Tesla, known for its commitment to pure electric vehicles (BEV), has raked in an astonishing $9 billion since 2009, not by selling its own cars, but by aiding competitors in offloading internal combustion engine (ICE) vehicles. The company’s annual report reveals a thriving business model, centered around regulatory credits for zero-emission vehicles.
Regulatory Credits: A Lucrative Side Business
These regulatory credits act as “net” subsidies for automakers failing to meet zero-emission standards. Struggling companies, including Volkswagen, General Motors, Honda, and Jaguar Land Rover, turn to Tesla, purchasing these credits to avoid fines and regulatory complications. Despite Tesla’s exclusive focus on electric vehicles, it has become an unexpected savior for those clinging to ICE cars.
Booming Revenue Stream
Tesla’s financials tell an intriguing tale. In 2023 alone, the company pocketed $1.79 billion from these credits, contributing to a cumulative total nearing $9 billion since the venture began in 2009. Although the percentage of revenue from these credits might seem modest, the lack of associated costs means every dollar earned is pure profit, providing a substantial boost to Tesla’s bottom line.
Persistent Growth Despite Initial Predictions
Contrary to expectations, Tesla’s profits from these credits have not waned. Initially considered a temporary revenue stream, it has evolved into a consistent source of income. Despite predictions by then-CFO Zachary Kirkhorn that profits from credits would gradually diminish, the company witnessed an upward trajectory, with earnings surpassing $1.7 billion annually in both 2022 and 2023.
Future Prosperity Amidst Stricter Emission Standards
The future appears promising for Tesla in this unconventional business realm. With Europe implementing stricter emission standards from the next year and the UK gradually phasing out internal combustion engines starting in 2024, the demand for regulatory credits is poised to soar. The slowdown in electrification efforts by major automakers like Volkswagen and General Motors further ensures a continued influx of business for Tesla.
Conclusion: Tesla’s Hidden Revenue Stream
While Tesla continues to dominate the electric vehicle market, its unorthodox success in aiding competitors’ ICE sales through regulatory credits has become an unexpected and lucrative side business. As emission standards tighten worldwide, Tesla’s role as a credit provider seems set to expand, solidifying its position as a key player in the automotive industry’s evolving landscape.
www.bloomberg.com