How Tesla's rivals support Tesla
Company bringing in millions by selling credits from states for selling electric cars
Upstart electric car maker Tesla Motors is receiving a huge windfall from an unlikely source: competing automakers.
The company is bringing in millions of dollars by selling credits from California and 10 other states for selling electric vehicles.
Buying the credits are automakers that are concerned they won't able to meet tough new environmental regulations requiring that more than 15 percent of sales in the 11 states be zero-emissions vehicles by 2025.
If they fall short of those sales goals, they can avoid penalties -- and bad publicity -- by buying credits from other automakers. Small automakers are not required to meet the rules. And since Tesla sells nothing but electric cars, it is rolling in the credits, making them one of the few sellers of the credits in a seller's market.
In the first quarter, Tesla sold nearly $68 million of the zero-emission credits to other automakers. That represented 12 percent of its overall revenue, or an average of about $17,350 per vehicle sold. It also dwarfed the $11.2 million in net income that represented the company's first quarterly profit, and helped to send Tesla stock soaring. Shares are up more than 165 percent so far this year.
Tesla has not given out details of its zero-emission credit sales, but it has disclosed that Honda Motor is one of the buyers. Some analysts say the credits should stay a significant source of money for Tesla in the years ahead.
"They're in a position to potentially corner the market," said Adam Jonas, auto analyst with Morgan Stanley, who estimates that the credits will come to $188 million this year alone.
Tesla won't comment on the zero-emission credit estimates from Jonas or others. Founder Elon Musk told analysts earlier this month that his profit targets for the company are not dependent on any money coming from the sale of the credits at the end of this year.
"We will sell them if we can," Musk said. "But... for purposes of modeling our financials, I'd recommend assuming 0 percent credits in (the fourth quarter.)"
But Jonas said that Tesla's caution about future zero-emission credit revenue is a way to avoid raising investor expectations in what is still a volatile ad unproven market.
"I think they're embarrassed how much money they're making on this," Jonas said.
Jonas said the money is enough to fund Tesla's capital expenditure, including research and development that's key to developing a mass-market electric car in addition to its current $69,000 Model S.
He can't say if Tesla is using the money to lower the price of its cars to consumers, but he believes its customers are benefiting from the start-up automaker's unusual source of cash.
"They can put the money to use a number of different ways," Jonas said. "They could be bring out charging stations faster this year -- giving away free electricity is great marketing. They can put it into technology, or into their residual price guarantee. All those things benefit both the customers and the company."
And the strong balance sheet is one of the things helping to convince investors that Tesla has the resources it needs to have staying power, and to take on the well-entrenched auto industry.
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