California buyers: Is Tesla splitting the value of energy credits with you?

[bonnie]

(Moderator here) Oh dear god. y'all should be ashamed of yourselves. I hadn't stopped by this thread before and now I wish I'd just kept going. Over 40 posts and just a handful (at best) are on topic. C'mon! I don't want to do cleanup here! This thing is a godawful MESS.

It's not a full moon. No one has tried to calm it down. Not one of you. I feel like I should just hand out rulers so you can all just measure to see who is the biggest and we can start there. Seriously. Can just ONE of you learn to let something go once in awhile??? Why do I have to be the one to tell you all to knock it off?

Knock it off. Gawd. Quit the squabbling. Next five posts. No bickering. I'm going to sit here and watch. Good posts get positive reputation. That means 'on topic, no word play deliberately escalating, no pot shots trying to sound innocent, etc'. Bad posts will get stomped on.

Who shall go first?

 

[pilotSteve]

Uhhhh, bonnie. Not sure its safe to venture out yet And yes, I'm going on record here: Thanks for Moderating!!!!!! This thread need(s)(ed) it badly.

 

[Krugerrand]

There was a gun held to me head. I swear it.

 

[bonnie]

That's two. Not on-topic exactly, but not squabbling.

 

[CalDreamin]

I'm happy to have Tesla invest whatever ZEV credit cash they might have earned from my Model S into building Superchargers and developing future EVs. Including Bonnie's Model X. :biggrin:

 

[brianman]

California buyers: Is Tesla splitting the value of energy credits with you?

Answer: No.
Opinion: And they shouldn't.

these are worth $5K each

As I understand it, there isn't a fixed sales price. Instead this is a kind of commodity market where buyers and sellers establish a price on a per transaction basis.

Seems only fair that it should cost California buyers less to buy the car.

Disagree. Unless of course you want to talk about making the per-capita state/federal fund flow equivalent across all states. I avoid the word "fair" because lately I believe the word is currently improperly used in discussions involving American politics. I'd say more here but political discussion is somewhat frowned upon on TMC, and it's veering off-topic anyway.

Apparently, Testa pockets the difference and uses it to achieve profitability, from information I have read elsewhere.

I don't know where you get your information, but as I understand it this conclusion is incorrect. One more than one occasion in public statements about TSLA (the stock) and Tesla Motors (the company) there are repeated explicit comments about how ZEV credits are not part of the profitability analysis that the company applies to its books. Again, that's my recollection/understanding but I could be totally wrong of course. YMMV. Caveat Emptor. Don't take any wooden nickels.

Does anyone have any more information or thoughts on this?

Yes.

 

[AMPd]

I don't think tesla should share zev credits, you're not part of the company just because you bought a car from them. If you want to get a share of those profits the only way to do that would be to buy tesla stock.

Ill take that rep now Ma'am!

 

[pbleic]

I don't know where you get your information, but as I understand it this conclusion is incorrect. One more than one occasion in public statements about TSLA (the stock) and Tesla Motors (the company) there are repeated explicit comments about how ZEV credits are not part of the profitability analysis that the company applies to its books. Again, that's my recollection/understanding but I could be totally wrong of course. YMMV. Caveat Emptor. Don't take any wooden nickels.

It HAS to count as part of profit, unless - in non-GAAP accounting - they are considering it a "one time" event. Typically companies do this with expenses, not with revenues. Regardless, Tesla is squeezing everything it can to show profitability, including the really unusual "lease" issue, where they include the money from the future value of the lease cars being resold.

Elon Musk has very cleverly said that "Tesla is not DEPENDENT on ZEV credits." Not that they don't use them.

Here are two articles that indicate that ZEV credits were used to achieve profitability:
Tesla Motors Earns $26 Million in the 2nd Quarter—Thanks to the Government | Mother Jones
Tesla's modest first-quarter profit relied on $68 million from zero-emission-vehicle (ZEV) credits it sold to other, less environmentally friendly car companies under a California emissions mandate. There's also the $7,500 federal tax break for people who buy electric vehicles, which makes its pricey cars more affordable.
As for today's results. Tesla earned $51 million on ZEV credits, without which it would not have been able to report a profit

Fuzzy Math Helps Tesla Report $16M Profit | Autopia | Wired.com
Tesla continues to report non-GAAP income in Q3, which amounted to $16 million in net income by including the money it gets from leasing the Model S. The generally accepted accounting principles — GAAP — math doesn’t allow that, so if you nix the cash from leases, Tesla actually lost $38 million or 32 cents per share. That hasn’t helped after hours stock trading that has Tesla shares down by around 10 percent.
The other income issue is the reduction in Zero Emission Vehicle credits that Tesla can sell to other automakers who aren’t hitting the fed’s fuel economy targets. Those ZEV credits accounted for only $10 million in revenue in Q3, down from $51 million in Q2.

and finally, an article devoted to this topic, and the disappearance of those credits: Tesla Could Take a Hit from Likely Loss of ZEV Credits | PluginCars.com

 

[bonnie]

(... congrats to all for pulling this thread back onto topic!)

