Zero-Emission Vehicle Credits: The One 'Product' That Tesla Actually Earns A Profit On

As we pointed out last week when Tesla reported its Q2 earnings, making products that actually generate a return on capital for shareholders isn't a strong suit of the Silicon Valley powerhouse.  In fact, Elon Musk managed to burn through a record $1.2 billion of cash in Q2 alone, or roughly $13 million dollars every single day.


But, as Bloomberg points out today, there is at least one product where Tesla manages to earn a staggering margin of roughly 95%.  It's called a Zero-Emission Vehicle (ZEV) credit and it's pretty much the only reason that Tesla managed to 'beat' earnings in Q2.

I'm referring to zero-emission vehicle, or ZEV, credits. California and several other states require that a certain proportion of the vehicles sold by an automaker emit no greenhouse gases. These cars earn the automaker credits, and if they don't have enough to meet their quota, they can buy extra ones from someone who does. As Tesla only makes vehicles that run on batteries and emit nothing, it usually has a surplus for sale.


The profit margin on these is very high, perhaps 95 percent. The implied $95 million of profit equates to about 58 cents a share. Tesla reported a loss of $1.33 per share this week -- beating the consensus forecast by 55 cents.


This isn't the only time ZEV credits have played a big role for Tesla. Looking back to early 2013, selling credits has given Tesla's earnings extra oomph in many quarters, likely taking them above consensus forecasts in some (on an implied basis, assuming that 95 percent margin):


After selling $0 worth of ZEV credits in 1Q 2017, Tesla managed to sell $100 million worth in 2Q with roughly $95 million, or $0.58 per share, flowing straight to the bottom line.

Of course, this isn't the first time that ZEV credits played a huge role in padding Tesla's earnings.  Who can forget Q3 2016 when a $139 million in sales pushed Tesla's earnings into positive territory for the first time in years?

One notable period there is the the third quarter of 2016. This was the one where CEO Elon Musk exhorted his employees to "throw a pie in the face" of Tesla's critics by delivering thumping results. It worked, although at the cash-flow level it also owed quite a bit to suppliers.


But ZEVs provided a big tailwind: At $139 million, Tesla booked more revenue from selling the credits that quarter than any other. Using my margin assumption, they added 84 cents per share to earnings, turning a loss of 13 cents into a profit of 71 cents.


In short, as taxpayers we're all doing our part to help the environment by enriching one eccentric billionaire in Silicon Valley...which presumably makes sense to some politicians in Sacramento.


LindseyNarrate… (not verified) Mon, 08/07/2017 - 23:09 Permalink

Would someone please explain to me, why it is that SO MANY people shit-talk and insult Genius Musk, when he has produced some of the most impressive inventions, and made-better so many others, in our history? I really would like to know, and to understand, what people's problem(s) with him is/are. Lindsey

slithering LindseyNarrate… (not verified) Mon, 08/07/2017 - 23:16 Permalink

People don't like that his businesses are only viable under heavy government subsidy. All of his businesses require govt. help - to the point where it seems he actively seeks out means by which to extract money from the government in a rent-seeking fashion.His businesses are also over-valued, but that is more a function of the current market than Elon's fault. 

In reply to by LindseyNarrate… (not verified)

Cognitive Dissonance slithering Mon, 08/07/2017 - 23:35 Permalink

So the banking, petrochemical, pharmaceutical, defense, colleges, aerospace, farming, oil and gas industries to name just a few don't also rely heavily on gvt subsidies? You mean none of these industries make strategic decisions based upon what they can milk from the taxpayer?Musk is just the latest to milk the public cow for all it has.Take away all gvt money from the oil and gas industry and it collapses in a week. Or at least its profits do.

