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The credits are temporary insofar as other automakers are starting to make their own EVs. How is Tesla going to make a profit when nobody needs to buy its ZEV c

The credits are temporary insofar as other automakers are starting to make their own EVs. How is Tesla going to make a profit when nobody needs to buy its ZEV credits?

guepe 6y ago
By building less new factories?
- totalZero 6y ago
  Currently they are constructing a factory in Berlin and another in Austin TX. Tesla sold about a half of a million cars last year. Nissan sells about 3 times that figure in the US alone. Toyota sells about 18 times that figure globally. Without being too presumptive, it certainly seems like Tesla is not going to imminently stop building factories.
  - _ph_ 6y ago
    And they are still expanding the Shanghai factory, which just started building Model Ys. Indeed, Tesla is not going to stop building factories, but also for that costs are going down as are the costs for the individual cars. When the revenue due to the certificates goes down, there are many financial knobs to turn to insure Tesla stays barely profitable. And of course in times of expansion, you would only aim for minimal profits and rather invest any margin achieved.
est31 6y ago
The competing car makers sell their EV cars at a loss as well. Credits will always remain a component of the EV car market, and that's good because otherwise the externality wouldn't be priced in.
- jkhdigital 6y ago
  You know, the funny thing is that the externality comes from the gasoline, not the car itself.
  - est31 6y ago
    And indeed there are discussions to create a CO2 tax on gasoline. You can say that's more fair than a price on the car itself, as then it punishes frequent drivers more than people who drive less. In general though, your individual CO2 production doesn't matter that much, instead the population's emissions matter. And on a population level, you can create statistics about how many km each bought car will drive on average, and base the different car prices on that. Whether you want to punish frequent drivers or everyone who buys an ICE car is a political/social discussion. In general, a tax on gasoline is not helpful in getting people to switch if there is no EV car around they can switch to. In Germany, gasoline is already extremely heavily taxed, and still people drive a lot. Even in the current stage, where there are few EV cars compared to ICE cars, economics of scale still favour ICE cars, so there is still an effect in favour of EV cars. Maybe that's what such measures counteract?
- totalZero 6y ago
  You may not be thinking it through all the way. Every in-house EV that a company like GM produces can be considered as absorbing one regulatory credit that GM would otherwise have to buy in the open market (eg, from Tesla). The competing car makers won't have to buy Tesla's regulatory credits, even if their EVs are no more profitable than those of Tesla.
  - est31 6y ago
    That's what I meant. Tesla is not the only company that can build EV cars. Eventually they have to compete. They have non traditional approaches to some things, and in that regard they might be able to build EV cars more cheaply than competitors, and it probably also helps that they have lots of experience now, but eventually the fact that the cars are electric won't be the killer feature any more.
    - totalZero 6y ago
      Well I certainly agree with this. Earlier you said that credits are always going to be a part of the market, and that's just not gonna be the case when all of Tesla's regulatory credit buyers make their own cars (and thus their own credits). To qualify that a bit, you may have the credits but you won't have credit trading.
sunstone 6y ago
Tesla is obviously in a strong growth phase and companies in such a phase, unless they are strictly software based, do not show profits because they are investing a lot of capital in their growth. For example Tesla's cost to make a model 3 is estimated to be around $28k which they sell for an average of $45k (as a guess, certainly more than $40k). It doesn't make sense to apportion Tesla's cost of new factories onto the "cost of production" of its cars. This is all finance 101.

The credits are temporary insofar as other automakers are starting to make their own EVs. How is Tesla going to make a profit when nobody needs to buy its ZEV credits?

guepe 6y ago

By building less new factories?

totalZero 6y ago
Currently they are constructing a factory in Berlin and another in Austin TX. Tesla sold about a half of a million cars last year. Nissan sells about 3 times that figure in the US alone. Toyota sells about 18 times that figure globally. Without being too presumptive, it certainly seems like Tesla is not going to imminently stop building factories.
- _ph_ 6y ago
  And they are still expanding the Shanghai factory, which just started building Model Ys. Indeed, Tesla is not going to stop building factories, but also for that costs are going down as are the costs for the individual cars. When the revenue due to the certificates goes down, there are many financial knobs to turn to insure Tesla stays barely profitable. And of course in times of expansion, you would only aim for minimal profits and rather invest any margin achieved.

est31 6y ago

The competing car makers sell their EV cars at a loss as well. Credits will always remain a component of the EV car market, and that's good because otherwise the externality wouldn't be priced in.

jkhdigital 6y ago
You know, the funny thing is that the externality comes from the gasoline, not the car itself.
- est31 6y ago
  And indeed there are discussions to create a CO2 tax on gasoline. You can say that's more fair than a price on the car itself, as then it punishes frequent drivers more than people who drive less. In general though, your individual CO2 production doesn't matter that much, instead the population's emissions matter. And on a population level, you can create statistics about how many km each bought car will drive on average, and base the different car prices on that. Whether you want to punish frequent drivers or everyone who buys an ICE car is a political/social discussion. In general, a tax on gasoline is not helpful in getting people to switch if there is no EV car around they can switch to. In Germany, gasoline is already extremely heavily taxed, and still people drive a lot. Even in the current stage, where there are few EV cars compared to ICE cars, economics of scale still favour ICE cars, so there is still an effect in favour of EV cars. Maybe that's what such measures counteract?
totalZero 6y ago
You may not be thinking it through all the way. Every in-house EV that a company like GM produces can be considered as absorbing one regulatory credit that GM would otherwise have to buy in the open market (eg, from Tesla). The competing car makers won't have to buy Tesla's regulatory credits, even if their EVs are no more profitable than those of Tesla.
- est31 6y ago
  That's what I meant. Tesla is not the only company that can build EV cars. Eventually they have to compete. They have non traditional approaches to some things, and in that regard they might be able to build EV cars more cheaply than competitors, and it probably also helps that they have lots of experience now, but eventually the fact that the cars are electric won't be the killer feature any more.
  - totalZero 6y ago
    Well I certainly agree with this. Earlier you said that credits are always going to be a part of the market, and that's just not gonna be the case when all of Tesla's regulatory credit buyers make their own cars (and thus their own credits). To qualify that a bit, you may have the credits but you won't have credit trading.

sunstone 6y ago

Tesla is obviously in a strong growth phase and companies in such a phase, unless they are strictly software based, do not show profits because they are investing a lot of capital in their growth. For example Tesla's cost to make a model 3 is estimated to be around $28k which they sell for an average of $45k (as a guess, certainly more than $40k). It doesn't make sense to apportion Tesla's cost of new factories onto the "cost of production" of its cars. This is all finance 101.