Is This the Real Source of Tesla Motors Inc (TSLA)’s Profits?

Are tax credits the real secret of Tesla’s profitability?
Some analysts have suggested that the source of much of Tesla’s profit may be a credit that the state of California offers for “zero emission vehicles” or ZEVs.

Under the state’s arcane green-car regulations, Tesla gets a credit for each car sold. Those credits can then be resold to other automakers who aren’t selling enough ZEVs to meet California’s requirements.

Tesla may be getting as much as $35,000 each for those credits, according to a Los Angeles Times report this week.

If true, that adds a whole lot of profit to each Model S sale – profit that comes from rival automakers.

The upshot: A profit is still a profit
Tesla has downplayed the importance of the ZEV credits to its business in the past. But the issue has come back ahead of Tesla’s upcoming earnings report, with one analyst telling the Los Angeles Times that the credits could earn Tesla as much as $250 million this year.

Tesla deserves big props for making it to profitability, no matter how it got there. But still, the idea that it’s earning its profits by selling government credits to other automakers might make some investors uncomfortable.

Hopefully, Tesla Motors Inc (NASDAQ:TSLA) will address the issue head-on during its earnings call on Wednesday afternoon. After that, we should have a better idea of how Tesla got to profitability – and what its prospects look like as sales continue to pick up speed. Stay tuned.

The article Is This the Real Source of Tesla’s Profits? originally appeared on Fool.com and is written by John Rosevear.

Motley Fool contributor John Rosevear owns shares of Ford and General Motors. Follow him on Twitter at @jrosevear. The Motley Fool recommends BMW, Ford, General Motors, and Tesla Motors. The Motley Fool owns shares of Ford and Tesla Motors.

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