Tesla’s Dirty (not so secret) Secrets
Tesla earns revenue from several sources. Their primary business is manufacturing and selling cars, but they are also engaged in solar energy and energy storage.
A glance at the company financials indicates most of their revenue originates from car sales. But that, while true, is a simplification.
The revenue from sales of automotive includes regulatory credits, better known as carbon or emission credits.
In some US states, most notably California, vehicles are required by law to meet standards for the emission of carbon dioxide. When manufacturers produce vehicles they receive emission credits. If their vehicles emit more than the limit, they can buy credits from producers who have a surplus.
By producing cars that don’t emit carbon dioxide directly when driving, Tesla has an abundance of credits they can take to the market.
Emission credit sales don’t account for a large share of Tesla’s revenue, but their operating profit is entirely made up of it. Remove it, and Tesla barely breaks even.
As illustrated in the below figure, the revenue from selling credits has grown at an impressive average annual rate of 85 percent from 2012 to 2020.
Tesla bulls are banking on the growth in profits from carbon credit trading to continue. But as competitors move to the market for electric vehicles, their demand for credits will fall.
Tesla has branded itself as the galleon of environmentally responsible companies. But are they really?
Tesla’s life depends on the sale of credits
Their low margin cars compete on the market backed by large subsidies (more than $10.000 per vehicle). Yet, the prevalence of electric vehicles has diminutive effects on emissions.
First, when selling credits, Tesla facilitates larger average emissions of combustion driven cars. And to what use? Zero-emission cars driving down the average emission?
Think again. As it turns out, more than 90 percent of Americans owning an electric vehicle also owns a vehicle with a combustion engine. The subsidized electric cars drive up the total amount of cars.
To add further nuance, the production of batteries for electric vehicles is a polluting process. Electric vehicles thus front load pollution, and to be a greener option than fossil-fueled cars, there needs to be a substitution of miles driven from the latter to the former.
Calculation often takes into account the emissions over the lifetime of a car, to show how electric vehicles are the greener options. But correcting for shorter life spans and indirect effects from carbon credit trades and consumption behavior would make the picture less clear.
The bottom line is Tesla’s life depends on the sale of credits, and as long as they sell them, they aren’t as green as advertised. This priority is fair, but it’s provocative that Musk still poses as an ESG pioneer.
… it was about selling a ‘green dream’ to make money all along
Musk’s decision to load Tesla’s balance sheet with Bitcoin is another sign Tesla is not about reducing the carbon footprint.
Bitcoin is tied to relatively high emissions. It takes more energy to do a transaction in Bitcoin than to do an old-school bank transfer.
Having $1.5 billion in an asset that, according to Digiconomist, emits 37 megaton carbon dioxide every year is a sign of being defeated in the quest for a low emission immediate future.
Or maybe it was about selling a ‘green dream’ to make money all along.
Tesla’s purchases and Musk’s public support and hype of Bitcoin likely contributes to the cryptocurrency’s price appreciation. In turn, it adds to the incentive to spend a very large amount of energy to mine the remaining Bitcoins.
This is mostly done in China (65 percent of worldwide hashing according to Cambridge researchers) since energy costs are low there. Fuelled by an increasing amount of coal-generated electricity, the most notable region for large scale Bitcoin mining is Xinjiang — also famous for hosting the Uighur camps.
Xinjiang also has significant electricity generation from hydroelectricity and wind turbines, but it accounts for less than a quarter of energy output.
But Bitcoin is dirty and it’s hard to see what Musk wants to achieve here. It could be a desperate attempt to improve Tesla’s financials. But with a loyal following of investor-fans, he could have just opted to raise money through share sales.
For now, he appears as a snake oil salesman. His motives are unclear and his actions contradict his stated mission.
