Tesla managed to rake in $1.79 billion last year from selling regulatory credits to car manufacturers that failed to meet emissions standards. This means the EV leader has generated more than $9 billion since 2009 by selling credits.
Selling regulatory credits has proven to be a very lucrative business for Tesla as it effectively sells them at a 100% profit. In the U.S., California and more than a dozen other states require automakers to produce a certain number of zero-emission vehicles and those brands building such vehicles receive a certain number of credits depending on the type of vehicle, its range, and other factors.
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If a brand does not have enough of these credits each year, it can purchase them from another manufacturer. Tesla continually has excess credits and is more than happy to sell them to other automakers that exceed emissions standards. The Elon Musk-led company doesn’t only generate money from selling credits like these in the United States as similar programs operate in China and the European Union, Auto News notes.
Tesla knows that it won’t be able to generate free money like this in perpetuity as its EV rivals increase sales of their ZEV models. In late 2020, Tesla chief financial officer Zachary Kirkhorn said selling credits may have only remained a strong business for a few more quarters.
“What I’ve said before is that in the long-term regulatory credit sales will not be a material part of the business and we don’t plan the business around that,” he said. “It’s possible that for a handful of additional quarters it remains strong. It’s also possible that it’s not.”
Evidently, Tesla has been reaping the rewards of these credits for more than a “handful” of quarters and it is generating more profit than previously. Auto News points out that in 2020, Tesla made $1.58 billion selling regulatory credits and while that figure fell 7% in 2021, the brand sold more than $1.7 billion worth of credits in 2022.
