Is Tesla Counting On A Billion Dollar Regulatory Credit Bonanza?

  • Tesla’s primary business of manufacturing and selling electric vehicles, or EVs, generates two classes of tradable regulatory credits that it sells to other automakers.
  • Under rules promulgated by the EPA, automakers must meet Federal greenhouse gas emissions standards, buy GHG Credits from other automakers, or pay substantial fines.
  • Under rules promulgated by California and nine other states, automakers must sell a specified percentage of Zero-Emission Vehicles, buy ZEV Credits from other automakers, or pay substantial fines.
  • During the five years ended December 2017, Tesla reported $890 million of cumulative ZEV Credit revenue and another $352 million of cumulative GHG Credit revenue.
  • For 2018, if the market absorbs anticipated ZEV and GHG Credits at 2017 prices, Tesla could earn $996 million of ZEV Credit revenue and $287 million of GHG Credit revenue.

Since inception, Tesla (TSLA) has generated over $1.4 billion in incremental revenue from sales of ZEV and GHG Credits. While Tesla’s reporting of revenue from ZEV and GHG sales has been patchy and inconsistent, my first table summarizes my estimates of Tesla’s revenues from ZEV and GHG Credit sales during the five years ended December 2017. Quarterly Vehicle delivery estimates are derived from monthly estimates published by Inside EVs. ZEV and GHG Credit estimates are derived and/or estimated from granular information in Tesla’s SEC reports and shareholder letters.

My second table shows how the prices Tesla received for ZEV and GHG Credits have softened over the last five years as the supply of credits increased. This second table is not as precise as the first because it ignores the possibility of unrealized credit inventories and divides annual ZEV Credit sales by total US Vehicle deliveries to arrive at a per vehicle number. While the methodology works for GHG Credits because those credits are earned on every car delivered in the US, it understates the per vehicle value of ZEV Credits because it divides total ZEV Credits by total US Vehicle deliveries. A more accurate analysis would divide total ZEV Credits by total vehicle deliveries in ZEV states but I haven’t been able to find that statistic. If you assume that the proportion of Tesla’s sales in ZEV and non-ZEV states is relatively stable from year to year, the inaccuracy becomes unimportant.

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Kurt Benson 10 months ago Member's comment

At one time #GM had over 100,000 in tax credits for large SUVs like Hummers. Why don't you put tax credits into perspective so it does not sound like #Tesla is taking taxpayers' money! $GM $TSLA

John Petersen 10 months ago Author's comment

ZEV and GHG Credits are not "Tax Credits" and nothing in my work suggests otherwise. They're created by regulatory edict and represent an unjustified fiscal plunder of competitors who must buy credits from sellers like Tesla or pay heavy fines to regulators.

I guess one could characterize the credits as an indirect rape of the taxpayer since the regulators would collect fines if the credits were not tradable, but that's a bit of a stretch.

Gary Anderson 10 months ago Contributor's comment

Apparently tax credits are bad law. Maybe even a scam.

John Petersen 10 months ago Author's comment

I think the ZEV Credits are a scam because the number of credits is determined by a formula that multiplies the range by.01 and adds half a credit. So an EV with a 50 mile range gets 1 credit and an EV with a 300 mile range gets 3.5 credits.

Since the average Tesla owner drives his car 32 miles per day or 11,700 miles per year, just like every other driver, a 300 mile EV offers no more environmental benefit than a 50 mile EV.

I guess nobody taught the regulators in California to think about whether their rules actually support their goals.

Alpha Stockman 10 months ago Member's comment

This is an aspect of #Tesla that I had no idea about! Very enlightening.

Gary Anderson 10 months ago Contributor's comment

Explosive article.