Tesla earns $9 bn from carmakers failing to sell enough EVs

Tesla earns $9 bn from carmakers failing to sell enough EVs

Automotive News Europe — 2024-02-11

Automotive Industry

Tesla continues to cash in on other carmakers needing help to meet emissions standards, keeping up a lucrative business the company thought would fade away.

The Elon Musk-led manufacturer generated $1.79 bn in regulatory credit revenue last year, an annual filing showed last week. That brought the cumulative total Tesla has raked in since 2009 to almost $9 bn.

Selling regulatory credits is a tidy business for Tesla. It earns them by making and selling electric vehicles, then sells the credits to manufacturers whose new-vehicle fleets exceed emissions limits set by various authorities, including in China, the European Union and state of California.

Tesla bears little to no incremental cost earning the credits, so the sales are virtually pure profit.

Three and a half years ago, Tesla’s chief financial officer said he expected the revenue to gradually dissipate.

“We don’t manage the business with the assumption that regulatory credits will contribute in a significant way to the future,” then-CFO Zachary Kirkhorn said during a July 2020 earnings call. “It will continue for some period of time, but eventually this stream of regulatory credits will reduce.”

Tesla made $1.58 bn selling regulatory credits that year. While the company generated about 7% less credit revenue in 2021, it’s brought in more than $1.7 bn each of the last two years.

It’s no secret that auto executives rue that they have to kick money Tesla’s way for this purpose.

“It really makes them mad that Tesla got so much of a boost out of being the only purely electric-car manufacturer out there,” Mary Nichols, the former chair of the California Air Resources Board, told Bloomberg News in 2017. “In effect, they helped to finance this upstart company which now has all the glamor.”

While more EV makers have emerged since then, Tesla’s regulatory-credit business may still have room to run.

Automakers including Volkswagen and General Motors have fallen short of their EV goals and delayed or canceled electric-vehicle manufacturing investments. VW and GM both have needed help meeting emissions standards in recent years, as has Honda and Jaguar Land Rover.

Meanwhile, emissions rules aren’t getting any easier. Europe has set stricter car-emissions targets starting next year and from 2030 onward, while the UK adopted a zero-emission vehicle mandate beginning this year.