Credit sales

Tesla could get ‘lucrative revenue stream’ from credit sales with Biden mpg standards

Tesla has made selling emissions credits to other automakers a major part of its revenue, and that could continue under tougher emissions standards proposed by the Biden administration, according to a new report. IHS Markit.

These new standards, along with tougher rules expected in Europe and China, could be “a lucrative source of revenue” for Tesla in the years to come, according to IHS Markit – and, perhaps, for other newcomers. in the electric vehicle sector.

Automakers that exceed fleet emissions targets generate credits, which can then be sold to automakers that fail to meet the targets. Because Tesla’s lineup is all-electric, the automaker has done a thriving business selling emissions credits. It earned $5.3 billion from credit sales and global issuance pooling, IHS Markit noted, citing U.S. Securities and Exchange Commission (SEC) filings.

MY2026 projected gallons better/worse than EPA standard – IHS Markit

The EPA has proposed standards that represent a cumulative 28% increase in stringency over the 2023-2026 model year period, IHS Markit noted. The organization anticipates that fuel economy improvements may not keep pace with these standards, leading to increased credit trading.

Under the current rules, an EPA report in 2021 seemed to suggest that the fleet rules themselves were too easy for automakers to comply with, especially given the workarounds with “off-cycle” credits. Large trucks, in particular, continue to be allowed at a lower bar in US standards, as vehicles are categorized by their “footprint”, as well as separately by cars and light trucks.

For the 2026 model year, Tesla is expected to have the most credits available for sale, followed by Toyota and Volvo, according to IHS Markit. Rivian, Lucid and Fisker are projected in the next three positions, but it is not guaranteed that they will be able to increase vehicle production.

Rivian R1T

Rivian R1T

That could be good news for Tesla, which could otherwise see some of its emissions credit revenue dry up. For example, Fiat Chrysler Automobiles (FCA) paid Tesla hundreds of millions for emissions credits, enabling more sales of Ram and Jeep trucks, but says that as Stellantis it won’t have need these credits.

Credit opportunities will be the strongest in Europe over the next few years, predicts IHS Markit, which could be one of the reasons why Tesla is doing all it can to accelerate the ramp-up of its “Giga Berlin” factory. .

In the future, automakers will also face heavier fines for exceeding their fleet’s allowed emissions, which could further increase the price of credits.