It's worth a review if you think the emission credits point is a substantial criticism of their business model. Also, bear in mind that they are a growth company, and are building two major factories concurrently (Austin, Berlin). If they didn't have emission credits as part of the revenue blend, they might slow down the growth a bit as a result. The point being that taking away emission credits would not necessarily mean they would elect to be not profitable.
To me this reads like minus credits and bitcoin, they'd have to scale down R&D in order to break event which would probably push back FSD and delivering on all of their pre-ordered promises again? Which I would assume increases the risk of people canceling and registering as negative revenue? How "normal" is their cost of revenue and sales/admin/overhead in the car industry?
Unless I'm reading that graphic incorrectly, isn't it only a $24m delta? i.e. credits + bitcoin profits are only $24m greater than their operating profit?
On the scale of Tesla, that feels like a tiny amount - for which they'd dip into their war-chest and not slow anything down at all?
seems a little goofy to put credits at the top and not in order of size like the rest of the chart, but that's my only criticism. It does a good job illustrating that the fact that profit ~= credits is largely coincidental
"Much" may even be an understatement here; according to the WSJ article,
> sales of regulatory credits to other auto makers to help them meet emissions mandates, which carry a 100% profit margin, reached $518 million. That accounts for nearly 100% of Tesla’s $533 million in pretax income
it sounds like "almost all" would be a reasonable description.
Tesla had a 24% gross margin in Q1. They made a massive amount of money selling cars. They also had a massive amount of R&D and capital expenditures. The emissions credits required R&D and capital expenditures in prior years so you can't say that the R&D and capital expenditures should only be charged against vehicle sales and not emissions credits.
Tesla's Q1 also included a massive number of transient expenses (like Musk's stock options) that were significantly larger than transient income like emission credits.
They also spent $1,491 million on R&D. "Much" is more correct than "almost all", which implies that profit is just the leftovers once expenses are subtracted.
Profit and expenses are choices; the fact that a firm puts all its revenue into SSG&A and R&D does not mean that they can't be profitable. If Tesla's revenue decreased by $533 million, they would probably still target $300-400 million in profit by adjusting their spending. They would do that because even at a lower revenue it still benefits them to report profit, and that benefit is still there even if they spend less on other things.
If a $533 million decrease would not lead to $0 profit, then it doesn't make sense to say that their profit comes from credits. It only makes sense to say that 7% of their revenue comes from credits, and that a significant (but not all, and probably less than half) part of their profit comes from credits.
If we accept that emission credits are intrinsically valuable (i.e. have some utility in the form of helping to reduce the adverse effects of Global Warming), I do not see why that is an issue. You can think of a portion of each credit as part of the utility of one actual Tesla car sold.
Only an issue if you're an investor. The expectation is eventually that revenue stream will dry up. The question is if Tesla will be able to build it's other revenue streams up to replace it.
It's also somewhat volatile, as there aren't guaranteed purchasers for the credits. Recently, one of the biggest purchasers from Tesla (Stellantis) announced that it would stop buying credits entirely.
Yes one of the other companies would could have sold credits, is now no longer in the market making there be less credits on the market. Crazy how that works.
People telling me not to invest in Tesla have been telling me 'credits will go away next year' since 2015. Yes, eventually it goes away, but anybody that actually reads the sheet knows that Tesla doesn't depend on these credits.
As an long term investor I don't care about profits each quarter for a company like Tesla.
You either believe its priced in and don't care, or you believe its not priced in and shouldn't be holding it for that reason. If you're not thinking at the level of second order changes in a company's trajectory you're not really an investor so much as a gambler or someone looking to park their money out of cash.
100% agree, just explaining why it matters for some people. Personally, I think TSLA is overpriced (not because of this though) so I'm not buying, but I won't be mad if proven wrong.
Fiat-Chrysler was in the past a large purchaser of Tesla CO2 credits. I haven't followed the news, so I don't know if that is still the case. CO2 credits are a thing in Europe, though.
https://pbs.twimg.com/media/E0ES_LuX0AED-eo?format=png&name=...
It's worth a review if you think the emission credits point is a substantial criticism of their business model. Also, bear in mind that they are a growth company, and are building two major factories concurrently (Austin, Berlin). If they didn't have emission credits as part of the revenue blend, they might slow down the growth a bit as a result. The point being that taking away emission credits would not necessarily mean they would elect to be not profitable.