Credit sales

A drop in Tesla’s regulatory credit sales could be devastating to its future profitability, strategist says

  • Tesla has depended on selling regulatory credits to other automakers for the bulk of its profits in recent years.
  • But one automaker said it plans to stop buying credits from Tesla later this year once it hits its electric vehicle sales quotas.
  • “The loss of this regulatory credit revenue for Tesla is devastating and calls Tesla’s future profitability into question,” said Louis Navellier, Chief Investment Officer of Navellier.
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Tesla’s profitability in recent years has been driven by its sale of regulatory credits to automakers that failed to meet government-mandated electric vehicle sales quotas.

Now, an automaker is signaling that its reliance on Tesla tax credits will end later this year.

Stellantis, the multinational automaker formed from the merger of Fiat Chrysler Automotive and France’s PSA group, said it plans to meet its European carbon dioxide emissions targets this year without EV credits purchased from Tesla.

Stellantis bought approximately $2.4 billion in tax credits from Tesla over the 2019-2021 period.

Navellier Chief Investment Officer Louis Navellier said in a note Wednesday that the loss of sales of electric vehicle regulatory credits for Tesla “is devastating and calls into question Tesla’s future profitability.”

As other automakers begin to ramp up electric vehicle production, Tesla’s reliance on electric vehicle tax credit sales to boost profitability will likely decline.

“Increased awareness of the role carbon tax credits play in corporate profitability could lead to a fundamental reassessment of the business in the coming year,” Navellier concluded.

Regulatory sales credits represent pure profit for Tesla, and in 2020 they accounted for $1.58 billion in revenue for the electric vehicle maker. But Tesla only posted net profits of $721 million in 2020, meaning the company actually lost money on its core business of building and selling cars.

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This trend continued in the first quarter of 2021, when Tesla sold a record $518 million in electric vehicle tax credits. Those credit sales, along with Tesla’s $101 million profit from its partial sale of bitcoin, helped mask the company’s underlying loss on its auto business. Tesla reported net profit of $438 million in the first quarter.

“Thanks to the electrical technology that PSA has brought to Stellantis, we will autonomously comply with carbon dioxide emission regulations starting this year,” Stellantis CEO Carlos Tavares said in an interview with the French weekly. Point.

“Thus, we will no longer need to call on European CO2 credits and FCA will no longer have to pool with Tesla or anyone,” Tavares added.