ability to report a profit is provided by fuel-economy credits that regulators
have enabled it to sell to other automakers. Tesla itself is living off the
pickup truck profits that support the domestic industry.>>
I know we all like to bash Tesla but the above statement
is no longer true. It was true until 2020, the last year that Tesla’s
regulatory credits were larger than its net income. In 2021 regulatory credits contributed
26% to net income and in 2022 that number was down to 14%.
Last year Tesla generated a lot of cash (did not have to
sell any shares), was very profitable (with a 17.6% net income margin) and has
now made up for all past losses. The balance sheet as at 31March2023 is showing
$15.4 billion of retained earnings. Of course, regulatory credits are just one
element of the support provided by governments to the EV industry but it is
hard to argue with Tesla’s success as an EV car manufacturer. The truth is
that, rather than Tesla, all other car makers are living off the ICE profits to
support their EV side of the business.
Here are Tesla’s income statements for the last three
- We earn tradable credits in the operation of our automotive
business under various regulations related to ZEVs, greenhouse gas, fuel
economy and clean fuel. We sell these credits to other regulated entities who
can use the credits to comply with emission standards and other regulatory
- Our revenue from automotive regulatory credits is directly
related to our new vehicle production, sales and pricing negotiated with our
customers. We monetize them proactively as new vehicles are sold based on
standing arrangements with buyers of such credits, typically as close as
possible to the production and delivery of the vehicle or changes in regulation
impacting the credits.
- Automotive regulatory credits revenue increased $311 million in
2022 primarily due to changes in regulation which entitled us to additional
consideration of $288 million in revenue in the first quarter of 2022 for
credits sold previously. Without that retroactive increase we had only an
immaterial increase in automotive regulatory credits revenue.