Tesla is in the business of selling emission credits, not just cars | Hacker News Reader

Tesla is in the business of selling emission credits, not just cars

twitter.com

29 pointsnotRobot39 comments

In case it goes away, or if you're international and can't see, this seems like a good usage of Community Notes for added context and is currently published:

  Regulatory Credits on account for a small percentage of Tesla Revenue.

  2020: 6.2%
  2021: 3.2%
  2022: 2.7%

  As of FY Q3 2022 Credits were only $287m against profits of $3.3b

  https://twitter.com/FonsDK/status/1591489889924976640
  TSLA Q3 2022 IR Deck: shorturl.at/mow47

He added some context specifically about that note:

https://twitter.com/stealthygeek/status/1596605162294218753

It would be interesting to see the % of profit over time from regulatory credits, which appears to be what the author is focusing on.

Is that context or just an admission that he's wrong?

Not sure, it depends on what the numbers look like going back to the founding of the company. Tesla probably wouldn't have survived in the past without the credits, but as others in the comments noted the point of the credits is to enable companies selling EV's to survive and grow during their difficulties in the switch to EV's. So I definitely wouldn't consider this a mark against Tesla, the credits are doing what they're supposed to, to an extent.

> Listen, weird nerds and $8 blue checks, I don't care about the 3rd Quarter of this year. I'm talking about the history of the company, its foundations and how it arrived where it is now. Which is a story most people clearly didn't know.

Wow, does he seem salty when called out. You can't untangle these profits from the car business. The credits won't exist without the cars.

The credits are not a magical widget that they are selling independent of the cars.

He's lying.

The first tweet reads:

> Here's the thing about @tesla It's not a car company. Tesla is a company that has to make cars in order to sell its real product: Emissions Credits.

Nothing in the past tense or about history. He's claiming that Tesla is such and such right now.

He's hiding tweets in the replies that call him out. And is saying:

>My first "Added context" on any tweet is of course from Elon stans.

Emission credits have always been a small part of Tesla's business. For 10 years or so Tesla lost massive amounts of money and the emission credits were insignificant compared to the losses. Then for a year or so Tesla roughly broke even. When you subtract one large number from a roughly equivalent large number it magnifies the noise, making the credits seem larger than they really were. Now Tesla is massively profitable and emissions credit are again obviously minor.

When Tesla at some point decides to build Petafactory, costing almost their entire profits for the year, will this guy make another thread about Tesla not being in the car but in the tequila business, because the revenue from https://teslatequila.tesla.com/ roughly matches up with their yearly profits?

What an idiotic thread. Would downvote if I had enough karma to do so.

Anyone who has bothered to look at Tesla's financial statements knows this is not true.

Tesla made ~53.8 billion revenue in 2021, 1.8 billion of which was from regulatory credits. Tesla had 13.6 billion gross profit.

https://www.sec.gov/Archives/edgar/data/1318605/000095017022...

he's talking about profits, not revenue

He says:

>Here's the thing about @tesla It's not a car company. Tesla is a company that has to make cars in order to sell its real product: Emissions Credits.

So the so called real product makes 2.7% of the revenue, but actually selling the cars to customers makes them 97% of the revenue, but somehow it's not a car company but an emissions credits company? What?

If the credits disappeared tomorrow, only 10% of the profit would be lost. If it were an emissions credit company it'd take heavy losses and shutdown.

That's incoherent. Tesla made ~53.8 billion revenue in 2021, 1.8 billion of which was from regulatory credits. It doesn't make sense to say that a specific part of revenue is the "profit" part. Profit is the difference between what you make and what you spend.

Tesla had gross total profit of 13.6 billion dollars. Even if it weren't nonsense to say which parts of revenue are profit, it would still be completely wrong to say Tesla's business is selling cars.

https://www.sec.gov/Archives/edgar/data/1318605/000095017022...

Even then, it's around 10% of their Q3 profits ($300m of $3.3b) and dwindling

Exactly, the tweet is basically factually incorrect. It implies Tesla is mostly about the credits when in reality it's a nice cherry on a really big cake for them. And it's not like they are getting favorable treatment here (which is another thing implied by the tweet). A lot of those credits exist because companies like GM receive them too and the US government just decided to inject a lot of dollars in renewable infrastructure. Only fair that Tesla gets a chunk of that given that they do invest a lot in exactly that kind of thing.

Also, people keep talking about Tesla as if it is just a car company. They now have several booming businesses related to grid batteries, domestic batteries, solar panels, charging infrastructure, and a few other things. They are becoming a virtual power plant even. And they are about to become a major semi truck producer (planning to ramp up to 50K trucks per year over the next few years). The cars are still a huge chunk of their revenue and profit of course but they have healthy growth in their other businesses as well. I think grid batteries are about 1 billion $ revenue per quarter at this point for example.

and that's why it is a historical account

The linked tweet is:

>Thread time. Here's the thing about @tesla It's not a car company. Tesla is a company that has to make cars in order to sell its real product: Emissions Credits.

It uses 'is' not 'was', in three different places. In English that means they're claiming it's currently the case, not a historical account like you're mistakenly thinking.

What makes you think it's a historical account?

Because Tomlinson starts out by talking about 2012?? The company got to where they were on the basis of regulatory credit exchanges for the majority of its relatively long history. It is no longer some startup darling, mind you, it's got years on it comparatively: https://www.businessadministrationinformation.com/news/the-t... If another 10 years pass where credits do not significantly contribute to its profits, then we can make a case for a fundamental change.

Also, take a look at what happened in 2020: https://news.bloombergtax.com/financial-accounting/sec-pushe...