In reply to by slithering

not dead yet Cognitive Dissonance Tue, 08/08/2017 - 04:30 Permalink

All those businesses you claim are on the dole are getting tax breaks for the cost of doing business available to all companies including Tesla. The true believers like to point out the large numbers of "subsidies", that really aren't subsidies, the energy companies get but it's a drop in the bucket compared to how huge that business is. There are boom and bust cycles in the energy business, autos too, but on the whole the energy companies are also the largest taxpayers on the planet and the carmakers pay plenty while Tesla racks up loses with no end in sight. The energy companies also pay big bucks into the government coffers for all kids of permits and exploration leases and drilling fees if oil is found. They also pay millions for enviro studies, for each project, that end up looking like a full set of encyclopedias. Musk gets to sell credits from his "non polluting" cars so others can sell their ICE vehicles that pollute less than the Muskmobiles.Take away the buyer subsidies and Tesla sales evaporate. Take away the solar subsidies and the Solar City, litterally overnight like in Nevada and Britain, closes up shop and fires all it's workers and sets up in a subsidy state,Over half of the so called farm subsidies go to agri processors not the farmers. For the farmers most "subsidies" are for crop insurance and price support. While your boy Musk can play milk the taxpayer for years a farmer can get wiped out in minutes after spending big bucks for seed and fuel. Imagine going all summer watching your crops blossom and then an early freeze and it's all fodder. Or those nice apples almost ready to be picked destroyed in a hail storm. Floods and droughts. Most revolutions get started by hungry people which is why first world governments do things to keep their farmers working and you get cheap abundant food as a result. Much is made of paying farmers not to grow but those programs are used mainly by rich non farmers buying land and getting paid not to grow. Since the government rarely checks, and the rich know this, they turn around and rent the land to a real farmer who grows crops.

In reply to by Cognitive Dissonance

Jethro Jersey_Mountaineer Mon, 08/07/2017 - 23:28 Permalink

I'D settle for a consumer product that wasn't just re-branded, repackaged tech.The ZEV credits are dubious at best.  They just assume emissions from point of sale to decommission?  What about the material input stream?  Waste stream?  What about the material stream for electrical generation?Shooting rockets off, and landing them is cool as hell.  I'm willing to cut him some slack on that.  The cars?  Not so much.  None of his ventures should be backstopped with taxpayer funds.

In reply to by Jersey_Mountaineer

adr LindseyNarrate… (not verified) Mon, 08/07/2017 - 23:23 Permalink

Really? I hope you're not serious. The quick list:Bought game code off one of his friends for a few hundred bucks, sold it to EA for just over $100k. Didn't give his "friend" anything. Game went nowhere. Didn't actually code or create PayPal. Bought it off a guy and sold it to Ebay for billions. At the time PayPal wasn't profitable. Didn't start Tesla or SpaceX. Neither are profitable and will never be Started Solar City so he could make family members billions by scamming government credits. Solar City was not and will never be profitable. Supposedly drew Hyperloop on a napkin and gets credit for creating a revolutionary new transportation system, which already existed in science fiction for over 100 years. The system will never really work. Musk is the biggest corporate welfare queen of the past 50 years and never created anything himself. He uses the ideas of others and takes the credit and the Wall St cash while giving the public garbage in a fancy wrapper.  

In reply to by LindseyNarrate… (not verified)

not dead yet adr Tue, 08/08/2017 - 04:42 Permalink

Actually a couple of brothers created Paypal. Musk was developing a business they felt could help them so they gave Musk some cash and Paypal stock to get it. Eventually they shut down the Musk aquisition as it was a loser but Musk got fithy rich with the Paypal stock they gave him.

