Stellantis, the amalgamation of PSA Peugeot Citroen and Fiat Chrysler Automobiles, last year bought $US2.4 billion ($A3.1 billion) of regulatory credits from Tesla, supercharging the EV company’s bottom line.
It wasn’t the only car-maker to buy the credits from Tesla with General Motors and Honda also contributing to Tesla’s bottom line while appearing to meet stringent emission regulations.
Volkswagen’s joint venture car-maker business in China with state-owned FAW is another that has agreed to buy credits from Tesla until FAW produces its own EVs.
Tesla reported annual net income in 2020 of $US690 million ($A886 million) and in the first quarter of this year, a huge $US438m ($A562m).
In the same period, the company sold regulatory credits of $US1.58b ($A2b), according to an article in Forbes.
Forbes also said that last year, Tesla posted a gain of $US101m ($A130m) after selling 10 per cent of its $US1.5b ($A1.9b) investment in Bitcoin.
The first-quarter proceeds from credit sales was $US518m ($A665m), effectively meaning the business of making and selling EVs was $US80m ($A103m) in the red.
Now Stellantis wants to wind back its credit payments as it boosts the number of EVs it plans to sell.
The company now makes a range of EVs including the Fiat 500e, Citroen E-C4, Peugeot 208 and 2008, and plans another 17 electrified models this year before marketing 40 models by 2025.
The PSA portion of Stellantis met its emission targets in Europe in 2020 and didn’t draw on Tesla’s credits but the FCA side was a large user. However that will also change as Jeep, Alfa Romeo, Chrysler and Dodge plan electrified vehicles.
The emission credits are based on a carbon tax applied by states in the US and countries in Europe. Because Tesla’s EVs emit no carbon or exhaust pollution, it can bank credits on each car that it sells.
The price of each credit is negotiated between Tesla and the buyer but has never been disclosed on a per-car basis by Tesla.
Forbes said that as Tesla no longer has a public relations department, it wasn’t able to get a response from the company.
The primary source of information from Tesla comes from the Twitter account of its CEO, Elon Musk, who has not mentioned income from credits.
But Tesla chief financial officer Zachary Kirkhorn, speaking at the company’s financial update earlier this year, said credit sales were “too unpredictable” to give shareholders any firm expectations.
“This is always an area that’s extremely difficult for us to forecast,” he said at the briefing.
“The 2020 regulatory credit sales ended up being higher than our expectations, and it’s difficult to give guidance on that.
“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.
“It’s possible that for a handful of additional quarters it remains strong. It’s also possible that it’s not.”
Since 2008, Tesla has reported cumulative credit sales of $US4.4b ($A5.7b) but $US2.69b ($A3.5b) of that has come onto its books only since 2019, the time when the company had a large profit jump.
Commenting on that, and the Stellantis announcement to reduce its credit purchases, Forbes said: “Whether Musk’s EV powerhouse can stay profitable without those funds after 2021 remains to be seen.”
It quoted the London-based equity analyst for Jefferies, Philippe Houchois, as saying: “The credit income is a legitimate source of income – that’s Tesla playing out the regulations against their competition – but if you strip it out, Tesla profitability is, to be kind, not very good.”
By Neil Dowling
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