And their significance in 2021 as well: https://news.bloombergtax.com/financial-accounting/sec-pushe...

You are comparing the revenue from the credits to the profits (or that's what the Bloomberg links you are giving do). That's specious. The credits aren't given to Tesla for free, they earn them by building and selling the cars. The credits are now and have been a small part of revenue.

It's also wrong historically.

How do you untangle them? The credits won't exist without the cars. The credits are not an independent line of business/product.

Selling credits makes a hypocritical joke of Tesla’s mission statement. They should hold them instead. These are pollution indulgences. They undo all of the environmental benefits of owning a Tesla. Every Tesla sold enables another gas guzzling SUV to come into existence. So just buy the ICE SUV, it gets better range and refuels faster.

They took the money and used it to survive as a company to build more electric cars, which is the whole purpose of the credits.

> Every Tesla sold enables another gas guzzling SUV to come into existence

This is a very reductive and static worldview. First, on the surface of it "enable" is factually false: ICE SUVs existed before Tesla so Tesla is in no way enabling those. To steelman your argument, at best you could say it makes ICE SUV slightly more economically feasible to its customer, but the entire ZEV credit regime could have been nullified by now had Tesla and other mass-market EVs did not persistently exist. Ignoring even that, it marginally increases the economic feasibility of the SUV while transitioning one vehicle (the Tesla sold itself).

That is absolutely untrue. Selling the credits is the purpose of the credits system. It's a transfer of money from polluters (who buy the credits) to companies that reduce pollution. This system aligns incentives to reduce pollution - that's the point.

Unrolled thread, complete:

https://threadreaderapp.com/thread/1596518142423232513.html

> In Q1 of last year, Tesla's entire profit came from selling half a billion dollars of carbon credits to other carmakers.

This alone summarizes the entire thread.

Unbelievable!

Citing Q1 raises red flags. A lot of things happen only at the beginning of the year, so it's not representative of the rest of the year. (Similarly, citing Q4 alone would also raise my eyebrows).

Results from all four quarters of last year are available. He could have used the annual result to bolster his argument - except of course the annual results debunk his argument.

Was the annual amount less than half a billion?

I'm not sure what "half a billion" refers to, but here are the annual numbers[1], which are easily accessible on their investor relations page[2] or from the SEC EDGAR system if you prefer.

Regulatory credits: $1.465 B

Total revenues: $53.823 B

GAAP profits: $5.519B

To claim that the company would be unprofitable without the credits is nonsense.

Every company does financial planning. Tesla knows they sell more regulatory credits in Q1, so they can also plan to spend more during that quarter.

1. https://tesla-cdn.thron.com/delivery/public/document/tesla/9...

2. https://ir.tesla.com

Tesla incurred tens of billions of dollars of expenses to make those cars to earn that half billion dollars.

So what?

If you sell water bottles for a $2/ea loss, and the government makes soda companies pay you $3 for each bottle of water... you don't have a good business.

Hyundai recently spent the equivalent of Tesla's quarterly revenue (not profit) just to build a new EV assembly line. They are small and insignificant in grand scheme of the auto industry.

>If you sell water bottles for a $2/ea loss, and the government makes soda companies pay you $3 for each bottle of water... you don't have a good business

Why is that not a good business? It makes profit. How is a profit making enterprise not a good business? If someone gave you that business for free would you refuse to take it? Why would anyone refuse free money?

>Hyundai recently spent the equivalent of Tesla's quarterly revenue (not profit) just to build a new EV assembly line. They are small and insignificant in grand scheme of the auto industry.

Source? All I see is that they are building a $5.5 billion EV factory, and Tesla's revenue last quarter was $21.5 billion dollars. From where are you getting your information?

>They are small and insignificant in grand scheme of the auto industry.

How are they small and insignificant when the below is true:

>Tesla reported net profit of $2.3 billion for the second quarter ended June 30, up 98% year-over-year, outperforming GM whose net profit was $1.7 billion, down 40.3%. The Austin, Texas automaker even made three times more money than Ford, which reported a net profit of $667 million, up 19% year-over-year.

The only cars that Tesla ever sold for a loss were their original Roadsters. Every other car since has been sold for significantly more than the cost of production, even if you remove the emissions credit. Tesla lost money overall in the first 10 years because they were spending furiously on R&D and facilities, but ever since their first Model S they've made significant gross profit per vehicle.

More context from Twitter that adds a lot of salt to the headline (may not show up in some clients):

  Regulatory Credits on account for a small percentage of Tesla   Revenue.

  2020: 6.2%
  2021: 3.2%
  2022: 2.7%

  As of FY Q3 2022 Credits were only $287m against profits of $3.3b

  twitter.com/FonsDK/status/…
  TSLA Q3 2022 IR Deck: shorturl.at/mow47

Is this just another extension of the meme (treated as gospel by many though) that "Tesla isn't a car company, it's an <x> company "?

This isn't even new with Tesla, AIUI it's the same story with the Smart cars; these have enabled continued production of MB's AMG gas guzzlers.

https://en.wikipedia.org/wiki/CAFE_standard

In other news on HN today:

https://aarongreenspan.substack.com/p/the-mad-king

Extremely misleading.

>Tesla recorded $344 million in regulatory credits for Q2 2022, down 49% from Q1 which was $679 million. The credits account for 1.7% of the overall gross margin for the quarter, down from 2.9% last quarter.

Most of Elon Musk's companies depend on government subsidies or contracts in order to be profitable. Currently the only one that doesnt is Twitter so we'll see how long it survives without tax payer intervention.

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