Tesla Discloses Record Pollution Credits for Q1: Without Them, it Would Have Lost $918 Million and Bled $1.14 Billion in Cash

The surprise in the SEC 10-Q filing when no one was supposed to pay attention.

Today, when no one was supposed to pay attention any longer, Tesla filed its quarterly report Form 10-Q with the SEC. Tesla had reported “earnings” on April 24, a doozie of a net loss of $702 million. But today, after the hoopla of its earnings report had died down, Tesla disclosed a slew of things that it hadn’t disclosed last week, including a record amount of sales of pollution credits.

Without those taxpayer-funded pollution credits that Tesla gets from the government and sells to other companies, its loss as automaker and solar-panel company would have been $918 million and its negative cash flow wouldn’t have been a cash drain of $919 million but a cash sinkhole of $1.14 billion

Tesla calls these taxpayer-funded pollution credits – part of the package of rich corporate welfare programs that Corporate America benefits from in numerous ways – “regulatory credits.”

The sales of these regulatory credits are booked as revenue, so they increase revenues by that amount. Since there are no costs associated with them, they also inflate by that amount gross profits, income from operations, net income, and cash flow. In other words, those taxpayer-funded credits are at the core of Tesla’s business model and flow straight from the top line all the way down to the bottom line.

Tesla discloses these “regulatory credits” – when it finally discloses them – in two categories:

  • Zero Emission Vehicle (ZEV) credits and
  • Non-ZEV regulatory credits.

On April 24, as I noted at the time, Tesla disclosed merely its $15 million in ZEV credits. But it kept its non-ZEV credits secret, and for a very good reason, with this kind of earnings chart:

Today, in its 10-Q filing, it disclosed what was really going on with one sentence in a note discussing the composition of its revenues under the heading, “Automotive & Services and Other Segment” (I added the bold):

“Additionally, there was an increase of $170.6 million in sales of non-ZEV regulatory credits to $200.6 million in the three months ended March 31, 2019.”

Those regulatory credits in Q1 of $15 million in ZEV credits plus $200.6 million in non-ZEV credits amount to $215.6 million, or 4.8% of the Tesla’s revenues. These disclosures show to what extent it depends on the taxpayer for revenues, profits (well, lower losses), and cash flow.

Without those credits:

  • Gross profit wouldn’t have been $566 million but merely $350 million.
  • Net loss wouldn’t have been $702 million but $917.6 million, which would have been its largest loss ever by far.
  • Operating cash flow wouldn’t have been the whopper of a negative $919.5 million that it disclosed on April 24, but a negative $1.137 billion!

This is the reason Tesla doesn’t disclose these credits fully during its earnings release when the media might jump on it (possibly) but delays the disclosure until it files its quarterly 10-Q with the SEC usually the following week.

Without the revenues from selling those taxpayer-funded credits to other companies, Tesla’s operations as an automaker and a solar-panel maker would look a whole lot worse than they already do. And this comes on top of the enormous benefits Tesla still reaps from the now phasing-out taxpayer-funded credits that buyers of its vehicles obtain from the federal government and from some state governments.

The ruse that helped Tesla’s shares jump 20%. Read..Tesla Reports Another Doozie

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

  71 comments for “Tesla Discloses Record Pollution Credits for Q1: Without Them, it Would Have Lost $918 Million and Bled $1.14 Billion in Cash

  1. fozzie says:

    Tesla is the true Government Motors.

    • GP says:

      Government subsidies skew the markets and suppress free competition.

      On a personal level, I don’t feel good about my tax dollars being used to subsidize a rich dude buying a Tesla. Especially if that rich dude flies twice an year for vacation, has a 5k sqft mansion and a boat.

      • GP says:

        To clarify, I am against EV subsidies not because it goes to ‘rich guys’. I am against it because of its ineffectiveness (above example cites how a carbon footprint heavy person can avail a tax payer subsidy that’s meant to decrease carbon emission).

        • max says:

          The economic principle here is simple: “He who pays the piper calls the tune.” If the state pays any group on a permanent basis, it calls the tune. The recipients become dependent on the flow of funds from the state. This subsidy buys political cooperation.

