Why GM and Fiat Chrysler are buying Tesla’s regulatory credits

One of the more opaque sections of Tesla’s business just became a bit more transparent. Recent  filings demonstrate that GM and Fiat Chrysler have purchased zero-emissions vehicle credits from Tesla, Bloomberg reported Monday.

Tesla’s ZEV credit program isn’t a mystery. The company has brought in nearly $2 billion in earnings since 2010 as it started selling regulatory credits to automakers that needed to offset sales of polluting vehicles at the U.S. And it’s a revenue stream that has been either lauded or criticized for years now as analysts and the media debate whether this helps or hurts Tesla’s base line.

But little was known, until now, about who was doing the buying and — beyond the assumed reason to offset sales of vehicles that make tailpipe emissions.

Bloomberg found recent state filings in Delaware that reveal a little bit more about Tesla’s ZEV customers. GM and FCA both divulged in separate filings in Delaware they touched agreements to buy national greenhouse gas credits, also known as ZEV credits, from Tesla. FCA has four separate filings that disclose agreements to get credits from Tesla in 2016, 2018 and this year.

Tesla declined to comment.

Meanwhile, the GM’s very first and only charge purchase was recent and with a specific assignment in mind. GM already generates an all-electric automobile, the Chevy Bolt, and until recently was creating a plug in hybrid, the Chevy Volt. These sales would seem to be enough to offset sales of its vehicles using tailpipe emissions.

And it has been. GM contends that this is an insurance policy against potential uncertainties.

“We do not need credits for compliance today, but buying credits is permitted under regulations and is used as an insurance policy against potential regulatory uncertainties,” a GM spokesperson said in an emailed comment. ” The filing is a regular procedure that is utilized to protect interests in performance of contractual obligations. ”

Usually, that the ZEV credits have been purchased to fulfill California’s (and a handful of other states) stricter emissions regulations. GM’s comments seem to be targeted toward protecting against national regulationsamidst efforts by the Trump administration to rolls back fuel economy and clean air standards that would presumably be more demanding to automakers.

But as Bloomberg and Tesla’s own CFO Zachary Kirkhorn has mentioned, those ZEV credits stand to become a larger portion of Tesla’s business. A current EPA report found that many big automakers used banked credits, together with technology improvements, to keep compliance in model year 2017. Three large manufacturers attained compliance depending on the energy performance of the vehicles, without using additional banked credits, as stated by the EPA. The graph below, from the EPA’s report, shows how automakers have complied.

However, the EPA notes, 92 percent of these credits are set to expire in the conclusion of 2021 when they’re not used. Even the EPA added that over half of the current equilibrium is held by three manufacturers, and the access to those or prospective credits is inherently unclear, indicating a run ZEV credits later on.

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