In reply to by adr

I love your wife LindseyNarrate… (not verified) Mon, 08/07/2017 - 23:38 Permalink

He gave us Paypal.  Thank you, Elon.  Space X I have no problem with, but it's only customer is Government (currently only the US).  Tesla is a great idea but also only viable through huge .gov subsidies.  Also, heavily reliant on a rare Earth resource (Lithium) that may not be less polluting in the long run, and certainly isn't less expensive.  With Tesla I consider him like Howard Hughes.  Using .gov to pioneer tech.  He's subsidizing his work with solar tiles that also require a subsidy to be affordable to customers ($15000).  Solar is shit in my opinion, and only popular from the hype.  No matter what lies you've heard it still costs $30K per house to hook up.  You only feed the grid and it doesn't effect the generation, transmission, or taxes on you bill.  Only the usage.  Elon is basically sitting up a civilian version of the Military Industrial Complex.

In reply to by LindseyNarrate… (not verified)

Deep_Out-of-th… LindseyNarrate… (not verified) Tue, 08/08/2017 - 01:11 Permalink

Musk is essentially an opportunist. He saw a government supporting the "green" movement with some ridiculous subsidy policies, then he built a suite of businesses designed to extract the maximum amount of subsidies possible. Being a great salesman, many investors were sold the dream too, going along for the ride. The problem is that this has led to a massive misallocation of resources. Businesses that make no sense are supported by government and idiot investors, all the while consuming scarce resources that could be put to better use. It has all the same problems that we criticise in centrally-planned economies, what we saw in the soviet era and what we are seeing nowadays in China, the taking of $10 worth of raw materials and producing $7 worth of finished product. Of course no rational person would do such a thing, although since the government is providing a subsidy of $4 per unit, it is "profitable".For what it's worth, I've been rather critical of Musk in the past, although perhaps unduly so. I suspect that if I myself had the opportunity to do what he is doing, I would probably do it too. The blame should be focussed squarely on bad government policy that allows a man like Musk (if it wasn't him, it would be someone else) to profit from collecting subsidies by peddling spurious "technology" and propagating economic loss.That being said, Musk is really a symptom, not a disease. Unfortunately he is the poster child for all that is wrong with green subsidies, hence he bears the wrath of economic conservatives. Since this is ZeroHedge, most of us here are economic and/or social conservatives, therefore it is unlikely that you will come across many Musk fanboys here.I hope that answers your question.

In reply to by LindseyNarrate… (not verified)

LindseyNarrate… (not verified) Deep_Out-of-th… Tue, 08/08/2017 - 02:36 Permalink

I sincerely appreciate all of your input, Folks, and while I have a genius-level IQ, and have been "in-the-game" for about 20 years, my knowledge-base can not possibly include knowledge on EVERYTHING, nor EVERYONE, so thank you for politely, and eloquently, explaining your positions; I sincerely appreciate it. Lindsey

In reply to by Deep_Out-of-th…

not dead yet Simplifiedfrisbee Tue, 08/08/2017 - 05:01 Permalink

Giving tax breaks to lure a company is common place all throughout business. Musk is getting billions from the state of Nevada of which he is selling some to other companies, MGM for one, for cash so those companies can avoid paying taxes and he gets cash to stay afloat. If a company does not locate in your area you get zero, zip, nada, but if a break on future taxes lures them you get jobs with tax paying workers that create other jobs with taxpaying workers. Construction and infrastructure jobs too. The state of New York spent hundreds of millions on a factory and gave it to Musk for free. You Musk lovers grab at every straw to jusify your Musklove.

