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Tesla Motors Profits from Other Automakers’ Emissions [UPDATE]

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Tesla Motors also Profits by Selling Off CARB Credits
Tesla Motors also Profits by Selling Off CARB Credits

Tesla Motors reported its first profitable quarter this year and looks to be well on its way to a second. Good news begets good news, and Tesla Motors stock reached a peak just shy of $60/shr yesterday.

Most of those profits are due to Tesla Motors getting to full production speed, which means they can sell more vehicles faster than before. Of course, you can’t sell if you don’t have a great vehicle, and the Tesla Model S is arguably one of the best on the market today. In California, part of those profits will be coming from the State of California in the form of Zero-Emissions Vehicle [ZEV] credits.

In order to sell vehicles in California, automakers have to produce a certain percentage of ZEVs, or they can buy credits. For each Tesla Model S sold in California, Tesla Motors receives up to $35,000 in ZEV credits, which it can then resell to other manufacturers who don’t produce enough [or any] ZEVs. Tesla Motors stands to make up to $250 million reselling ZEV credits. [see update]

Californian ZEV credits are given to automakers to who produce a certain amount of ZEV types, and has helped get many new cleaner vehicles into the state since the program started in 1990. According to the California Air Resources Board [CARB], in answer to the question “How many vehicles have been brought to and operated in California as a result of the ZEV Regulation?” A total of over 2.5 million vehicles including approximately 370 fuel cell vehicles, 10,000 battery electrics, 28,900 NEVs [neighborhood electric vehicle], 450,000 clean hybrids and 2 million clean gasoline vehicles.

Analysts claim California is partial to electric vehicles, giving them an unfair advantage in the marketplace. “At the end of the day, other carmakers are subsidizing Tesla,” said Thilo Koslowski*, an analyst at Gartner Inc. What’s the problem? Other carmakers need to get on the ball and start producing their own ZEVs, instead of whining that someone like Tesla Motors beat them to the punch.

*Mr. Koslowski failed to mention Honda, which transferred five times more credits than Tesla Motors did in 2012. Are other automakers subsidizing Honda, too?

UPDATE: In a shareholder letter, Elon Musk explained that last year Tesla Motors garnered about $68 million in ZEV credits. This amounts to 12% of net profits. Interestingly, Musk expects this number to fall off by the end of the year.

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