‘Regulatory credits’ boost Tesla profit and its CEO’s wealth.
"Elon Musk on Thursday became billions of dollars richer after a strong earnings report caused Tesla Motors’ stock to pop. Congratulations to Democrats, whose green-energy subsidies and mandates are enriching the man they hate most after Donald Trump.
Tesla beat forecasts with a $2.2 billion profit in the third quarter, a 17% increase from a year earlier. Look under the hood, and you’ll find subsidies are driving its profits. Auto sales increased by a mere 1% compared to the same quarter last year while “regulatory credits” grew 33%. Such credits accounted for a third of its profit.
If auto makers fail to meet California’s electric-vehicle quotas or the Environmental Protection Agency’s greenhouse gas emissions standards, they must buy compliance credits from manufacturers with a surplus—namely, Tesla. More auto makers are struggling to meet these EV mandates amid slowing demand and an EV market glut.
They are scaling back EV production plans and instead buying credits from Tesla because this is less expensive than making cars at a hefty loss. Tesla says it is booking more regulatory credit sales “as other automobile manufacturers scale back on their battery electric vehicle plans.” Their EV woes are Tesla’s gain.
As EV mandates ratchet up—California requires that they [EVs] make up 68% of auto maker sales by 2030—the value of Tesla’s regulatory credits will increase. Could this be one reason Tesla is trading at two to three times the forward earnings multiple of high-flying tech stocks? Investors may be betting on rising government mandates and subsidies.
Tesla also benefits from the Inflation Reduction Act’s $7,500 per EV tax credit, which we calculate amounted to about $1.25 billion this past quarter, and consumer EV rebates in some states. Tesla says it was owed $315 million in rebates at the end of the last quarter. And don’t forget the IRA’s manufacturing tax credits for solar panels and batteries, which is Tesla’s fastest-growing and most profitable business.
These credits can offset more than a third of the cost of producing batteries for EVs and power storage units. California and other states are using Tesla batteries to back up their grids as they strive to meet climate mandates. Tesla says IRA manufacturing credits boosted its energy generation and storage margins and that it expects this business to more than double this year.
It’s amusing to hear Democrats now howl that Mr. Musk is benefiting from their government largesse. Here’s a novel idea: Scrap all climate mandates and subsidies. That way Tesla can succeed or fail on its own merit."
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