Elon Musk’s US$750bln electric vehicle company Tesla continues to earn vast profits on the carbon credit market, despite halving its sales in the latest quarter.
According to earnings results published on Thursday July 21, Tesla made US$344mln from these credits (compared to US$679mln in the previous quarter), presumably with few operating expenses involved.
Alco called regulatory credits, carbon credits are government-issued corporate incentives to develop eco-friendly automobiles.
Tesla being the EV giant that it is, obtains a stockpile of these credits and being tradable, regularly sells them on to automotive manufacturers with less-green credentials.
In the past five years, Tesla has earned over US$5bln by selling carbon credits.
Tesla first started profiting from carbon credits in 2017 — Source: carboncredits.com
In the last trailing twelve months (TTM) alone, Tesla generated US$1.6bln in revenues from selling carbon credits, comprising approximately 10% of its US$16.1bln underlying earnings.
While only a drop in the bucket against automotive revenues, these sales constituted over 50% of free cash flows in the latest, cash-strapped quarter.
Tesla’s strategy of earning big money on the secondary carbon credit market contrast’s with CEO Elon Musk’s oft-stated green philosophy.
A philosophy which led to Musk removing Bitcoin as a Tesla payment option in May 2021.
The company does not disclose exactly who buys these credits, but a 2019 Bloomberg report cited Detroit manufacturers General Motors and Fiat Chrysler as key customers.
It stands to reason that the biggest polluters would be the biggest buyers of Tesla’s carbon credits, due to the need to offset their hefty emissions.
Despite this contentious revenue line, Tesla continues to ramp up its renewable credentials in other ways.
According to latest earnings figures, the company increased its solar deployments by 25% year on year, while Tesla’s large-scale battery operations in South Australia preempted a mini renewables revolution in the state.
Short sellers ditch Tesla
Tesla’s reliance on selling regulatory credits to generate revenues drew the ire of Michael Burry, the famed short investor played by Christian Bale in Adam McKay’s 2015 firm The Big Short.
As head of Scion Asset Management, Burry opened a US$534mln reverse bet on Tesla in early 2021, though he has since exited the position and no longer holds TSLA in his portfolio, short or long.
Whether Burry profited from the short position is not clear; Tesla shares doubled in value in the second half of 2021 and despite more recent volatility, is still up against 2021’s first quarter.
As for TSLA’s latest performance, shares were up 1.49% in Friday’s pre-market trade.