Tesla is one of the most emotionally charged stocks on the market. Both sides are passionate about their love, or hatred, for the company. Over the years, Elon Musk has not help matters any with his antics. This only provided fuel for which the bears were all too happy to utilize.
As recently as a year ago, many were questioning the long term sustainability of this company. In other words, would it still be in business? With the balance sheet looking as it was, there was a chance that it could go under.
What a difference a year makes? This post won't go into details about the change other than to state that the balance sheet is now one of the stronger ones in the automobile manufacturing sector.
Nevertheless, the attacks continue.
A commonly used vector is the amount of money the company brings in for emission credits. Tesla signed a deal with FCA a couple years ago that pays it $2 billion. This is done to remain in compliance of the emission laws, most in Europe.
The other day, this headline came out on Bloomberg.
What are emission credits? Basically they are the ability to count another company's cars in your fleet. Thus, for companies like FCA, since they do not produce enough electric vehicles to meet the requirements, they can count some of Tesla's fleet as theirs. Since Tesla is 100% electric, they have credits to spare.
It is one thing for FCA to be paying Tesla. Now, we see that an agreement was reached so Honda can also count some of Tesla's deliveries in their counts.
Honda was newly added as of last week to a European Commission filing in which manufacturers declare their intent to jointly meet greenhouse-gas emissions standards. The Japanese automaker’s entry into the other two companies’ pooled fleet won’t change the conditions of a three-year agreement reached with Tesla in 2019, a Fiat Chrysler spokesman said.
It’s unclear how much money Honda is paying to join a pool populated by Tesla’s all-electric fleet. Selling regulatory credits to other carmakers has been a boon to the Model 3 maker, bringing in almost $1.2 billion of revenue this year.
The Tesla bears are going to have a field day with this. Tesla is likely, depending upon when the deal with Honda kicks in, going to see even greater profits due to the fact they now (or soon will be) having two companies pay them for the right to use their credits.
After all, this is pure cash with 100% profit.
The knock on Tesla, from the bears, is all their profit comes from the credits. Essentially, the claim is the company is making no money on its own. Of course, this is a tilted argument since the companies profit and operating margin keep increasing.
In reality, the company is expanding at a rapid rate. What is ironic is that its competitors are helping to finance Tesla's expansion, probably leading to their own destruction. After all, the deal with FCA is reported to be $2 billion, or the cost of one of Tesla's gigafactories.
Nothing like your competition paying you to beat the snot out of them.
And some state this is a bad thing.
Get ready for two more years of the bears saying that Tesla is only making money because other companies are paying them. It was the mantra for the last year, so why change?
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