Defalcation??

#Tesla has always been in the news for whatever reasons it maybe. From Musk’s dogicoin tweets to Tesla accepting #bitcoins to #Musk becoming the richest man on the planet, the company and the CEO have always been in the flashlight. So recently tesla hit 1 trillion dollar market capitalization. The company reported 1 billion dollars in profits in the last quarter alone. This is the first ever profit showed by the company since its inception. And this comes at a time when other automobile companies are struggling to remain afloat due to the pandemic. Strange, right? So how is Tesla making these huge profits in this pandemic mayhem where others are struggling for their existence?

First we have to understand the regulatory credits that are given by the governments. In 2020, US and UK governments, in order to promote the EVs, announced regulatory credits for the automobile companies for faster adoption of zero emission vehicles. According to these regulatory credits, a company will be awarded points for producing at least 10% of its vehicles as zero emission vehicles every year. These awarded points can then be redeemed by the companies as tax incentive benefits. If a company fails to produce at least 10% of its vehicles as zero emission vehicles then they will be penalized as per the regulations. Now here’s the catch!

Tesla produces 100% of its vehicles as zero emission vehicles. But other automobile companies like Ford, Toyota, GM are yet to achieve the 10% mark. So in order to enjoy the tax benefits provided by the governments, these companies buy the credit points from Tesla and because Tesla has 90% extra ZEVs they readily sell the credit points. It’s a win-win for tesla and all the other companies as tesla is making profits and the other automobile companies can overcome the government regulations, right?

In 2020, Tesla posted 720 million dollars in profit. But the company showed 1.6 billion dollars in revenue by selling the regulatory credits. If Tesla didn’t sell those regulatory credits then the company would have incurred a massive loss of around 900 million dollars. Ford, GM, Toyota and others are catching up. The focus is shifting towards EVs now. So in short run, these regulatory credits may help Tesla but in long run the weather is not clear for the company.

The second conundrum is that of its presence in the international market. Tesla has only been in the US and European market. In these developed markets, Ford Mustang and Volkswagen are eating the market share of Tesla. Volkswagen has even beaten Tesla to become the top selling EV maker in 2020. With respect to the Asian market, China is the only country where the company has its presence. But as we all know, China has started behaving like China. The government has started checking Tesla’s car for security reasons. #India, the next big emerging market in Asia, has an import duty of 100% for fully made imported cars. And since, the company has no prior presence, no factory in India it’s quite difficult for Tesla to bring down its cost in this highly price sensitive market. On the other hand, domestic players, like Mahindra and Tata and even Hyundai are betting heavily in order to dominate this space.

I am not questioning the prowess of Mr. Musk. He’s a highly intelligent, a prudent and an extremely sanguine person. But given the beleaguered situation, Tesla is not the same which the company showcases. Supply chain maneuver constraints and the meager supply of chips in the world is the latest blow to the company. And given the history, from roadster to model Z to trucks, delivering the vehicles on time has always been a problem for Tesla.