Tesla And Regulatory Credits -- September 8, 2020

 Yesterday, I posted a pop quiz, asking what was wrong with a certain story. This was the post:

I almost got sucked into this story. 

Pop quiz, quick: tell me what's wrong with this story. Here's the nub of the story. What's wrong with this?

He notes that the stock price is implying anywhere from a 40% to 110% market share based upon the average selling price. At its current average selling price of $57,000 and assuming 10.9 million car sales by 2030, that implies 42% market share, Trainer says. Tesla trades at 159 times forward earnings.

This is the problem with that story. Unless I'm misreading it, and it seems I'm not -- based on what is published it seems fairly straightforward: the "analyst' is basing Telsa's earnings on automobile production. Again, this is what the "analyst" wrote:

He notes that the stock price is implying anywhere from a 40% to 110% market share based upon the average selling price. At its current average selling price of $57,000 and assuming 10.9 million car sales by 2030, that implies 42% market share, Trainer says. Tesla trades at 159 times forward earnings.

The "analyst" falls into the same trap most analysts fall into when it comes to Tesla: they don't understand what business Tesla is in. It's the same when folks compare Tesla's market cap with the combined market cap of all other automobile manufacturers combined. That's the problem: Tesla is not an automobile manufacturer. Sure, they make automobiles, but that's not how they make money.

This is how Tesla makes money: from hope, batteries, and regulatory credits.

Tesla makes the most money from selling and leasing electric vehicles, solar energy systems and energy storage products. In addition, Tesla also makes money from selling electricity generated from its own solar energy systems. Best selling energy storage products such as the Powewall and Powepack are another line of Tesla’s revenue generators. These are the typical money-making machines for Tesla. But what you may not know is that Tesla has another source of income that is contributing hundreds of millions of dollars, or perhaps close to a billion dollar in 2020, to the company’s coffers. And that revenue source, which has been generated literally out of thin air, comes from the so-called “Regulatory Credits.”

Not only is Tesla making money on "regulatory credits," but their competitors in the automobile manufacturing business are losing money on "regulatory credits." The latter are paying Tesla for their excess "regulatory credits.