Tesla Motors Inc (NASDAQ:TSLA) is bringing in big bucks by selling pollution credits to an unlikely source: its competitors. In the January-March quarter, the Palo Alto, California-based electric car maker sold zero emission credits worth $68 to other automakers in the first quarter. Credit sales accounted for about 12 percent of the company’s total revenues, reported CNNMoney. Tesla Motors Inc (NASDAQ:TSLA) reported a first quarter profit of $11.2 million, beating all the estimates. It sent the stock soaring.
So far, 11 states in the country have passed tough environmental regulations which require that at least 15 percent of a company’s total sales should be zero-emission vehicles by 2025. Major automakers fear that they may not be able to meet the stringent regulations. So, they are stockpiling these credits. If their zero emission vehicle sales miss the goals, they will have only two options. Either to pay hefty penalties, which may include a sales ban in the state, or purchase credits from other automakers to avoid penalties and bad publicity.
Environmental Regulations Won’t Affect Tesla
The Elon Musk led electric car maker is one of the few zero emission credit sellers. Tesla Motors Inc (NASDAQ:TSLA) isn’t required to meet the regulatory standards because its sales volumes are too low and it sells only electric cars. But the company earns credit on every car it sells. So it sells the credits to other automakers.
Automakers can earn small credits by selling plug-in hybrid vehicles and large credits by selling vehicles powered by hydrogen fuel cells. All the major car makers in the United States are working on electric vehicles and launching such vehicles in the states where the regulation exists. Still, they are concerned they may not meet the 15 percent target, so buying credit will act as insurance.
Tesla Motors Inc (NASDAQ:TSLA) has disclosed that Honda Motor Co Ltd (NYSE:HMC) (TYO:7267) is one of the several buyers of its credits. Adam Jonas, a Morgan Stanley analyst estimates that Tesla Motors Inc (NASDAQ:TSLA) could generate as much as $188 million by selling credits this year. Morgan Stanley values the stock at $200. However, Elon Musk said last week that the company doesn’t rely on credits to set its profit targets.