In reply to by Simplifiedfrisbee

not dead yet LindseyNarrate… (not verified) Tue, 08/08/2017 - 03:56 Permalink

Care to tell us what impressive inventions Musk has brought us? The battery tech is all Panasonic which makes the cells that Tesla packages in a case and is supplying the know how for, and supervising the construction of, the Nevada battery factory. The Autopilot and self driving tech is Nvidia and Mobileye. The new self driving system which on new Tesla's can be had as standard or extra cost cannot be used until someone develops software to make it work. Musk says that it will about a year from now. Other than that all you have is an update of a vehicle that was first produced over 100 years ago. The first Tesla, the Roadster, was a Lotus with an electic motor and battery installed instead of an ICE. Space X and all those in the rocket business, there are quite a few, all use technology that was paid for with your tax dollars. The NASA program also spawned suppliers and facilities for the space program which allows Space X and the others off the shelf access to equipment for their rockets and a place to launch them. Space X has landed a rocket or 2 on a barge on the water but Blue Origin, a venture of Jeff Bezos, has landed at least 4 on dry land. The state of New York built a produciton plant, for hundreds of millions, and gave it to Solar City for free to manufacture solar panels which they don't do now. Making solar panels is a loser as the Chinese have run most of the panel makers out of business and what's left is in dire straits so Musk is going to use that factory, in partnership with Panasonic, to make cells. The Powerwalls Musk touts are not a new invention and there are others in the business who have been making these long before they were a gleem in Musks eye. Hyperloop and Mars Colony? All are ideas promoted long before Musk was born. Governments around the world are in the process of passing legislation to ban sales of all but "non polluting" new cars in the next 20 years or so. The mainstream car companies knew years ago this was coming thus their bringing electric cars to market. Yet the true believers claim that anyone making an electric is doing so because of Tesla and are making them because they are afraid Tesla will run them out of business. Musk has all these grand plans for battery plants around the world but the Chinese are in the process of constructing at least 6 of them, for starters. There are also others who make batteries to compete with Musk that have been in business for quite awhile. Instead of being Tesla's savior those plants Musk wants to build could be white elephants leading to Tesla's demise, if they get built at all. Also Musk did not invent Tesla and did not invent Paypal which many ignorant people like to believe.

In reply to by LindseyNarrate… (not verified)

Gen. Ripper Mon, 08/07/2017 - 23:21 Permalink

I have a small business. Used my own money instead of taking SBA 7-A loans with their onerous requirements.

This fucking foreign Jew gets billions of taxpayer money without strings.

Yen Cross Gen. Ripper Mon, 08/07/2017 - 23:32 Permalink

 Good on  ya. I don't have any debt either. I was on the phone with an Attorney a couple of days ago, to deal with a deadbeat landlord neighbor. I asked him if I could pay in gold bullion. He thought I was crazy, and said he wants to be paid in money he can use at the store. I then reiterated, gold is money. Needless to say, attorneys are as dumb as a bag of hammers, when it comes to finance. Landsharks = Attorneys.

In reply to by Gen. Ripper

PrezTrump Mon, 08/07/2017 - 23:22 Permalink

The TSLA scam seems to be spreading to more mainstream websites.  Any bets that the fall of TSLA will be the trigger for an 'old normal' drop in general markets?

wisefool Mon, 08/07/2017 - 23:30 Permalink

Everytime I see this tool box (elon musk) I think he is algore.Specifically: sub 110 I.Q. douchebag who fights the demons of his legacy carbon foot print vs. a new world where turbo timmah is the only man who can save us from the financial crisis of 2008.Thanks Obama. Please come back and save illinois!

Yen Cross Tue, 08/08/2017 - 00:01 Permalink

 I have a couple of friends like Elon Musk.  They can't sit still for more than five minutes, and are completely unable to stay focused on anything, for an extended period of time. The guy clearly states he takes anti-depressants. This is a classic situation where "narcissist" uses power/money to control individuals that are smarter.  In order to make/plan -execute an idea, requires a huge amount of patience.  [ Ideas need to be tested, and evaluated]  Elon Musk is a passive aggressive prick, that hires smart people to do jobs he's incapable of doing himself.

moorewasthebestbond (not verified) Tue, 08/08/2017 - 00:24 Permalink

Yeah right. Tesla's get plugged into coal-fired and natural gas-fired powerplants on a daily basis.

