The only part of Tesla’s business model that generates profitability – gross, operating and net – is the sale of greenhouse gas credits to other OEM manufactures and tax subsidies. Neither of those sources of profitability is sustainable.
The GAAP net income of $105mm in Q4 was 17% below the consensus of $126mm. Regarding net income, Tesla generated $133mm of income from selling Zero Emission/Greenhouse Gas credits to the big OEMs who need them – for now – to remain in compliance with environmental regulations. Net of these credits, Tesla lost $28 million in the quarter (before the fraudulent accounting manipulation). Subtracting these credits from the full-year loss, Tesla’s 2019 net loss attributable to shareholders is $1.5 billion.
The problem with this reliance on the sale of these credits to generate income is that, starting this year, the buyers of these credits (GM, Audi, Chrysler, etc) will soon be selling more than enough EVs and hybrids to remain in compliance. This source of income for Tesla will thus eventually be non-recurring.
With subsidies disappearing and an onslaught of competition, 2020 could be a bloodbath for Tesla in terms of deliveries. Not only is the global auto market contracting, but the much larger, better funded and operationally credible OEMs will be flooding the market with competitive EVs that will significantly cannibalize Tesla’s market share.
There’s just no telling when this Electric Tulip will inevitably crash. But, like with any investment bubble, the popping will happen suddenly and unexpectedly, when the bulls are convinced that the upside is limitless and the bears are in a state of terror