Tesla delivered a fourth straight quarter of profitability as reduced operating expenses and an increase in regulatory credit revenue helped offset a decline in sales due to the coronavirus pandemic.

Tesla’s second-quarter net income of $104 million came despite what CEO Elon Musk called “tremendous difficulties,” including the temporary shutdown of the automaker’s main plant in Fremont, Calif., after local officials issued a stay-home order.

Excluding items, Tesla earned $2.18 per share, crushing analysts’ estimates that were around the break-even line.

Revenue fell 5% to $6.04 billion year over year as total sales of automobiles declined 5% to about 91,000 cars. But automotive gross profit margins were about 25%, or 17% excluding credits Tesla earns as a zero-emission vehicle producer.

“The second-quarter results are more fodder for investors convinced electric cars are the future and that Tesla will maintain its competitive lead in the category,” Barron’s said.

On news of the earnings, Tesla shares rose 4.1% in after-hours trading Wednesday. Year to date, the stock is up about 280%, well above comparable returns of the Dow and S&P 500 as well as Tesla’s automotive peers.

As The New York Times reports, some analysts were expecting Tesla to “lose money as the coronavirus pandemic squeezed the company” by forcing consumers to cut back on spending and Tesla to halt production in Fremont.

Without the $428 million in sales of emission credits, Tesla would have lost $324 million, the Los Angeles Times noted. For all of 2019, it sold $594 million worth of pollution credits.

“Tesla’s business model is currently 100% predicated on selling one-time temporary credits to guys who increasingly don’t need them,” Gordon Johnson of GLJ Research said.

But Tesla also cut operating expenses by 14% to $940 million by, among other things, cutting the pay of salaried employees by 10% to 30% in mid-April.

“The direct cost impact of the temporary shutdown was largely offset by these cost savings actions,” CFO Zachary Kirkhorn told analysts in an earnings call, adding that Tesla has also reduced production costs for the Model Y in Fremont and Model 3 in Shanghai.

(Photo by Noam Galai/Getty Images)

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2 responses to “Tesla’s Emission Credits Fuel $104 Million Profit”

  1. What is somewhat funny is that those that support the ‘clean energy’ company, are the same ones who decry corporate subsidies. Personally, I think any and all subsidies (corporate and individual) should be eliminated. Take this subsidy away, and the company fails.

  2. I have lost respect for CFO.com and am considering unsubscribing, because with the misguided headline and misleading message of this article sourced from the heavily discredited TSLA short seller Gordon Johnson, it is contributing to the Fear Uncertainty and Doubt (FUD) campaign against Tesla being waged by Big Oil and the Internal Combustion Engine Auto companies lobby that plants articles in the mainstream media. I’m happy to note that these guys have lost billions of dollars in the bargain, short selling TSLA, while Tesla supporters have gained wealth and recognition. Even at this “high” valuation, TSLA is still close to the bottom of its exponential S growth curve. Gordon Johnson and his eponymous GLJ Research are getting their credibility wiped as we speak, along with Matthew Heller and CFO.com. Meanwhile even Republicans are joining the Tesla bandwagon as they realize that decarbonizing the planet is the next opportunity to get really rich. Did you know that the fossil fuel industry receives as much subsidy annually as Pentagon’s entire budget? The emission credits are insignificant in comparison to the amount of profit TSLA is poised to make from scaling and software sales over the next decade.

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