One thing that many people don’t realize, is that many automakers have to produce a certain number of emission-free vehicles to appease their local regulators. If they don’t produce a the required percentage of eco-friendly cars, they face two options. 1) They can pay a fine, or 2) they can purchase “credits” from manufacturers that make more than their fair-share. Thanks to option two, Tesla has made off with $354 million dollars of the competition’s money last quarter alone.
Of course, Tesla’s entire fleet is electric, and therefore every vehicle they sell (not including any of Elon’s personal Earthly possessions), brings them far above the minimum requirements.
Even though the Federal credits system is getting overhauled at the start of 2021, the money train keeps rolling for the time being. In particular, California’s Zero Emissions Vehicle Program, which weighs the total output of a producer to a percentage of EVs sold, is a huge money maker for Tesla.
In addition to California, about 10 other states include similar programs. Some of these use a system of averaging EPA ratings for a lineup of vehicles offered, but others simply weigh the sale of totally gas-free cars against ICE-engines. Thanks to this, car manufacturers who fall short pay Tesla more and more each year for their overflow of credits.
This quarter has seen a 64% increase over Q1 of last year for credit sales. This, along with the unprecedented Model 3 profitability, has help Tesla turn a profit for the last three quarters in a row.