          Such payments are a violation of the rule of law. The welfare state treats at least one group differently from others. It extracts wealth from taxpayers, and then it transfers this wealth to political special-interest groups. This is a violation of biblical justice: “You shall do no injustice in court. You shall not be partial to the poor or defer to the great, but in righteousness shall you judge your neighbor” (Leviticus 19:5).

          Any coercive transfer of money transfers economic authority from one group of consumers to another.

          The state’s subsidy is different from a bailout. A subsidy is permanent. A bailout is temporary.

          A subsidy needs a different justification. The economic conditions are permanent, yet politicians grant immunity from market competition to some beneficiary. Customers refuse to pay for services rendered by the company. Nevertheless, the politicians continue to keep it in business. How can this be justified? Politicians never discuss the economic logic of the subsidy, namely, that it is a deliberate intervention that overrules the decisions of customers. They argue that there is some national interest in maintaining income for the investors, managers, and employees of a firm whose output is not in demand by customers at prices that customers are willing to pay.

          Subsidies can come in the form of protection, such as tariffs or import quotas. They can come in the form of regulations that apply to an entire industry, but which have the economic effect of increasing the cost of entry into the industry. Established firms can more readily meet the regulations because they have teams of lawyers who are skilled in dealing with regulators. Newer, undercapitalized firms do not. The economic effect is the same as a direct subsidy to established firms, but it is less visible to the public. The voters do not understand the nature of regulation. They support the regulatory system because they believe it protects them from unscrupulous businessmen. In fact, it protects them from innovation.

          Subsidies from the state strengthen those companies that cannot compete efficiently in a free market. This is why they seek permanent subsidies from the government. Their use of scarce resources did not satisfy customers, who refused to buy at the prices asked by the sellers. So, the sellers go to politicians and ask for help. When they get help, this shifts income away from efficient companies that did persuade customers to buy. These companies were the most efficient consumers of capital, raw materials, and labor, as determined by customers. The shift of resources to state-subsidized firms therefore reduces efficiency as determined by customers. Put differently, it increases waste.
          Any subsidy sets a precedent. If one firm or industry is legally entitled to a subsidy, why not some other firm or industry? Is there some philosophical objection against allowing one subsidy but not another? If so, it is not intuitively obvious. So, the difference must have something to do with perceived need. At this point, corporate managers see an opportunity. They can hire an economist to make a plausible case for a subsidy to the company. Economists are always available for hire at some price. To spend money to hire an economist to argue in favor of a specific subsidy to a specific company may gain the company a great deal of money.
          A typical buyer does not perceive that innumerable state subsidies to businesses reduce the customer’s economic authority. He will have less money to make purchases.


      • james wordsworth says:

        Oil and gas subsidies make gas prices far far far too low. That is what electric car companies face. The “subsidies” to electric car makers are minuscule compared to gifts to O&G companies … and at least they are taking us in the right direction and helping to get the volume to bring down production costs. The future is not with the ICE. Let’s get away from it as fast as we can (and as a side effect bankrupt a few Middle East theocracies).

        • Sinai Caryatid says:

          Oil & gas subsidies are miniscule compared to the government revenue they bring in, which subsidize the rest of government.

          To complain of “Middle East theocracies” whose entire economies are subsidized by oil yet being incapable of recognizing economies everywhere are subsidized by the cheap energy oil represents is self-contradictory.

        • nicko2 says:

          Which is why all major governments, China included (though not the US quite yet) are rolling out carbon taxes. This will further erode any so called ‘economic edges’ of fossil fuels.

      • Chris Garbor says:

        These Tesla’s are just toys for the rich. It makes them feel better so they spend less money with their shrink and take less antidepressants. This will all change for them once Tesla goes bankrupt. When this bankruptcy occurs perhaps the triggered Tesla owners worshipping Musk and drinking his koolaid can switch over to worshipping another fake no profit unicorn like WeWork.

