Skip to content

OM in the News: Tesla’s Secret Source of Cash

June 11, 2019

For years, Tesla has hauled in revenue by selling credits to other carmakers that needed to offset sales of polluting vehicles to U.S. consumers. “These sorts of transactions have largely been shrouded in secrecy — until now,” reports Industry Week (June 3, 2019). GM and Fiat Chrysler just disclosed that they reached agreements to buy federal greenhouse gas credits from Tesla.

The deal with GM will come as a surprise to those who thought years of sales of plug-in hybrid Chevrolet Volts and all-electric Chevy Bolts would leave GM in the clear with regard to regulatory compliance. But demand for its battery-powered vehicles will still be dwarfed by its gas-guzzling trucks and SUVs in coming years. Fiat Chrysler disclosed agreements to buy credits from Tesla that were reached in 2016, 2018 and earlier this year. Fiat says that “U.S. standards are getting stricter at a pace that far exceeds the level of consumer demand for electric cars that is required for compliance.”

Tesla has generated almost $2 billion in revenue from selling regulatory credits since 2010. Its home state of California has a mandate that requires carmakers to sell zero-emission vehicles in proportion to their share of the state’s auto market, which is the largest in the country. If manufacturers don’t sell enough non-polluting vehicles, they have to purchase credits from competitors like Tesla to make up the difference.

GM’s credit purchases illustrate how challenging the U.S. fuel efficiency requirements are getting, even for automakers that are adding more zero-emission vehicles to their lineup. While all automakers complied with U.S. rules in model year 2017, most large manufacturers cashed in credits to get there.

Classroom discussion questions:

  1. The cost of purchasing greenhouse gas credits is a direct cost to those purchasing standard internal combustion engine cars. Is this a fair cost to those customers?
  2.  Tesla’s owners also purchase less gasoline per mile traveled and therefore pay fewer taxes to maintain roadways. Should this disparity be addressed?


No comments yet

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: