It is no great surprise that Tesla hemorrhages cash. As we pointed out last month when they reported 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, the one 'product' which Tesla is actually able to sell for a profit is one which was created out of thin air by the state of California and is perhaps the only reason that Elon Musk even has a business to manage. Of course we're talking about the ever controversial "Zero Emission Vehicle" credits which are less of "product" and more of a subsidy provided by Tesla's competitors, or more accurately the consumers of those competitors who are forced to pay higher prices for their Ford Focus all so Elon Musk can practice digging tunnels.
Tesla Inc. has generated nearly $1 billion in revenue the last five years from an unlikely source: Rival automakers. The payments are part of an unpopular system in California that’s poised to proliferate elsewhere.
California requires that automakers sell electric and other non-polluting vehicles in proportion to their market share. If the manufacturers don’t sell enough of them, they have to purchase credits from competitors like Tesla to make up the difference.
Tesla, which exclusively sells battery-powered models, sold $302.3 million in regulatory credits last year alone. China and the European Union -- two of the world’s biggest auto markets -- are considering mandates and credit systems similar to California’s. If California is any guide, automakers will resent having to buy from peers, including the electric-car maker led by Elon Musk.
“It really makes them mad that Tesla got so much of a boost out of being the only purely electric car manufacturer out there,” Mary Nichols, the chair of the California Air Resources Board, said in an interview Friday at Bloomberg’s headquarters in New York. “In effect, they helped to finance this upstart company which now has all the glamour.”
Going back to early 2013, selling these credits has increasingly padded Tesla's earnings, taking them above consensus forecasts on more than just a few occasions:
The irony, of course, is that a recent study from Morgan Stanley illustrated how "zero-emission" vehicles like Teslas actually generate more CO2 than they save...perhaps California's politicians were under the impression that electricity just magically flows from wall sockets instead of being produced by coal and gas-fired power plants?
“Whilst the electric vehicles and lithium batteries manufactured by these two companies do indeed help to reduce direct CO2 emissions from vehicles, electricity is needed to power them,” Morgan Stanley wrote. “And with their primary markets still largely weighted towards fossil-fuel power (72% in the U.S. and 75% in China) the CO2 emissions from this electricity generation are still material.”
In other words, “the carbon emissions generated by the electricity required for electric vehicles are greater than those saved by cutting out direct vehicle emissions.”
Morgan Stanley calculated that an investment of $1 million in Canadian Solar results in nearly 15,300 metric tons of carbon dioxide being saved every year. For Tesla, such an investment adds nearly one-third of a metric ton of CO2.
Oh well, at least as taxpayers we're all doing our part to help pollute the earth and simultaneously enrich one eccentric billionaire in Silicon Valley...which presumably makes sense to some politicians in Sacramento.