        • Hugh Cockrill says:

          Have you ever driven a Tesla or any other electric car? They are the wave of the future. Try it, you’ll love it, and you’ll never buy an ICE again.

  2. JoshW says:

    How many of these credits does tesla “earn” on a quarterly basis? Are they “earning” far less then they are using at this point or is the overall usable credits maintaining roughly the same balance?

  3. Lemko says:

    Excellent Article!

  4. Old dog says:

    Elizabeth Holmes, founder of Theranos charged with two counts of conspiracy to commit wire fraud and nine counts of wire fraud, is living it up in San Francisco. The thought of spending 20 years in prison apparently hasn’t crossed her mind.

    I can’t think of a better candidate to replace Musk if he gets the boot.

    • IdahoPotato says:

      She can’t. She settled “massive fraud” charges with the SEC for a paltry $500,000 on the condition that she will not head a company for 10 years.

      She said “i don’t know” over 600 times in those depositions.

      She still has about $250 million in the bank after this. When Americans talk about China being a haven for shady business practices, it’s hilarious.

      • Unamused says:

        =>She still has about $250 million in the bank after this

        If she gets off without serious prison time and confiscation of assets that wipes her out, you’ll be able to call it a lucrative business model, and not a crime.

        A lot of people would be more than eager to do two or three years for some serious millions – and a lot of people have done exactly that, and even gone on to win elections. It sure beats slogging away at a cushy six-figure job with full benefits and perks. Personally, I think financial incentives for corporate criminality should be replaced with hard confinement disincentives and profiting from crime should be 100% + disallowed, but that’s just me.

        As usual, the wages of sin are spectacular. USA! USA!

        • alex in san jose AKA digital Detroit says:

          Yet another way the good old USSR did things right. There were no “country club” prisons. You committed a crime, no matter how high up or wealthy you were, you went to the gulag or the wall.

      • Escher says:

        If you see the list of board members of Theranos, you can see how she is likely to get off easy.
        Those people will do everything in their (considerable) power to make this scandal go away.

        • Erle says:

          Those clowns on the board were insurance for her in not taking any real punishment for a scam. Do you think that Henry Kissinger would get any penalty?

    • Mike Are says:

      I think these people are clueless to where this is going. The internet spreads their nefarious deeds far and wide. All it is going to take is a semi-educated gun-nut on disability that gets revoked or reduced to go on a rampage.

      Hell, the internet can tell you where everyone lives, if you know where to look. This is not the 1960’s folks. Gate communities don’t mean squat.

      And once it starts……with national news, etc. look for tons of copy cat acts.

    • Chris Garbor says:

      It’s too bad Musk and Holmes didn’t form a fraud power couple have have a couple of grifter babies.

  5. I am surprised that in an anti-climate change WH this kind of subsidy is allowed to persist. If I was holding the stock I would be very nervous.

    • Howard Fritz says:

      All the smart money sold years ago…

    • Unamused says:

      It’s the kickbacks – er, campaign contributions. Unless you’d like to believe it hasn’t escalated to bribes deposited in numbered overseas accounts.

      Venality scales well, believe me.

    • stikman says:

      At least tesla made something, that works-albeit fueled on taxpayer money, but tesla is a real product.

  6. Eastwind says:

    Does Tesla get to set the price at which it sells these credits to other companies? Do the credits have to be sold in the quarter they are received?

    The reason I ask is I was wondering to what extent the credits represent a hidden piggy bank that Tesla can tap into at will in order to shore up a relatively worse quarter.

    If they don’t get to set the price and they have to sell them in the quarter they are received, then it is just bonus cash flow over which they have little control. OTOH, if they can adjust the price they sell the credits at and they can just hold them rather than sell them, then they can raise their credit offering price when they don’t need to sell them as much, and lower their offering price and sell the credits cheap when they really need to raise cash badly.

    • Wolf Richter says:

      non-ZEV credit sales: Tesla has long-term contracts to sell them to “existing customers” — meaning other companies.

      ZEV-credit sales: Tesla does not have long-term contracts to sell them, and “revenue from sale of ZEV credits fluctuate by quarter depending on when a contract is executed with a buyer,” it says in the 10-Q.

