Credit sales

Tesla’s carbon credit sales drop 49% in second quarter

Tesla recorded $344 million in regulatory credits for the second quarter of 2022, down 49% from the first quarter of $679 million.

Credits represent 1.7% of the overall gross margin for the quarter, compared to 2.9% in the previous quarter.

The public has anticipated how much the EV automaker will earn from its carbon credits this second quarter, and year-over-year it’s down 3%.

Since 2017, Tesla has made ~$5.1 billion the sale of regulatory carbon credits as indicated above. The credits sold help other automakers meet their emissions regulations and avoid billions in fines.

Along with the automaker’s carbon credit sales, the company is pledging to further reduce its carbon footprint, as revealed in its 2021 impact report. The report appears to be the answer to the public’s long wait for strategies decarbonization of Tesla.

Currently, the automaker provides power generation and storage products using its patented solar power system. They contribute significantly to Tesla’s regulatory carbon credit generation.

More importantly, they also represent Tesla’s massive efforts to reduce its carbon footprint.

Tesla’s GHG emissions

In 2021, Tesla began measuring its Scope 1 and Scope 2 GHG emissions taking into account the principles and guidance of the GHG Protocol.

The manufacturer used the operational control approach method or the accounting of GHG emissions from operations under its control. The table below shows Tesla’s emissions for the three scopes.

Tesla emissions by scope

For its Scope 3 emissions, Tesla measures two broad categories: product usage and supply chain.

Use of product emissions:
Tesla has access to primary data from its ~2 million vehicles on the road and a fleet of solar and storage products. Thus, it can calculate the emissions related to the use of the products each year with precision, and not only estimates.

Supply chain emissions:
The company has identified the materials and processes in the supply chain that are the main emitters. This means that the company can prioritize its commitment and its projects to combat these emissions.

100% Renewable Supercharger Network

Tesla’s global network of Superchargers was 100% renewable in 2021. Through a combination of its onsite resources and annual renewable consideration.

Additionally, all home charging in California was 100% renewable by annual renewable consideration.

Thus, the only emissions from the use of Tesla vehicles came from home charging outside of California. It can also come from the use of third-party charging networks.

Tesla’s Emissions Reduction Strategies

Decarbonizing the manufacture and use of electric vehicles

1. Build new, better-designed and more efficient factories. Building components require less movement, use fewer robots, and consume less energy.

Tesla energy consumption per vehicle produced

2. Covering the roof space with solar panels. All new Tesla factories are designed to be covered with solar panels. At the end of 2021, the manufacturer installed solar panels with a capacity of 21,405kW on the roofs of Gigafactory Nevada, Gigafactory New York and manufacturing plants in California.

3. Leverage AI to make factories more efficient. Tesla leverages 6 years of sensor data to train an AI program to safely control 195 interconnected HVAC units. In its first full year of operation, there are significant load reductions from baseline usage.

Increased use of vehicles

Tesla batteries are designed to outlast the vehicle. A vehicle is scrapped after approximately 200,000 miles of use in the US and 150,000 miles in Europe.

By creating a battery that can last 1,000,000 miles (4,000 charge cycles), Tesla helps reduce emissions per mile driven for high-mileage vehicles like trucks, taxis, or delivery vans.

Fleet-wide emissions reduction

Tesla semi-trailer

Tesla Semi offers an opportunity to have a significant impact on GHG emissions from transportation. Combination trucks, which are mostly semi-trailers, represent in the United States only 1.1% of the total fleet of vehicles in circulation.

But they consume a lot of fuel due to their weight and heavy use. In fact, they represent approximately 18% of all US vehicle emissions.

That’s why Tesla’s plan to electrify the heavy-duty segment as well is key to transitioning the world to sustainable energy.

Currently, cell availability is the limiting factor for full production. A Tesla Semi needs more cells than a passenger vehicle.

Accelerate the deployment of new factories via emission credits

Emissions credits or carbon credit revenue is used for Tesla’s electric vehicle capacity expansion, which in turn replaces ICEs.

In 2021, the electric vehicle manufacturer generated nearly $1.5 billion revenue by selling emissions credits to other OEMs. Proceeds go to building new factories to make more electric vehicles.

Tesla delivered almost 1 million electric vehicles world last year. Compared to other automakers, Tesla outperformed all others, as the chart shows.

EV produced in the world

There is, however, confusion among Tesla customers over the company’s claim that its cars produce zero carbon emissions. This led the German Consumer Association (VZBV) to sue Tesla recently.

VZBV claims that consumers have been misled into thinking that buying from Tesla will reduce the total emissions of all cars.

The emissions that Telsa has reduced by producing electric vehicles are bundled together and then sold as regulatory credits (carbon credits).

These carbon credits allow other car manufacturers to exceed the emission limits applicable to their vehicle fleets.

Potential Telsa consumers are only told about emissions rights on page 75 of its Environmental Impact Report, which can be downloaded from the website.

While it’s common for other automakers to buy carbon credits from Tesla to offset their emissions, it’s not a sustainable strategy. To meet stricter regulatory mandates around the world, an industry-wide transition to electric vehicles is crucial.

Tesla’s “Solar + Storage” Products and Supply Chain

Professional customers: Megapack and renewable energies (solar)

Combining energy storage with renewables enables cost-effective decarbonization of the grid. A single Megapack has an average 3,000kWh battery storage capacity value.

In 2021, Tesla began building a new production facility capable of producing 40,000,000 kWh of energy storage per year. This helps households depend less on the grid and avoid outages.

Tesla sold 4 GWh of energy storage products, more than 15% of the global market of 25 GWh in 2021. This includes projects in California and Australia.

Add to that Tesla’s Powerwall solar technology for residential customers. Installing rooftop solar panels can help reduce carbon emissions while saving customers on energy costs.

Supply chain: battery recycling

“What happens to Tesla batteries once they reach the end of their life?”

Before decommissioning and recycling a consumer battery, Tesla does everything in its power to extend the useful life of each battery. For example, they send over-the-air software updates to Tesla vehicles to improve battery efficiency.

Additionally, while Tesla works with third-party recyclers, the company also recycles in-house. On-site recycling enables the transfer of raw materials directly to the company’s nickel and cobalt suppliers.

The company’s cell recycling facility opens the cycle of innovation for large-scale battery recycling. This allows Tesla to improve current designs through operational learning and process testing of its products.

By the end of 2021, Tesla’s recycling facility has reached a production rate of more than 50 tons of recycled materials per week.

Prospects for Responsible Sourcing of the Battery Supply Chain:

In 2022, Tesla plans to continue to develop its responsible battery sourcing program and improve data points. Most importantly, on developing supply chain GHG emission reduction plans and future investments.

All of these emissions reduction initiatives allow Tesla to generate massive revenue in carbon credits. As the automaker continues to electrify the industry, it can expect more sales from regulatory credits.