Half Of Teslas Q2 Profit Came From Your Taxes

Tesla did not have a good second quarter for 2024, and it could have been a whole lot worse had it not been for the U.S. government. Sure, profits fell 45 percent during the time period, but Tesla benefitted from one very important weapon for improving an income statement: regulatory credits.

Tesla Had A Very Interesting Week

A truly wild amount of Tesla’s second-quarter profit – over half of it, in fact – was attributed to the sale of these credits to rival automakers that use them to meet emissions rules, the Wall Street Journal reports. Sure, the money – which is pure profit – isn’t technically a subsidy, but Tesla is still very much benefitting from government programs that are aimed at aiding the development of electric vehicles.

This news is baked in a whole lot of irony considering Tesla CEO Elon Musk has long been in favor of eliminating government subsidies that encourage the development of EVs, and he has been pushing hard for former President Donald Trump to return to the White House.

Here’s more on Tesla’s awkward credit situation, from the Wall Street Journal:

Tesla’s ability to make popular EVs—so many that it earns regulatory credits to sell to rivals around the world—also comes as Musk is talking about how he views his company not as a simple automaker, but as an artificial-intelligence company developing autonomous, or driverless, cars and humanoid robots.

Trump’s presidential campaign has made attacking the Biden administration’s efforts to bolster EVs a key part of Trump’s message. The Democrat’s administration championed a 2022 law that tied consumer tax credits for buying EVs to industry efforts to bolster the U.S. supply chain for them.

The intent of the effort is to make the nation less dependent on China for supplies. President Biden also raised tariffs on Chinese electric cars to 100% while Trump has also suggested jacking up tariffs.

Musk was apparently directly asked if the elimination of federal EV subsidies would hurt Tesla’s profitability during the automaker’s Q2 call. He said that would probably be the case, WSJ reports:

“I guess that there would be, like, some impact, but I think it would be devastating for our competitors and it would hurt Tesla slightly,” Musk said. “But long term, probably actually helps Tesla, that would be my guess.”

Then to hit on a point he has been making in recent months about how he sees Tesla’s future: “The value of Tesla overwhelmingly is autonomy. These other things are in the noise relative to autonomy.”

Regardless of Musk’s unjustified over-hype of his autonomous driving technology, help from the government benefits automakers… a lot.

Regulatory credits reported Tuesday for the period that ended in June totaled just shy of $1 billion, compared with $282 million in the same quarter a year ago and $1.79 billion for all of 2023.

Even for a revenue source that has a history of coming in lumpy from quarter to quarter, the recent three-month stretch was unusually large. Throughout Tesla’s history, the company has benefited from good timing on those sales, helping make a bad quarter look better or allowing Tesla to claim victory as a profitable outlet.

The company has previously said it is hard to forecast these sales, and Musk has described them as a “small part of the equation for Tesla.”

“Some of what’s happening here is the other manufacturers are kind of like waiting to see how their EV sales do before buying any credits from Tesla,” Musk said in 2019. “And so it kind of depends on how that goes. If they sell more EVs, then there’s not really a need to do a deal with Tesla.”

In California alone, where the idea of regulatory credits really took root before being copied around the world, Tesla as an EV seller has received an estimated value of credits worth more than $2.48 billion as of early last year, according to Gov. Gavin Newsom’s office.

Newsom – an enemy of Musk’s – has said the credits have been crucial to Tesla’s success. He had previously said, “There was no Tesla without California’s regulatory bodies, and regulation,” according to WSJ, and I’m inclined to believe him.

OK, that’s enough out of me. Head on over to the Wall Street Journal for the full rundown on how EV credits have bolstered Tesla.