Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

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 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.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.