Tesla’s 2nd quarter earnings for the year 2020 brings nothing but good news for the company and for its fans. However, questions arise as to how Tesla keeps generating huge revenues and making double sales than conventional automobile manufacturers at such a time like this when other automobile companies are falling. Where does the company get their income from?
The answer partly lies in ZEV credits. The ZEV (Zero-emission vehicle) program that is mandatory in the state of California obliges car companies to focus on manufacturing and selling of electric vehicles to reduce carbon emission and penalizes carmakers that fail to do so.
Carmakers earn ZEV credits with every sale. The amount of credit that a company gets depends on the type of sustainable vehicle. The lesser the emission, the greater the credit. The regulation also sets a standard requirement on the number of cars that the company should make and market. If they fail to cope up, they will lose credits and eventually be stripped of permission to sell cars in California.
Now there are a lot of high-end automakers that have begun production and sale of their sustainable vehicles, but not much of the released models are sold. The program allows credit purchasing of one car company from another and Tesla has been the one that they turn to. Being a primary maker of only electric-powered vehicles with a high demand for it as well, Tesla has got a lot of ZEV credits at their disposal and makes a lot of income selling them. According to a representative on InsideEVs Tom Moloughney, Tesla has gained over $2 billion dollars from that alone for the last seven years.
Some people are convinced that this revenue source for Tesla will be gone in the next couple of years but Moloughney thinks otherwise. Luxury car manufacturers like Audi, Mercedes, Volkswagen, and Toyota may have developed their own electric cars but haven’t been able to come up with one that shook the world enough to have a high demand for it. Tesla still remains the high-end EV maker.
Three types of sustainable cars are allowed by the program to be marketed.
- Plug-in hybrid - a cross between gasoline-fueled and rechargeable battery
- Battery electric - purely runs on electricity
- Hydrogen fuel cell-powered by hydrogen gas
Other factors that might have contributed to the continual rise of Tesla’s numbers are the establishment f the Shanghai Gigafactory, taking Tesla intercontinental, the launching of the Model Y, and the huge demand that went along with it. The company then launched a contactless and online delivery mode for customers who want to order but can’t do physical shopping because of restrictions. This gave Tesla the ability to cater to the market needs without having to violate safety measures imposed during the pandemic.
Tesla announced the birth of its second US-based factory in Texas that will be home to mainly the Cybertruck, which is also another evidence of the company’s financial capacity. There are also talks of Tesla being included in the SP500, a stock market of the top-earning American companies. To qualify, a company needs to have four consecutive profitable quarters and Tesla happens to have just that. If/when the EV company becomes part of the market, 28% of its available shares will be bought by investors, bringing its stock price higher than ever. Tesla will be one of the biggest companies to enter SP500 at a booming market valuation of $300 billion, a far cry from Facebook’s $120 billion.
Tesla insurance will also be another venture that will bring about large income for the company, as it will aim to offer car insurance in a centralized manner that eliminates the middle men (insurance company and repair facility) between car owners and makers.
Among other recent news, Tesla filed charges against Rivian last July 17, another electric vehicle manufacturer, for alleged theft of valuable and confidential company information through intel from previous Tesla employees who ended up working for Rivian, despite the non-disclosure agreement that Tesla employees had to sign. The lawsuit stated three violations of Rivian against Tesla, namely:
- Violation of trade secrets act
- Breach of contract
- Intentional interference of contract
The now Rivian employees were accused of being in possession of private information about Tesla’s manufacturing, logistics, and data on the supercharger project.
The new leasing offer for the Model Y attracted a lot of customers with a $4500 downpayment and $499 a month. There have been reports saying Tesla is the most trustworthy brand of EV today, that other carmakers have little to no chance of hitting the bar that Tesla keeps raising.