A Bloomberg report has revealed what it dubs the "secret source" of Tesla's cash.
Tesla has been pulling in much-needed extra cash from the same competitors that it criticizes for relying on internal combustion engines. To achieve this, the company has been offloading federal greenhouse gas credits to GM and Fiat, according to disclosures made to the state of Delaware earlier this year.
The sales of hybrid Chevrolet Volts and all-electric Chevy Bolts have put GM in a position where they don't need the credits today, but they are buying them as a hedge against potential stricter future regulations, which could be a reality, especially if President Trump is dethroned by a
socialist democrat in 2020.
Mike Taylor, the founder and president of Emission Advisors, a Houston-based environmental credit consultant and broker said: “This might not be a bad hedge. If a Democrat gets elected in 2020, GM may need the credits and prices may go up.”
GM's agreement to buy the credits was dated February 25. A company spokesperson said that GM was buying the credits "as insurance against future regulatory uncertainties."
Fiat disclosed agreements with Tesla that were dated 2016, 2018 and early 2019. A spokesperson for Fiat said: "U.S. standards are getting stricter at a pace that far exceeds the level of consumer demand for electric cars that is required for compliance. Until demand catches up with regulatory requirements, and there is regulatory relief, we will use credits as appropriate."
In other words, more suffocating government regulation is inadvertently continuing to bail out the cash incinerating Tesla.
Since 2010, Tesla has generated an astounding $2 billion in revenue from selling these credits, a massive figure considering that the company has found a way to remain hugely unprofitable throughout most of the last decade. The company's home state of CA requires "carmakers to sell zero-emission vehicles, or ZEVs, in proportion to their share of the state’s auto market, which is the largest in the country."
If a company doesn't meet its obligation, it is required to purchase credits from competitors to make up the difference. Similar credit systems are run at the federal level by the EPA and NHTSA. Tesla CFO Zach Kirkhorn said during an investor call last month that credit sales would "be a more meaningful part of Tesla's business" in coming years. Because, you know, car sales are working out so well.
As a reminder, in Q1, Tesla reported that it had sold $216 million in creditrs. Even so, it still managed to post a loss of nearly three quarters of a billion dollars.
As we reported after the Q1 earnings release, without the credit sales:
- Gross profit wouldn’t have been $566 million but merely $350 million.
- Net loss wouldn’t have been $702 million but $917.6 million, which would have been its largest loss ever by far.
- Operating cash flow wouldn’t have been the whopper of a negative $919.5 million that it disclosed on April 24, but a negative $1.137 billion!
Further - isn't there an ideological roadblock in the minds of tree-hugging environmentalist Tesla-supporters, since the company is actually helping gas guzzling corporations like GM that have been deemed to be the devil? Shouldn't Tesla not be helping these companies buy their way to compliance?
And as if the credit situation wasn't bad enough (pun intended), a separate report by The Drive on Monday has detailed that Tesla's "commitment to the environment" may not be as robust as the company or its CEO Elon Musk have led many to believe. The expose reveals that Tesla recently gassed its neighbors with "at least four and a half days of unabated paint shop emissions" and that the company "failed to obtain air quality permits for new production lines and was unable to remain in compliance with air quality regulations" at its Fremont facility.
We guess it's yet another case of the private jet flying CEO saying "Do as I say, not as I do".