      Prices are agreed on between the seller Tesla and the buyer. So whatever the buyers agrees to pay is what Tesla gets. In terms of timing, it seems Tesla has some control over when to sell the credits, but ultimately a deal needs to be made with a buyer, or there is no sale.

      • Eastwind says:

        Thanks for the additional info.

      • Squarepeg says:

        And I’m interested to know who the buyers are?

        • PressGaneyMustDie says:

          Big hint for Squarepeg (not trying to be rude): Chrysler. CAFE fleet requirements used to make answering your question easy when G**gle was a reliable search engine. Guessing for small-fry runnersups: Rover, Jaguar, Daimler/Mercedes, Rolls, Bentley, et al. But Chrysler is probably number one buyer of these credits based on the mpg of Ram trucks, Jeeps, minivans, 300s and Challengers. Sad, as a v6 300 is my Ab Fab favorite rental car with the current rental-grade Impala for close to $30 a day (almost 300 hp making 30 mpg at 70 mph). And a v8 challenger is a very comfortable turnpike cruiser.

      • Alfred says:

        If Tesla is selling the credits to other companies why do you think I’m paying for it with my taxes?

        • Wolf Richter says:

          It’s a triangular relationship between the government, its credit-recipient (in this case Tesla), and the company that is dodging a government tax by paying a smaller abmount to Tesla instead of paying a larger amount to the government. It’s set up to look like the taxpayer doesn’t pay, but the taxpayer does pay by not receiving money that Tesla receives instead.

        • Alfred says:

          I’m new here so I checked your “comments rules” but there was nothing about you not including a “reply” button and if it means to you discussion is closed, or not.

          Your reply to my question stated, “ the taxpayer does pay by not receiving money that Tesla receives”. This taxpayer wasn’t going to receive money that went to Tesla from other companies to begin with. The money going to Tesla only reduces the income of the Federal Government increasing the Federal Debt if Federal Spending is not equally reduced. Reducing Federal Income by this ploy and any other tax write off only increases my percentage share of Federal Income, it does not increase my rate of tax payment. Therefore my taxes are not paying for this.

      • Wes says:

        Mr Richter, could you provide more information concerning how the U.S. taxpayer funds the credits? Thank you.

  7. Howard Fritz says:

    All the smart money sold years ago…

  8. NY Geezer says:

    My understanding of cap and trade is that the government gives permits to regulated polluters equal to each polluter’s baseline emissions. Since Tesla produces only non-emission producing EVs is should have a baseline of zero emissions. With a zero emissions baseline it should not have received any pollution credits and it should not have had any credits to sell. Does anybody have any information about how Tesla is entitled have received air pollution credits for vehicle emissions that its EVs do not produce?

    • Unamused says:

      => With a zero emissions baseline it should not have received any pollution credits and it should not have had any credits to sell.

      It was the easiest way to load TSLA up with taxpayer-funded subsidies.

      By now it should be clear that TSLA only appears to be an EV maker and is instead playing a con to discredit the industry and put it out of business in the US.

      • Dice Jones says:

        I was reading another economist/economics-writer today, whom I also like. But for him my impression at the end of that particular article is that he’s like a gambler at a rigged-race race track trying to pick horses from the racing form info when what he should be doing is hanging out by the stables finding out how each race is being fixed.

        At some point, the numbers and stats of a rigged game don’t mean anything. When its the government picking winners, give up on stats.

        • Bet says:

          Um. Just try to set up
          A race at the horse track. I think in 20 plus years I maybe saw one work out. THe purses many times are big enough why try . plus too many variables to risk and finally. If a rider looks to not be riding their mount hard enough? You get called into the stewards and can get fined or suspended. Horses and riders are drug tested. A losing favorite? Gets tested right after the race as do the winners
          I rode. I groomed I trained. And guess what. It’s parimutuel. The track is the platform. If it’s not to be trusted then the public won t come to gamble I am fingerprinted at every track by the fbi. If I get suspended on one track, all tracks honor it. Even internationally . We get penalized for cheating, hard, we can lose our livelihoods and career .
          on the other hand…wallstreet??
          Don’t insult horse racing with the dishonest slag heaps in finance

    • Mean Chicken says:

      I’m not convinced these are actually zero emissions transportation, considering they compete for electric power which in large part isn’t emission free?

