There's nothing mysterious about them. Car companies are required to produce clean vehicles, or they can instead buy credits from companies who do. Companies are paying right now rather than producing, and Tesla is there to benefit from it. There's nothing shady or mysterious here.
I think the question is whether it’s sustainable as a business. And whether Tesla’s other businesses are growing quickly enough that they can make up for the loss of those credits when other manufacturers start producing more EVs.
I think it'll surprise you how long it lasts. These big car companies take a long time to change in a meaningful manner and every month they spend trying to do that is time Tesla is advancing themselves. These credits should stick around (albeit in a diminishing manner) for at least a few more years.
This is the "Macs will have just as many security vulnerabilities as Windows if they ever get more than 1% of marketshare!" from 2002.
Year after year we've heard this repeated.
I recently saw a post saying GM is launching 12 EVs. Then I looked into it, and it's like, a new Bolt, a lifted Bolt under Buick, GMC, Chevy brands, and a few other concept cars multiplied by 3 brands.
I guess the Merc EQC is out, but I've never seen one. I've seen the odd Jag I-Pace. Some eTrons now. Lots of eGolfs here in silicon valley. I saw a truckload of Taycans in Portugal, and a grand total of ONE Taycan in the US, at the VW ERL facility in Belmont.
Though many cars have been announced, I can virtually guarantee most of them will be late or never arrive. Not one EV has arrived on market when it was actually announced to do so. These take lots of time and money to produce.
People have been saying this for years. 2017 was supposed to be the year that legacy automakers crushed Tesla to dust. Why should 2021 be different from 2017, 2018, 2019, and 2020?
If you lurk on the Tesla-killer forums, most buyers are apparently people who either dislike Tesla or only buy European cars.
And the used-car market is telling, too: Used 2019 i-Paces and e-Trons with less than 1,000 miles on the odometer (basically a brand new car) are trading for about the same price as today's cheapest Model Y.
Even if you assume the owners originally negotiated a fantastic deal(and if you lurk on the forums for long, it's clear that most of these cars come with trunk money) and that the owners took the tax credits, they're still apparently willing to take a bath to get rid of the car. That should tell you something (i.e., there's something so bad about the ownership experience with these cars that owners can't wait to offload the misery onto someone else).
There are only two companies today that sell EVs at MSRP and have good resale values: Tesla and Hyundai-Kia.
I too have been surprised at the slow pace (and poor quality) of EV deployment by traditional manufacturers. That's why I bought a Model 3. However. It's pretty much inevitable that the traditional manufacturers will have to make significant inroads into the EV market in the next ten years, if only to deal with increasingly stringent EU regulations (and not to handle the market demand that Tesla has created.)
It may take competitors five or eight years to begin making serious inroads into the EV market, but let's say it does happen on that timescale. What is Tesla's moat that is going to allow it to compete with manufacturers who have almost infinitely more production capacity and a much larger customer base than Tesla? Better battery tech? Superchargers? Rapid year-over-year growth that makes Tesla too big and successful to compete with [note: there is no evidence of that growth in the Tesla earnings report]? I'm pretty skeptical right now.
> What is Tesla's moat that is going to allow it to compete with manufacturers who have almost infinitely more production capacity and a much larger customer base than Tesla?
Well, you listed a couple.
I hear that Ionity is better in Europe, but the Electrify America network is a hot mess here in the US. The forums for all non-Tesla EVs are filled with complaints about unreliable and inoperative chargers. I'm sure this will get sorted out in time, but these experiences color peoples' future perceptions. Just as everyone today "knows" that Teslas have poor build quality, everyone will "know", for the next 10 years, that it's not wise to take a road trip when relying on a different charging network.
Battery tech: Maybe, if you're open to including "charging tech patents" in "battery tech". Look at the charge curve of Tesla vs any of their competitors. Everyone else uses some variant of "constant current until voltage threshold" (often with 2-4 current steps). Tesla continuously adjusts the charging current during a charging session. Those patents will continue to be a moat for another 10 years.