flyonmywall Tue, 08/08/2017 - 00:28 Permalink

Let me explain to you some basic science.Lithium ion batteries have a cobalt oxide cathode. The lithium is in the anode. The electrons flow from the cathode, which donates the electrons in order for them to do work, and the lithium ions flow the opposite way, to the cathode.There may be other cathode substitutes in the future, but right now, every Tesla battery pack uses a combined total of about 19 kg of cobalt. Multiply that by the 500,000 per year your dear friend Elon Musk wants to build, and that is 9500 tons of cobalt. There are only about 120-130k tons of cobalt extracted on the planet per year, and they also have other uses for alloys.So, if every fucking moron on the planet wanted an electric car right now, there isn't enough. Tesla will use roughly 10% of all the cobalt on the planet. The bullshit environmental meme that all the blowhard enviro-nazi-anti-oil idiot spews out is that mining and oil extraction are "dirty" industries, but they don't tell you that cobalt mining is a dirty business.… hypocrites. 

JailBanksters Tue, 08/08/2017 - 00:59 Permalink

So the only reason they are profitable is because they are paying less Tax.If you were in Australia and had an electric car, to save the planet, you'd becreating more pollution than burning petrol.The majority of power generation comes from burning Coal or Oil.So these Electric Cars are powered by Coal.In America it's different, they are creating more Toxic Nuclear Waste to save the Planet. 

Freedumb JailBanksters Tue, 08/08/2017 - 01:11 Permalink

The only reason anything in the US is profitable is due to a tacit "industrial policy" which I seem to recall being ridiculed as recently as the 90s in mainstream western economics, EVERY viable sector in the US economy now is propped up by industrial policy with a heaping dollop of cronyism: (1) Military Industrial complex; (2) Public sector/government; (3) Healthcare; (4) Tech sector; (5) Banking. That is ALL we've got left folks, and all these sectors are so dependent on tax loopholes and direct/indirect government subsidies, they would collapse in any real free market economy. The tax loopholes and subsidies are also complex enough that they act as a barrier to entry for new competitors. That is by DESIGN at this stage rather than stupidity, the objective is to strip mine the country. Much healthier and long term sustainable economies exist in e.g. Switzerland or Germany as things currently stand: highly specialized, middle sized (in German they call it the "Mittelstand") companies which tend to spend their energy focusing on becoming even more specialist in what they do, rather than broadening the scope of their activities. I think that is more sustainable than the artificial monopoly incentivizing industrial policies we see in the US.

In reply to by JailBanksters

JailBanksters Freedumb Tue, 08/08/2017 - 02:15 Permalink

People are living in WongalandIs there anything in the US that is NOT subsidised ?Subsidising is a form legalized stealing, the Government takes your Tax money and gives it the Corporations, so you don't have to pay as much out of your wallet.Tax Payers are paying Shell Oil to drill for more holes ! If it wasn't for all the susidies, Americas Gas Price at the pump would be near the top of the most expensive countries. They are socializing their losses and privatizing their profits right under your very nose.   

In reply to by Freedumb

Bob Beachcomber Tue, 08/08/2017 - 01:41 Permalink

If you fill out the paperwork like Elon, make sure you add a few more zeros before the decimal.  There is no such thing as zero emissions unless you have zero brain cells. 

Golden Showers Tue, 08/08/2017 - 02:38 Permalink

Elon, Elon, you stupid bitch. I've watched you with your schlubby ugly fat greasy body and your John Travolta ugly palooka fucking face trying to lie all day about what a slick dude you are with your cars and your junk stocks and I just want to say I find you repulsive in my gut. There is something fake, something patently bullshit about you and I want you to know that there hasn't been one thing you have done that has affected my life in any way-except to say that I've only heard about your bullshit on NPR. I've laughed at your stupid cars exploding, I laugh at your stupid space vehicles, and I think you are a total jerk-off faker.You look exactly like the drunkest man in Tucson to me and I laugh because I know you are really a clone. So who the fuck cares about your grab ass re-creating the wheel because your stupid engineering couldn't hold a candle to a prius and you are wanking your stinky dinky in my face all day about nothing.Fuck you Elon you stupid asshole. Get a job.