If you take the reported valuation numbers seriously, Tesla is now worth a GM, plus a Honda plus a Ford, plus a Fiat Chrysler and a Daimler. That totals up to $183 billion, followed by Toyota which used to be the most valuable car brand in the world, currently worth $174 billion.
That market capitalization should seem particularly remarkable given that Toyota sold 6.5 million vehicles globally last year, compared with 367,500 for Tesla. Toyota, Nissan, Honda, Ford and Chevrolet that each sold millions in the U.S. alone.
So how did this market marvel come about at a time when Tesla’s profitability remains mediocre? Last quarter, the electric vehicle (EV) pioneer reported operating income of only $327 million, putting its operating margin just above 5%. Pre-tax income was just $150 million.
Nevertheless, Tesla’s stock has somehow been on a tear since March, closing at $2,050 per share on August 21.
The only reason for this windfall is because after losing $100 million last quarter, the company was able to report three consecutive quarters of profit thanks to the benefit from regulatory credit revenue nearly quadrupling year over year revenues to $428 million and besting the $354 million posted last quarter.
That gift in government mandated subsidies came from other car makers who get their profit from standard trucks and SUVs.
Those who really get stuck with the tab for this, of course, are the purchasers of jacked-up price vehicles that car companies have a real market for that have to compensate for EV sales losses and penalties.
Tesla’s all electric lineup entitles the company to amass regulatory credits from various sources around the world that are given out to automakers based either on the number of EVs they sell or upon the greenhouse emissions that come from other vehicles sold.
California’s Zero Emissions Vehicle (ZEV) program mandates that automakers must sell a certain number of electric vehicles relative to their total sales.
There are ten other states in the U.S. that have adopted the measure. If an automaker ends the year without sufficient credits, they’re fined – that is unless they buy them from a company such as Tesla.
The federal government’s system for regulatory credits will change beginning for the 2021 model year as Safer Affordable Fuel-Efficient (SAFE) emissions regulations come into place. Nonetheless, up until the new regulations come into play, automakers have received emissions credits from both the National Highway Traffic Safety Administration (NHTSA — the Corporate Average Fuel Economy (CAFE) standards — and the Environmental Protection Agency (EPA) — the Greenhouse Gas Emissions (GHG) standards—depending on the fuel efficiency of vehicles.
Similar measures have been put in place in the European Union, where rules mandate average emissions from new vehicles.
As a result, EU governments are pumping out desperate amounts of money to make EVs free to some buyers in hopes of relieving their auto companies of enormous fines they will soon face for missing their own government-imposed EV targets.
In order to avoid what could have amounted to over $2 billion in fines, Fiat Chrysler paid hundreds of millions of dollars so their vehicles are counted in the same fleet as Tesla, therefore allowing their emissions to be averaged together.
For years, Tesla has been paid by other automakers for the regulatory credits that they acquire and it was a mystery as to who exactly was purchasing the credits. And although it is unclear where all those credits go, Bloomberg reported last summer that GM and Ford had agreed to purchase credits from Tesla.
As observed by Holman Jenkins, Jr. in his Aug. 5 article in The Wall Street Journal, this bait and switch scam can be readily traced back to President Obama’s "vaporware target" of mandating that automotive fleets average efficiencies of 54.5 miles a gallon.
Jenkins wrote, "The fairy tale was treated as the real thing while ignored as too wonky to report was the actual practical, calculated effect: freeing Detroit to make big pickups and SUVs under fuel-economy rules in return for producing token numbers of money-losing EVs to be exploited [along with failed green energy companies like Solyndra] for presidential photo-ops."
The forced Tesla bailout is a perfect example of what occurs when government — rather than the marketplace — dictates what consumers should purchase. If a market for EVs really exists, GM and other automotive companies should be expected to rush in to capitalize on it.
On the other hand, forcing companies to produce and sell EVs at losses not only hurts consumers who pay more for vehicles they want, but also result in EVs being dumped on the market as a deterrent to new EV company entrants.
There is definitely a market for Tesla, and with no doubt that Elon Musk’s company makes fine market-leading products. Some will argue that the EV market, and Tesla’s position in it, will expand enormously with the advent of popular self-driving cars for fleet and personal applications. If so, Tesla’s future stock value may rise on market merit without government-endorsed political gamesmanship.
But let’s not pretend for a moment that EVs powered by big energy-production-intensive- landfill-destined batteries will result in a cleaner environment, much less have any detectable impact on the global climate.
Nor, given the fossil energy needed to recharge them, will they offer any net energy conservation or cost bargain.
As Holman Jenkins wisely advises, "Let technology and consumer tastes, rather than regulatory actions, determine the outcome."
Larry Bell is an endowed professor of space architecture at the University of Houston where he founded the Sasakawa International Center for Space Architecture (SICSA) and the graduate program in space architecture. Larry has written more than 700 articles for Newsmax and Forbes and is the author of several books. Included are: "How Everything Happened, Including Us" (2020), "Cyberwarfare: Targeting America, Our Infrastructure and Our Future" (2020), "The Weaponization of AI and the Internet: How Global Networks of Infotech Overlords are Expanding Their Control Over Our Lives" (2019), "Reinventing Ourselves: How Technology is Rapidly and Radically Transforming Humanity" (2019), "Thinking Whole: Rejecting Half-Witted Left & Right Brain Limitations" (2018), "Reflections on Oceans and Puddles: One Hundred Reasons to be Enthusiastic, Grateful and Hopeful" (2017), "Cosmic Musings: Contemplating Life Beyond Self" (2016), "Scared Witless: Prophets and Profits of Climate Doom" (2015) and "Climate of Corruption: Politics and Power Behind the Global Warming Hoax" (2011). He is currently working on a new book with Buzz Aldrin, "Beyond Footprints and Flagpoles." Read Larry Bell's Reports — More Here.
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