouse-gas emissions credit system at the federal level, Bloomberg reported.
A carmaker earns credits when it sells zero emission vehicles, which include battery electric or hydrogen fuel cell electric cars, and transitional zero emission vehicles like hybrids, CurrentAutomotive.com reported.
11 states currently have regulations that require carmakers to sell a certain percentage of environmentally friendly vehicles
The electric carmaker has not disclosed which of its rivals it sells credits to, Bloomberg reported.
However, General Motors Co. and Fiat Chrysler reached agreements in 2019 to buy federal credits from the company.
Tesla disclosed in 2013 that Honda Motor was one of its buyers, CNN reported at the time.
The company also transferred 88,000 credits in California to Toyota between September 1, 2017 and August 21, 2018, CurrentAutomotive.com reported.
Tesla’s Chief Financial Officer Zachary Kirkhorn told CNN that the company cannot rely on its selling of credits as a source of revenue in the future.
‘In the long term, regulatory credit sales will not be a material part of the business, and we don’t plan the business around that. It’s possible that for a handful of additional quarters, it remains strong. It’s also possible that it’s not,’ he said.
Jessica Caldwell, Edmunds’ executive director of insights, said in a statement to The Drive that other carmakers are expected to release electric vehicles at a time Tesla ‘is at its most vulnerable.’
‘2021 is looking to be a pivotal year for EV entrants: the number of models available in the market is expected to jump from 17 to 29 vehicles from 20 different brands before the year closes,’ she said.
‘Although there has yet to be a true ‘Tesla killer’ in the EV arena, a bigger pool of contenders eligible for federal tax credits could have the power to sway some Tesla shoppers.’
Volkswagen already sells more electric vehicles now in most of Europe than Tesla and GM announced last week it hopes to shift completely to emissions-free cars by 2035, CNN reported.
Earlier this month, it was revealed that Tesla’s CEO Elon Musk is on track to become the richest person in the world after a surge in Tesla shares increased his net worth to a whopping $184.5billion.