Editors note: Tesla contacted us to contest an article analyzing the potential impact of zero emission vehicle (ZEV) tax credits on the company’s financial health. Although the company did not point out any errors requiring correction — and we stand behind the original article fully — we have provided Tesla with the opportunity to address certain points raised by our author.
We appreciate the opportunity to comment on the recent piece by Darryl Siry on the impact of zero emission vehicle (ZEV) credits to Tesla’s business.
Government programs such as California’s Zero Emissions Vehicle Program and others under consideration around the world support Tesla’s goal of accelerating the transition to electric vehicles. As disclosed in Tesla’s S-1 registration filed before our Initial Public Offering, ZEV credits supplemented the launch of the Roadster in June 2008.
In his piece, Siry credits a Tesla Finance Vice President with telling “analysts they could assume every Tesla Model S sold would generate approximately $5,000 in ZEV credit profit.” Based on that incorrect quote, he calculates that “$5,000 of pure profit per car represents a full 26 percent of the projected gross margins on the Model S and more than 50 percent of the projected bottom line.” Siry uses this analysis to imply that Tesla is dependent on the revenue from such credits and the absence of revenue to Tesla from their sale “may be the biggest threat to the viability of the Model S.”
We believe that such conclusions are incorrect as they are built on incomplete facts and an incorrect quote. As a public company our policy is to limit our forward looking statements, so we can’t comment on the specifics of future revenues. However, we can offer some facts to help the reader reach a balanced conclusion on the role of ZEV credits in Tesla’s future.
First, Tesla is not dependent on ZEV credit income. Siry noted that in our S-1 filing with the Securities and Exchange Commission that we generated $8.2 million from sales of ZEV credits, and that they accounted for 85% of our gross margin. However, he conveniently ignored the fact that this was related to 2009 financials. Our European sales had just begun in the second half of the year and we were in the early stages of Roadster production. Siry omitted to pull information from the same table that shows that in the most recent publicly filed quarter, we generated only $0.5 million of ZEV credit income—which represented a mere 13% of our gross margin. We think many readers might have drawn a different conclusion about our dependence had both facts been presented.
Second, the quote is inaccurate – we are not planning on generating ZEV revenue from every Model S we sell. ZEV credits are available for sales of qualifying vehicles in California and twelve other states. Vehicle sales into other states and other countries do not earn such credits.
In fact, we are selling our Tesla Roadster today in 28 countries which makes sales into the thirteen ZEV states far less than half of our total sales. We’ve told investors that we expect to have almost 50 stores around the world over the next few years, so it would be very reasonable to conclude that sales of the Model S into ZEV states in a few years might be just a fraction of our total sales. As a result, it would also be reasonable to conclude that we are not dependent on ZEV revenue from those sales. We certainly don’t believe that the absence of ZEV credit revenue threatens the viability of the Model S.
We hope this presents a more balanced perspective on the role of ZEV credit revenue to Tesla.
Photo: Tesla Motors