 

[brianman]

It HAS to count as part of profit, unless

There's a reason I chose the word "profitability" instead of "profit". Some will see "gross revenue - expenses" and call that profit, and some would agree. As I've understood it, Elon (and others) have reserved "profitability" to mean more than that. I don't whether it's GAAP, non-GAAP, etc. but there's a nuance here that maybe I'm not getting across (or maybe using the wrong word for). Anyway, hopefully my point/intent is clearer despite that.

 

[evme]

I know that this is pretty unlikely, but I found an article in today's WSJ quite interesting: Christopher Knittel: Californias Auto-Emissions Policy Hits a Tesla Pothole - WSJ.com

According to the article, Tesla gets seven "credits" for each Model S sold in California, and these are worth $5K each, for a total of $35,000. Seems only fair that it should cost California buyers less to buy the car. Apparently, Testa pockets the difference and uses it to achieve profitability, from information I have read elsewhere. Does anyone have any more information or thoughts on this?

The credits have not been worth 5k each for already over a year. But they sure love quoting the highest number they can find. As of this year, the credits are expected to be worth almost nothing. So I don't see much point in the discussion.

The credits were originally made for the intention of penalizing manufacturers who make polluting cars and reward manufacturers who are doing the right thing without wasting tax payer money. The credits are sold on an open market so it is hard to even tell how much each individual credit is worth. On top of that it would create a bit of a disorder as to who is owed what. Since the intent of the credits is rewarding the manufacturer, I see no reason to share the credits with the consumer.

Even in situations where the money comes from other sources, I have not heard the consumer getting a rebate. Have you ever gotten a rebate from vegas restaurants when they sold the remaining food to pig farms?

But again, since the credits are worth almost nothing, why does it matter?

 

[pbleic]

There's a reason I chose the word "profitability" instead of "profit". Some will see "gross revenue - expenses" and call that profit, and some would agree. As I've understood it, Elon (and others) have reserved "profitability" to mean more than that. I don't whether it's GAAP, non-GAAP, etc. but there's a nuance here that maybe I'm not getting across (or maybe using the wrong word for). Anyway, hopefully my point/intent is clearer despite that.

Profitability usually refers to Net Income, although companies on the verge will often play games with EBITDA. Gross revenue minus cost of goods sold is gross profit, which is where margin comes from. This is "above the line." Below the line you add and subtract various things including sales and marketing, research and development, g&a, investment gains, etc. That gets you to net income - which is the conventional way of talking about whether a COMPANY is profitable or not; not whether they can manufacture a good with a gross profit. GAAP is a set of rules about how you do the figuring.

Bottom line is that the value of the ZEV credits, when sold, are included "below the line" and are a net positive (against costs) in determining whether a company is profitable or not, GAAP or non-GAAP.

Tesla's financial statements use this money. They likely list this under Income from Continuing Operations, Total Other Income/Expenses Net which has gone from 17M to -.7M in 3 quarters presumably becuase the value of the ZEV credits is rapidly declining. http://finance.yahoo.com/q/is?s=tsla

NOTE - their net income is negative and increasingly so over the past few quarters. That is, they aren't profitable and it has been getting worse. We will see how things were in the most recent quarter later today.

 

[evme]

Profitability usually refers to Net Income, although companies on the verge will often play games with EBITDA. Gross revenue minus cost of goods sold is gross profit, which is where margin comes from. This is "above the line." Below the line you add and subtract various things including sales and marketing, research and development, g&a, investment gains, etc. That gets you to net income - which is the conventional way of talking about whether a COMPANY is profitable or not; not whether they can manufacture a good with a gross profit. GAAP is a set of rules about how you do the figuring.

That depends on where your coming from, in the stock market, yes net profit is considered profitability. For people running the business and everyone else, gross profit would be considered profitability.

Bottom line is that the value of the ZEV credits, when sold, are included "below the line" and are a net positive (against costs) in determining whether a company is profitable or not, GAAP or non-GAAP.

Tesla's financial statements use this money They likely list this under Income from Continuing Operations, Total Other Income/Expenses Net which has gone from 17M to -.7M in 3 quarters presumably becuase the value of the ZEV credits is rapidly declining. http://finance.yahoo.com/q/is?s=tsla

NOTE - their net income is negative and increasingly so over the past few quarters. That is, they aren't profitable and it has been getting worse. We will see how things were in the most recent quarter later today.

When looking at Tesla's non-GAAP, their net income is growing same for their gross margins. Which points that more people are making use of leases.

Edit: Just looked at Q1 and your completely off, the 17 million came not from ZEV credits but favorable foreign exchange and elimination from DOE warrant liability.

 

[pbleic]

That depends on where your coming from, in the stock market, yes net profit is considered profitability. For people running the business and everyone else, gross profit would be considered profitability.

