$700 Million a Quarter
Tesla's Regulatory Tailwind
Telsa earned $2 billion in regulatory credit revenue in the first 9 months of 2024, including $739 million in Q3 alone.
What are regulatory credits?
Regulatory credits are allowances given to automakers for producing zero-emission vehicles (ZEVs) or using other environmentally friendly technologies, aimed at helping them meet government-mandated emissions and fuel economy standards.
Regions/Countries: Primarily enforced in the United States (notably California) and Europe, where governments set emissions standards and require automakers to achieve ZEV targets to improve air quality and reduce greenhouse gases.
Requirements: Automakers must produce a specified percentage of ZEVs within their fleet to meet ZEV targets. If they fall short, they must either purchase regulatory credits from compliant companies or face penalties.
Penalties: Non-compliance can lead to fines (often based on CO₂ emissions excess), a requirement to buy credits, restrictions on selling high-emission vehicles, and potential reputational damage, affecting brand perception and financial performance.
And because Tesla exclusively produces zero-emission vehicles, and continues to scale production, it generates surplus credits that it can sell to other automakers… for $700 million a quarter.
There are numerous cases where “environmental attributes” have translated into tangible value for energy companies (like LCFS credits, RINs, etc.). What are some of the most striking examples you’ve come across?