Tesla Loses Money On Every Single Car: Here’s Where The Profit Hides

Tesla making a profit for the entire 2020 year made headlines. Really, it’s the first all-new car manufacturer to survive since before WWII. And it establishes that Tesla is a real, honest-to-goodness established automaker. But Tesla loses money on every single car it has ever made. So the question is how could it have made a profit when there is no profit in building its cars?

Where it gets most of its income is from selling regulatory credits

Employees working at a Tesla factory assembling cars
A Tesla factory in China | Getty

Tesla is valued at $800 billion. That’s more than Ford or GM. In spite of being in the business of manufacturing electric cars and in fact, sold 500,000 last year it can’t squeeze profit from those sales. Where it gets most of its income is from selling regulatory credits

That’s right. Tesla booked $1.58 billion in selling those credits last year. Its net income of $721 without factoring in those credit sales means it’s a loser. It is running at a substantial loss. So what are these regulatory credits? 

The way it works is that some states award regulatory credits to EV makers. But if you are a carmaker and you sell none or just a few EVs in a year you can buy credits to make up what you need to minimally comply. That means if an EV maker is willing to sell the extra credits it doesn’t need you can buy them. 

Tesla sold more credits in 2020 than the previous three years combined

People look at electric vehicles at a Tesla store
A Tesla store in Shanghai, China | Getty

While Tesla sold more credits in 2020 than the previous three years combined this won’t and can’t last forever. Already, all of the carmakers are ramping up EV development. The credit windfall that Tesla is seeing at the moment won’t last much longer. So it doesn’t have much time to get on the right side of the ledger. But that may not even matter.

According to The Motley Fool, just because Tesla the company makes a profit doesn’t guarantee that Tesla the stock will continue on its crazy valuation ride. Of course, that’s not an area that MotorBiscuit delves into. But it raises an interesting point. Because once the credit-selling starts to go away the value of the company, even if it can make a profit on millions of cars a year, won’t be the same. 

Tesla is plowing much of its profit back into the company

In this handout photo provided by SpaceX, a Tesla roadster launched from the Falcon Heavy rocket with a dummy driver named “Starman” heads towards Mars. (Photo by SpaceX via Getty Images)

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So, while on the surface Tesla is looking like an auto success story not seen since before WWII, it is on shaky footing. The good thing is that Tesla is plowing much of its cash back into assembly plants, model development, and technology. And that may be one of the keys as to why it is valued so high.

Whereas GM or Ford are considered old-school manufacturers. Tesla is considered a technology company that happens to make cars. So the stock market looks at Tesla differently than traditional automakers. But at some point, that distinction may fall by the wayside. When that happens it will be interesting to see what type of headlines Tesla will make.