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Tesla's Profit Doesn't Come From Where You Think

Automaker is currently in the black thanks to selling regulatory credits, not cars
By John Johnson,  Newser Staff
Posted Feb 1, 2021 11:44 AM CST

(Newser) – Tesla posted its first-ever annual profit in 2020, but business writers are adding an asterisk. Timothy Green at the Motley Fool points out that Elon Musk's company is in the black thanks more to sales of regulatory credits than electric vehicles. Eleven states demand that automakers sell zero-emissions vehicles or buy credits from another automaker if they miss the goal, explains Chris Isidore at CNN Business. For Tesla, which sells only electric vehicles, it is currently a lucrative sideline. In 2020, Tesla made $1.6 billion from the credits. Without that money, Tesla's net income of $721 million would have resulted in a big loss for the year. "It should be obvious that this situation is not going to last forever," writes Green. Other automakers are ramping up their own EV inventory, and they won't need Tesla's credits forever.

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The company itself acknowledges this, with Chief Financial Officer Zachary Kirkhorn saying the money from credits might remain strong "for a handful of additional quarters," and perhaps not even that long. However, he says the company isn't planning its financial future around that money. In an earnings call with reporters, Musk made the case that the future looks rosy for Tesla particularly because of the ongoing shift toward self-driving vehicles, notes Fortune. Still, "Tesla will soon need to do what it's not doing now, generate earnings from cars and batteries," writes Shawn Tully of the latter outlet. "And those profits must prove to investors that Tesla is indeed the wonder that can go from zero to sixty faster than any vehicle in history." (Tesla recently joined the S&P 500, a move that helped make Musk an even richer man.)

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