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Tesla Sits on a Billion-Dollar Chest of ZEV Credits That Other Carmakers Are Keen to Buy

Tightening ZEV rules in California and other ZEV states will send legacy carmakers scrambling for ZEV credits in the next five to ten years. Tesla will likely benefit, as it amassed a considerable number of ZEV credits worth billions of dollars.
Tesla sits on a billion-dollar chest of ZEV credits that other carmakers are keen to buy 6 photos
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California recently approved a program to increase the minimum zero-emission vehicle (ZEV) requirement to 35 percent of an automaker’s sales in 2026. Automakers that can’t sell enough EVs or PHEVs to meet the required quota risk fines up to $20,000 per vehicle. There’s a way around that, which involves purchasing ZEV credits from carmakers with a surplus. This makes Tesla the king of the ZEV credits market.

The Inflation Reduction Act passed in August still hasn’t revealed all its secrets and implications. Fresh from the oven is the revelation that the $7,500 federal tax credit many carmakers drool over might be a wrecking ball for some of them. Hyundai and Kia are particularly at risk because they cannot meet the production and raw-material origin requirements to qualify for the credit. This will make their electric vehicles more expensive to buy, therefore, less compelling.

With fewer EVs sold, their ZEV quota will shrink, and they will inevitably run into issues in ZEV states. To overcome this problem, they will need to buy ZEV credits from companies with a surplus. The winners are GM and Tesla, which will once again benefit from the tax credit starting next year. Tesla, particularly, is set to gain the most from this situation. Because it sells exclusively electric vehicles, Tesla will always have more ZEV credits than it needs.

According to Automotive News, Tesla logged a stockpile of nearly 752,445 credits at the end of 2020, the most recent year for which the ZEV states have reported automaker balances. The outlet estimates that Tesla has collected another two million credits from the start of 2021 until June 30 this year. To give you an idea, Tesla posted $2.1 billion in revenue from ZEV credit sales in 2021 and Q1 2022 combined. Automotive News estimates Tesla sold its ZEV credits at an average of $3,500.

For now, most carmakers have enough ZEV credits (earned or purchased) to last them through 2025. But given the tightening of ZEV quota requirements starting from 2026, many automakers will become Tesla’s customers for what will be a hot commodity. This is another factor that will accelerate EV adoption throughout the industry. No matter how reluctant they are, carmakers will have to increase their EV production if they want to sell cars in the U.S.

 
 
 
 
 

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