How Tesla Makes Millions Selling Carbon Credits - F, GM, TSLA - Foolish Blogging Network
Tesla Motors (NASDAQ: TSLA) was formed in 2003 with the idea of building a car with an alternative current (AC) electric motor similar to Nikola Tesla's original design. Ten years later, Tesla eked out its first profit - an $11.25 million take in the first quarter of 2013.
...The company also makes money from its competitors in a very crafty way, however; it sells carbon credits to other automakers.
California has some of the most stringent state emissions regulations in the U.S. That state allows auto manufacturers who produce a surplus of zero emissions vehicles (ZEV) to sell credits to companies that need to comply with regulations. By 2025, all large-volume auto manufacturers need to have 15.4% of their fleets be ZEV. Similar rules are in effect for a handful of other states, and the Environmental Protection Agency also has emissions credit rules as well.
This gives Tesla a tremendous upper hand since the only product that it sells is emission-free electric vehicles. The company is able to sell credits to companies like General Motors (NYSE: GM) and Ford Motor (NYSE: F), among others. This has allowed Tesla to make $2.8 million in 2010, $2.7 million in 2011 and $40.5 million in 2012 from its competitors. This was a big contributor to Tesla's ability to finally show a profit.
The competition is subsidizing Tesla
Yes, the auto manufacturing space is a dog-eat-dog market. What's interesting is how Tesla has been able to cull cash from its two biggest American competitors, GM and Ford.