When legacy automakers don’t make enough electric vehicles (EVs) to comply with emissions standards, they face the prospect of paying some hefty fines. To help get closer to reaching those standards and to mitigate unwanted expenses, they are allowed to buy regulatory credits from automakers like Tesla (TSLA) which only sells EVs.
This revenue has helped Tesla reach a record five straight profitable quarters. A favourite talking point among Tesla (TSLA) bears is that this revenue is going to soon disappear as legacy automakers finally begin to produce EVs.
One Tesla analyst sees it a little differently. According to Dan Levy from Credit Suisse, Tesla’s revenue from selling regulatory credits is actually going to increase.
Levy estimates Tesla will announce $1.3 billion in regulatory credit revenue at this afternoon’s earnings call, more than doubling the amount from 2019. He also predicts that will grow further to $2 billion by the end of 2021.
Tesla doesn’t announce which automakers they sell credits to, although in 2019 General Motors, Honda, and Fiat Chrysler disclosed they were among the buyers.
Tesla will announced the Q4 2020 and full year financial results when they hold their earnings call at 3:30pm PST this afternoon. Here’s what to expect when they do.
Disclaimer: Darryn holds shares of Tesla (TSLA).