  9. SimplyPut7 says:

    I was told by a Tesla investor today, it’s a momentum play. They said ‘You don’t look at Tesla like other stocks’ – that was after showing them your graph above.

    They understand Tesla doesn’t make sense, they don’t care, it’s the new Bitcoin for them.

    • John Taylor says:

      I think everything is a momentum play nowadays. Look at the entire S&P over the last year. It’s either credit on, steady climb or credit off, quick drop.

      Think of it this way … stocks go up and down based on short term supply and demand.

      The underlying financials only affect pricing if the bulk of the recent buyers and sellers are following them.

      In a world where money is mainly invested by blind ETF (diversification takes away the need to look at the balance sheet, right?), then prices within an index will more or less go up and down in tandem.

      If the money of net sellers is overall outpaced with the money of net buyers, prices will go up. Net buyer money is fuelled by stock buybacks, regular 401k contributions from corporate employees, and public pension funds trying to close their funding gaps. Aside from the stock buybacks, the majority of money is invested passively through ETF’s.

      Fudnamental analysis doesn’t come into play the majority of the time – and the overall market is overpriced enough that it would have to correct significantly before fundamental analysis would start to work again.

      That doesn’t mean a crash is inevitable because more money can always be pumped in – it just means that buyers at this level aren’t concerned much with the financials.

  10. andy says:

    Anyone seeing market euphoria yet?
    Cloud companies setting new highs almost daily. So is fintech (Paypal, Visa, MasterCard, etc).
    Just need to see Russel2000 catch up to Nasdaq100 and I’ll be euphoric for the next 30% up

    • andy says:

      Google’s new all time high today. Microsoft about to break $1 Trillion. Average dividend of 4 largest stocks is about 0.7%

  11. MB732 says:

    That Tesla is allowed sell credits they receive to build to build ZEVs is nuts.

    Are they selling and booking in Q1 sales of credits for cars that they will build in the future? If so, the credits should be a liability since Tesla must keep producing cars at a loss to generate the credit they already sold.

    Anyone know how this works? Sounds really desperate.

    • Smokey says:

      Yes, I too would love more info. For instance, are these the sort of ‘carbon-offset’ credits used by polluting companies to justify that big coal plant?

    • Ex-CDN says:

      They are desperate.

      My understanding is they got the money and booked some revenue now and deferred some.

      Hope FCA hedged their money paid to TSLA…

  12. Go Build It says:

    I used to work as a manufacturing manager, before I got a corporate boot in the hiney and got replaced by a 20 something on a H-1B visa. I know what it takes to turnaround and improve a manufacturing process. Been there, done that, and by now I’ve thrown away the corporate t-shirt that was my reward.

    Tesla not even shows no sign of knowing how to do that, but they aren’t even to the point where the curve is starting to show signs of flattening out before you do get it to go upwards. It keeps getting worse, despite Musk’s flailing about.

  13. Phoenix_Ikki says:

    Don’t think any of the Tesla zombie head cultist will give two craps about this kind of info, since I am as far opposite as one of their cultist, I find this interesting and sadly it’s overlooked by analyst and the press. Sadly, given their stock rose 3%, I doubt anyone else give a damn either.

  14. robt says:

    WeWork just posted a net loss of 933 Million,
    sorry, adjusted EBITDA loss of 193 Million,
    sorry again, a ‘community-adjusted’ EBITDA PROFIT of 233 Million …
    that was easy, and numbers are fun.
    Get ready for the IPO; it’s like 1999 all over again.

    • timbers says:

      Meanwhile, that IMF dudette LaGrange can’t figure out why inflation is “mysterious” low. I guess she spends all her money on rice & beans and has never owned a house or investments and believes the inflation fraud reports.

