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• $900M in Tesla’s Pocket—But How? 🏦🚗

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Tesla's $9 Billion Side Hustle 🏦🚗 

I was doing my normal morning routine ….

• Wake up and make coffee.

• Check stock prices, hoping my portfolio 1000x’ed overnight.
  (Spoiler: It didn't.)

• Look at interesting graphs.

… when I saw something that made me almost drop my coffee in surprise.

While flipping through Tesla’s latest financial report, something unexpected caught my eye. Yes, their profits slid from $2.7B to $1.5B compared to last year, but get this - nearly 60% of it, around $900M, came from something OTHER THAN selling cars. Surprised?

Just like Big Tech’s Big side-hustles, it turns out that Tesla also has a side-hustle bigger than the main hustle of most companies. 

So where did that revenue come from? 

The Carbon Credit Market

Before we explain where that revenue came from, let’s take a step back for a second. Humans have finally come to grips with the reality that global warming is a thing (NOT A HOAX) - a very real, very scary thing. 

And one of the factors polluting our planet is because of the emissions due to gas-guzzling vehicles.

In a bid to curb these emissions, governments worldwide have rolled out incentives for automakers to develop electric vehicles (EVs) or, at the very least, low-carbon-emitting ones. Enter the world of regulatory credits.

You can think of these regulatory credits as the gold stars of the automotive world. Environmental programs like the Zero Emissions Vehicle (ZEV) program in California hands out these credits to automakers that produce and sell low carbon emission vehicles.

Since Tesla exclusively produces only electric vehicles, the company gets a lot of these and by lot, we mean A LOT. Every single car they make contributes to their stockpile of emission credits.

The interesting bit? Tesla can and actually does sell these credits. But who would buy them and why?

Building Buying a Green Future

To move to a greener future, there are a set levels of emissions that automakers have to meet. And it's not just that you get brownie points for sticking to it, you get penalties if you don't. If an automaker doesn’t stack up enough credits by the end of the year, they can rack up huge fines from the regulators.

These credits aren’t just nice-to-haves; having a minimum number is a must.

But what if you’re an automaker, and uh-oh, you went over your emissions limit? 

You’ve got two options:

Option 1: Own up to your shortcomings, pay the hefty fine, feel guilty for polluting the planet, and commit to adopting greener technology next year to make this planet a better place to live. 

OR …. OR ….

Option 2: Simply purchase EV credits to cover your excess emissions and give yourself a pat on the back for being “emissions compliant” - no guilt required.

And whom would you go to buy these credits? Someone who has a lot of them, someone like Tesla.

Tesla has made a sweet business out of selling their surplus inventory of credits to various other automakers who don’t meet the emission criterias. And it’s not pocket change either.

That $900 mil we were talking about? Yes, you guessed it. It came from the sale of EV credits to other automakers.

In fact, it is estimated that Tesla has earned a cumulative $9 billion since 2009 from their credits business.

100% Pure Profit

Because Tesla gets these credits for free, selling them translates to almost pure profit. That’s right, almost every single penny from those $900M goes straight to the bank. 

Now some critics argue that these credits can obscure Tesla’s true profitability and make a bad quarter look better somewhat artificially. And that’s kinda true.

Emission credits have been a crucial part of Tesla’s financials, giving a nice boost to their gross margins. While there were early predictions that this revenue stream would shrink as competitors ramped up their EV production, Tesla’s income from selling these credits has remained surprisingly strong.

In fact, this steady flow of revenue might have even surprised Tesla. Back in 2020, the company’s former CFO, Zachary Kirkhorn, cautioned investors not to get comfortable with this income, predicting that it would diminish as the EV market grew more competitive. 

But, as it turns out, Tesla’s earnings from regulatory carbon credits have hardly dipped at all. 

Sure, Tesla’s core business is selling cars, but when 60% of your profit comes from something that isn’t cars, it makes you wonder if the side hustle is starting to outshine the main gig. 

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