While some manufacturers do not start production of electric cars, Tesla sells them credits to avoid sanctions. We tell you.
Tesla has revealed in an annual report to the Securities Market Commission that it will earn almost $1.8 billion (€1.6 billion) in 2023 from the sale of credits to car manufacturers that have lagged behind in electrification. However, it is unclear whether this important source of income will remain viable for much longer.
Tesla profits increase from sale of ZEV credits
Tesla's revenue from regulatory credits for zero-emission vehicles was disclosed in its 2023 10-K, reporting €16.3 billion (approximately) in gross profit.
Own elaboration
This means that credit sales represent more than 10% of Tesla's gross profit, and potentially a larger proportion of its $14.974 billion in net profit. Over the years, Tesla's revenue from this source has amounted to $9 billion, according to Transport Topics.
How do these credits work?
Sales of credits for zero-emission vehicles (ZEV) depend on other manufacturers remaining behind in electrification. Several states distribute these credits for the sale of zero-emission cars, which cancel out the penalties accumulated for the sale of combustion vehicles.
They are transferable, so since Tesla only sells electric vehicles, it has a lot of credits to distribute to those manufacturers that do not sell enough electric vehicles. They still cost the company that buys the credits money, but less than what it would cost to pay emissions fines.
Historically, one of Tesla's largest customers has been Fiat Chrysler Automobiles (now Stellantis), whose credit purchases financed Tesla's Berlin factory. Stellantis is late in introducing EVs to the US market, and in recent years has thrived on inefficient but highly profitable models from Dodge, Jeep and Ram.
But some of those models are no longer manufactured, or even sell poorly. The truth is that Stellantis is preparing flagship electric vehicles for each of its American brands. Over time, you won't need to buy Tesla credits, and that could add to the growing pressure on Tesla's bottom line.
But be careful, your profits could fall
Although Tesla would remain profitable without the credit sales issued last 2023, they are really important when talking about the American manufacturer's accounting. Without credit sales, your margins could fall.
This is something that already happened in 2023, when they fell to 18.2% after exceeding 25% in previous years. In fact, profitability is something that investors are increasingly concerned about, and even more so considering the large price cuts that Tesla has made on its models.
With the exception of the recently presented Cybertruck, the Tesla range is aging and the truth is that it has not been renewed, nor are there any big announcements in sight, except for the Roadster and the 25,000 euro model that will come in the coming years .
In the event that these vehicles ever see the light of day, setting a price of 200,000 euros for the Roadster complicates things, taking into account that its market will be small given the high price. As always, it's hard to say whether this will benefit Tesla or not, as it always ends up surprising.
In fact, the automaker has overcome some crises that could have taken down other companies. But public faith in Tesla's brand-defining driving technology is waning, and, as our colleagues at Business Insider report, some layoffs are taking place within the company.