I'm not optimistic about the battery longevity in VW products like the e-Tron, Taycan, and ID.3, which hammer the battery with high current and no regard to sensor feedback. It gives a good charging spec for advertising, but I think VW is going to have a battery reputation problem in 2-3 years (like Nissan currently does, thanks to the 2011-2014 Leaf).
I'm not convinced. New vehicles have been announced each year in the last couple of years now and they have been largely unsuccessful so far. I think it will be hard for other manufacturers hit the same sweet spot that the Model 3 is hitting. That being said, there are lots of segments (vans, pickup trucks, ...) that are still open for grabs.
yes it is objectively shady because it appears they have full discretion to decide when to recognize these credits, and also unclear who is actually buying them.
they also don’t have credits listed as an asset on their balance sheet when you’d otherwise expect these credits to go from asset -> revenue when they decide they should be recognized, instead it is as if these credits just appear out of thin air and sold.
Again, they are not required to report that so there is no reason to. I'm sure they have squirreled away lots of these credits in their war chest to break out at opportune times (like today). They're not fabricating the numbers, they are audited and exist. There's nothing illegal about it. They just don't have to disclose them publicly so they don't, because it would needlessly give information to competitors.
If Tesla own something that's worth money, they generally are required to disclose that publicly. They need to include it on their balance sheet and send that to the SEC quarterly in their 10-Q or 10-K filing. That's the main requirement of being a public company.
Tesla's accountants know this and follow the SEC rules, even if Musk doesn't. Is there some special treatment for these tax credits? Are they rolling this credit in with something else? Otherwise I don't believe they can be "squirreled away" to make the numbers look good "at opportune times".
Pretty odd to consider that every other carmaker, obsessed with optimizing their business, would rather pay Tesla straight cash than rush out an electric drivetrain car. Across the Taycan, i3, and Bolt, there’s certainly plenty of evidence that they can.
That's because they could build them, but not profitably. Changing the design wholesale and then retooling your lines to build the cars at scale is insanely expensive and will take a long time to do. The i3 and Bolt are objective failures (in the US) because they're just not that good compared to what Tesla is doing at about the same price.
The dealers also have an inverse incentive to sell them so one has to go way out of their way to purchase an electric from the legacy manufacturers. It's a classic disruption case against entrenched players who refuse to adapt. The only one making a real effort is VW and they're currently paying dearly for it.
You first point is around whether it’s economical. A carmaker can scale a program in ~3 years, so that they haven’t is almost certainly a conscious choice. Furthermore, the Bolt shares a production line with the Sonic so the process concerns are limited. In terms of competitiveness, the Bolt offered longer range at a lower price than the Model 3 at launch and still does. Here people respond by saying the Tesla is a much better driving experience because of software, but if that’s the case they’d be much more profitable selling their in car experience software on top of ICE vehicles.
All that said, Tesla also doesn’t build and sell cars profitably. Selling credits is the source of their profits.
EVs are not disruptive in any well-defined sense of that word. They are more expensive and do not create demand against non-consumption of automobiles. The disruptive electric mobility option is the explosion of personal form factors such as ebike, scooters, and the like.
There are a lot of accounting choices that go into gross margin, and a forensic accountant could dedicate a year to understand the various shell games played by car companies between financing, depreciation on equipment, and warranty.
So as a simple matter, it helps to double check the reported gross margin against EBIDTA. And with that measure, my comment stands: Tesla’s reported profits depend on continuing to sell regulatory credits.
Sure, if you assume fraud then anything goes. But barring that, GAAP is a well tested metric. It's been often gamed and then patched to plug the holes.
It costs them almost nothing to pay the credits. Meanwhile here in the second age of free gas the gross margins on trucks are more than good enough to cover this small expense. Ford alone makes $10 billion annual in gross profits on just the F150 model. The regulations are enough to carve out a little niche for Tesla to hoover up a few dollars, but not enough to change the industry.
If Tesla would thrive in a world where gasoline was priced correctly, it would surely fail in a world where automobile infrastructure (parking, highways, sprawl) was priced correctly. This is not a reassuring line of reasoning.
Let's be clear we're mostly talking about, Fiat is the company buying tons of Tesla credits. This might be better for everyone all around. Would you want a Fiat EV?