Respectfully have to disagree here. There is only one definition of profitability; the stock market and the company see this the same way. Two reasons. First, those who lead businesses report to the Board, which represents shareholders. Shareholders want their investments (ie. companies) to have increasing net profits., which increases the price of their shares. Second, a company could have great margins (ie. have lots of gross profits) for all their products, but spend large amounts on R&D and sales/marketing; more than the amount their gross profits. The net effect would be (all things being equal) a continued reduction in cash until no cash was left. Certainly, the company could borrow or raise more money from investors. But, those mechanisms would rapidly dissapear and the company would run out of cash. This is known as bankruptcy.

There is a nice basic discussion here: https://www.extension.iastate.edu/agdm/wholefarm/html/c3-24.html

 

[jeff_adams]

@pbleic Just curious, do you own a Model S or Tesla stock?

 

[pbleic]

@pbliec Just curious, do you own a Model S or Tesla stock?

I don't own Tesla stock, nor am I short in Tesla stock, nor do I have puts or calls in Tesla stock (or any stock, for that matter). Nor do I trade actively in any stocks. I am not considering buying Tesla stock. OK?

If you take a look at my postings, you will see that I am enthusiastically investigating Model S for the purpose of buying one. I have gone back and forth about it, but think I am about to pull the switch and buy one (although I am now stuck on "to HPWC or not to HPWC."

This topic discussion was about the ZEV credits and possible discounts for California buyers (a state far from where I live). Bonnie asked us to keep our postings to that topic. Is your question related to this topic?

I didn't know that you had to own the car or stock to participate in this forum. Is that the case?

 

[Saghost]

As I understand it, there isn't a fixed sales price. Instead this is a kind of commodity market where buyers and sellers establish a price on a per transaction basis.

That's my understanding. The maximum they could be worth is just under $5k per credit, because the penalty CARB charges to manufacturers that don't make the ZEV credit requirements for their sales volume is $5k per missing credit.

The actual value fluctuates greatly through the year (CARB only assesses once per year) and will likely drop over time - the value is based on how many companies are short credits for their production, and how many have excess credits to sell. If all the manufacturers are meeting their requirements internally, Tesla's excess has no market value whatsoever (though this likely won't be the case for quite some time, if ever.)

To make things more complex, there are different "levels" of credits (you get credits for PHEVs, but those can only cover a portion of the company's requirement.) Tesla's credits are the most valuable kind, for whatever that's worth.
Walter

 

[pbleic]

Edit: Just looked at Q1 and your completely off, the 17 million came not from ZEV credits but favorable foreign exchange and elimination from DOE warrant liability.

Thanks for looking that up. You are, indeed correct. I had looked at the (simplified) Yahoo summary I posted and not the actual filings. That is why I said: They likely list this under Income from Continuing Operations, Total Other Income/Expenses Net. I wasn't sure, and was sloppy. But, the $51M in Q2 went down to $10M in Q3, went down to $0M Q4 (from what I read). So, the whole issue is moot, at this point.

I took a look at one of the shareholder letters and cannot find where they include it - but from the mentions, it seems like it is actually ABOVE the line in GAAP revenues. That is very interesting, as it does make a better argument for a discount - it isn't "investment income" as someone said. But, not if they aren't getting them anymore!

 

[evme]

Respectfully have to disagree here. There is only one definition of profitability; the stock market and the company see this the same way. Two reasons. First, those who lead businesses report to the Board, which represents shareholders. Shareholders want their investments (ie. companies) to have increasing net profits., which increases the price of their shares. Second, a company could have great margins (ie. have lots of gross profits) for all their products, but spend large amounts on R&D and sales/marketing; more than the amount their gross profits. The net effect would be (all things being equal) a continued reduction in cash until no cash was left. Certainly, the company could borrow or raise more money from investors. But, those mechanisms would rapidly dissapear and the company would run out of cash. This is known as bankruptcy.

There is a nice basic discussion here: https://www.extension.iastate.edu/agdm/wholefarm/html/c3-24.html

And I would respectively disagree with you because there is profitability outside of the stock net profit definition. For example, you start your own company and at end of the year report net profit of $0. You pay out yourself a salary and a bonus. Is the company profitable? When a company has a gross profit and invests the spare money into growth, that is still considered by people as profitable. (Of course not so by the stock market). And I also assure you a company can run on $0 profit indefinitely without going bankrupt. And a highly profitable company can go bankrupt just from lack of cash flow. Net profit has no impact on the company itself. It is a good indicator to judge mature companies but a poor indicator to judge growing companies.

 

[pbleic]

An interesting, "alternative" definition of profitability - which is conventionally defined as the money a business nets after accounting for ALL expenses. If it works for you, great. Profitability is in the eye of the owners, and if they take their money out every year, no problem.

But TSLA is a public stock and the owners are shareholders. The rules that apply are those of the stock market. The only argument you can make is whether to use GAAP or non-GAAP when determining profitability.

I think we just agree to disagree.