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For years, Tesla Inc. has earned revenue by selling credits to other automakers to offset sales of polluting vehicles to US consumers. These types of transactions have been largely hidden in secrecy – until now.
General Motors Co. and Fiat Chrysler Automobiles NV announced to the State of Delaware earlier this year that they had entered into agreements to acquire federal credits for greenhouse gases from Tesla. Although the deposits are not detailed, they have never been reported before. They also represent the first recognition of automakers that they are turning to Tesla for help in complying with the intensification of US environmental regulations.
The deal with GM will be a surprise for those who thought that years of sales of Chevrolet Volts plug-in hybrids and all-electric Chevy Bolts would leave the largest US manufacturer in evidence of regulatory compliance. But if sales of these models put GM in such a position that it does not need additional credits today, the demand for its battery-powered vehicles is lower than that of its energy-hungry trucks and SUVs. And the company wants to accumulate credits for years to come, when the rules on emissions will harden, especially if a Democrat beats President Donald Trump in 2020.
"This might not be bad coverage," said Mike Taylor, founder and chairman of Emission Advisors, a consultant and environmental credit broker. "If a Democrat is elected in 2020, GM may need credits and prices can go up."
The deposits provide virtually no details on the terms of Tesla's credit sales to GM or Fiat Chrysler, whose past purchases of credits were not disclosed directly, but could be inferred from the reports of the US Environmental Protection Agency. A spokesman for Tesla did not comment immediately.
GM Hedge
The agreement to buy GM greenhouse gas credits was dated February 25 and was reported in Delaware the next day. Pat Morrissey, a spokesman for GM, said the company was buying credits as insurance against "future regulatory uncertainties."
Fiat Chrysler has disclosed Tesla credit purchase agreements entered into in 2016, 2018 and earlier this year, in four separate documents. Eric Mayne, spokesperson for the Italian-American manufacturer, said that US standards are becoming stricter at a rate that "far exceeds" the level of consumer demand for electric cars, necessary for compliance.
"Until the application meets regulatory requirements and there is regulatory easing, we will use appropriations appropriately," said Mayne.
Tesla's Haul
Tesla has generated nearly $ 2 billion in revenue from the sale of regulatory credits since 2010. His state of California, his home country, is mandated to require automakers to sell vehicles. zero emission, or ZEV, in proportion to their share of the state 's automobile market. bigger in the country.
If manufacturers do not sell enough non-polluting vehicles, they have to buy credits from competitors like Tesla to make up the difference. A similar credit system is administered federally by the EPA and the National Highway Traffic Safety Administration.
GM's credit purchases illustrate how challenging US fuel efficiency requirements are, even for automakers that are adding more and more zero-emission vehicles to their lineup. In March, President and Chief Executive Officer Mary Barra announced that the company would spend $ 300 million and add 400 workers to its plant north of Detroit, where the Chevy Bolt is built to allow the production of a variety of products. other fully electric model.
Although all automakers complied with the US rules in 2017, most major automakers have cashed in to achieve this, the EPA said in a March report. According to the agency, more than 90% of the credits held by the industry at the end of the 2017 model year are expected to expire at the end of 2021 when they are not used.
More significant
While Tesla's regulatory credit sales have been limited in the United States and California, it is also possible to obtain revenue from Europe, which is currently enforcing stricter emissions regulations. In April, Fiat Chrysler announced that it would pool its fleet with Tesla's to comply with European Union standards.
In a conference call with potential investors on offers of new convertible bonds and bonds from Tesla earlier this month, CFO Zachary Kirkhorn said credit sales would be a bigger factor Tesla's activities in the years to come.
In addition to first-quarter revenues of $ 216 million from the sale of regulatory credits, the automaker disclosed in a report filed in April that it had $ 140 million in deferred revenues related to credit sales.
The record does not clearly indicate whether these revenues are related to the US agreements that Tesla has with GM and Fiat Chrysler or the agreement between the EU and Fiat Chrysler. Tesla did not report deferred revenue in the form of credits in its quarterly or annual financial reports.
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