      • Erle says:

        +10 for sarcasm.
        She has looked a trifle pale lately and will have to go to some posh sunny site for her beauty treatments.- Tax free of course.

  15. Max Power says:

    Looks like Tesla needs to raise cash…


    But… but… but… didn’t the leader of the cult pronounce that they have no need to raise more cash??

  16. ZeroBrain says:

    I was curious about how much the bottom line is being affected by growing the Supercharger network – an ongoing investment that could be shut off during a cash crunch. Although I don’t see a cash value attached, it looks like they only built 70 charging stations and 770 stalls/”connectors” this quarter, so it turns out they already mostly cut this expense. Ouch.

    • ZeroBrain says:

      Edit – That rate amounts to 20% and 24% YOY growth in supercharger stations and stalls, respectively, so actually they haven’t really slowed down after all.

  17. Chris Garbor says:

    Tesla will dry up and blow away like a dog turd once these credits stop.

    • Mike R says:

      I think that has already happened. They are just delaying the ‘reporting’ of it, like they do with everything else. I used to think that their cars were quite bland, and lacked personality, along with that of Musk. With owners/drivers having poor taste. Now I view the cars as quite ugly, just like these 10k’s, and their negative everything financially. And their owners/drivers, as simply soul less.

  18. Xypher2000 says:

    As the ponzi scheme unravels… so are the days of our lives

  19. Mitch says:

    How is it possible that TSLA wouldn’t be mandated to disclose such material facts in the original earnings release notes and conference call? It seems an ancillary item providing a $200 million delta to net income would exceed any rational beings definition of materiality. I know regulators are consistently asleep at the wheel, but this seems egregious even for them.

  20. Art says:

    Apparently these magical “Pollution Credits” are willfully ignorant of the mineral mining pollution, mostly non-“renewable” electrical grid, and the e-waste involved in the EV industry.

  21. A Citizen says:

    Tesla, oxygenated fuels, solar power industry, drilling and pipeline interference — a rogues gallery of energy market distortions caused by the government-envirolobby industrial complex.

  22. CreditGB says:

    If the Kool Aid drinkers don’t care to acknowledge the obvious, they surely will not care about ZEV credits.

    It seems that the “smart money” whomever that is, gets in, rides the tide, then quietly exits, dealing this dumpster fire off to the “retail investors”.

    Saw this same movie several times but with different actors.

    • Mean Chicken says:

      ZEV credits have the potential to keep this gravy train rolling for decades, surely they’ll be reinstated and increased several fold, this explains the premise for their temporary expiration.

      Pile it on those who are trapped, debt is good, just look at the MIC budget!

      • Ta Da! says:

        “9. Alan Greenspan’s greatest strengths were those of a politician. The way capitalism is supposed to work is that when people get in trouble, they fail. Smart, competent people come in, take over the assets, reorganize, and start again from a sound base. Greenspan’s way was to prop up failure. He and the politicians were taking money from competent people, giving it to the incompetent people, and telling the incompetent people, “Here, the government is on your side. Now you can compete with the competent people with their money and our support.”” —Jim Rogers


        “The way system is supposed to work – when you fail you fail – competent people come in and take over the assets. But what they’re doing is taking assets from the competent people and giving them to the incompetent people – it’s absurd economics and absurd morality.”


        • Ta Da! says:

          Note for you speculaters out there: The first article linked has a quote, that the commodities market is in a secular bull market. But, there is no date in the artiticle. So this might not be Rogers. current opinion.

  23. Stikman says:

    Is there a site to read on how these ‘credits’ work, diagram perhaps?

  24. HR01 says:

    Perhaps Musk gets a margin call today? $232 or thereabouts allegedly the trigger level.

    At last count, Morgan Stanley had the biggest exposure to Musk’s lifestyle, somewhere around $340 million. Of course MS still has TSLA as an ‘Equal Weight’ rating on the stock with a price target of $240.

    Ah well, no problem, just pledge more shares.

  25. Mean Chicken says:

    Something in the works to roast bears again.

Comments are closed.