Eleven US states require car makers to sell a certain percentage of zero-emission cars by 2025, and if they can’t, car makers must purchase regulatory credits from another car company that meets these requirements, such as Tesla, which exclusively sells electric cars.
This is a lucrative business for Tesla, as it has generated $ 3.3 billion for the company over the past five years, about half of it in 2020 alone.
Teslas $ 1.6 billion regulatory appropriations last year exceeded its net income of $ 721 million, meaning that Tesla would have recorded a net loss in 2020 without it.
“They are losing money selling cars. They are making money selling credits. The credits are wiping out,” says Gordon Johnson of GLJ Research of Tesla.
Senior Tesla executives also acknowledge that the company cannot count on the continuation of this source of cash. “This is always an area that is difficult for us to anticipate. In the long term, regulatory credit sales will not be a part,” says Zachary Kirkorn, Teslas chief financial officer. Physically from the business, and we’re not planning to work around that. It will probably remain strong in a few additional chapters. It also probably won’t be. ”
The 11 states that require a certain percentage of their cars to be emissions-free, or for automakers to buy credits from a company like Tesla, are California, Colorado, Connecticut, Maine, Maryland, Massachusetts, New York, New Jersey, Oregon, and Rod. Island and Vermont.
The company announced revised net income for 2020 of $ 2.5 billion, excluding items like equity compensation of $ 1.7 billion. Its gross profit from cars, which compares total revenue from its auto business with the expenses directly related to building the cars, was $ 5.4 billion, even excluding revenue from sales of regulatory appropriations.
The company’s free cash flow of $ 2.8 billion was 158% higher than the previous year, a dramatic shift from 2018 when the company was burning with cash and facing the risk of running out of funds.