How Trump will hit Tesla's bottom line

Politico

4 days ago

Donald Trump is vaporizing an easy source of profit for his onetime 'first buddy' and campaign donor Elon Musk.
We're talking about America's opaque but lucrative system of emissions credits — a windfall for Tesla that Trump has been busy dismantling. The president erased the biggest market for the credits in June when he signed a bill to revoke California's vehicle emissions standard.
Republicans then doubled down in the megalaw by removing any fines against automakers that don't meet fuel economy standards.
The consequences may start weighing on Tesla as soon as Wednesday when the company reports its latest financial update.
'I think Tesla is going to take it on the tailpipe,' said Dan Becker, a transportation advocate at the nonprofit Center for Biological Diversity. 'Elon Musk has made an unforced error that is going to cost Tesla a lot of money.'
Environmentalists aren't the only ones coming to this conclusion.
For years, financial analysts have known that these emission-trading systems, which were designed to improve air quality while giving automakers flexibility, are a windfall for Tesla.
Because it produces only electric cars, Tesla can sell its zero-emissions credits to other automakers who fall short of pollution standards. In many past quarters, Tesla would have shown a loss without the money from those credits. Instead it reported profits, forming the basis for the company's sky-high market value.
For example, in the second quarter of last year, Tesla's $890 million of regulatory credits made up 63 percent of its profit.
The impact this year is even higher. In the first three months of this year, with credits removed, Tesla's $409 million in profits would have turned into a $186 million loss.
And now, 'going forward, that source of extra earnings is going to be slim to none,' Pavel Molchanov, an analyst at investment bank Raymond James, said in an interview.
California's clean car credits are critical
The biggest hit to Tesla, watchers say, will be the end of California's market for clean-car credits (though the state is appealing Congress' repeal of its clean-car program).
No one knows how much money Tesla makes from California's market — or any other market — for emissions credits, since the prices aren't transparent like a stock market's.
But Tesla's competitors probably would have paid the electric automaker a lot. The penalty for failing to meet California's rules was $20,000 per individual car, and the per-car requirements were poised to ratchet up dramatically starting with models going on sale later this summer.
Less impactful, but still important, is the megalaw provision that removed any fines against automakers that don't meet Corporate Average Fuel Economy standards. Those rules have been a key driver of improving fuel economy in America's cars since the 1970s.
'Basically, it's an invitation to cheat,' said Becker.
For automakers, an appealing way to cheat — er, not comply — would be to stop paying millions of dollars to Tesla for its fuel-economy credits.
With Trump's new rules, an automaker's 'willingness to pay would soften substantially,' said James Sallee, an economics professor at the University of California, Berkeley.
It's Tuesday — thank you for tuning in to POLITICO's Power Switch. I'm your host, David Ferris. Power Switch is brought to you by the journalists behind E&E News and POLITICO Energy. Send your tips, comments, questions to [e-mail].
Today in POLITICO Energy's podcast: Zack Colman breaks down how Republicans are favoring fossil fuels and nuclear energy.
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Trump's anti-renewables pushThe Trump administration's battle against renewables is ramping up, Benjamin Storrow writes.
On the heels of the megalaw, Interior Secretary Doug Burgum announced that no renewable energy projects on public lands could move ahead without approval from him or one of his deputies. Developers are concerned that it will lead to more rejected projects.
'The Trump administration is extremely anti-renewables,' Michael Wara, a senior research scholar at Stanford University, told Ben. 'I think this is fundamentally distorting the market and the broader transition that's already occurring in the U.S. and occurring everywhere on the planet.'
Burgum is also taking the anti-renewable message to Congress.
On Tuesday, the Interior secretary spoke at the GOP weekly meeting, just weeks after Republicans passed a megalaw with provisions to fast-track fossil fuel projects and phase out clean energy tax credits. Members said Burgum spoke about further unwinding the Biden administration's policies to boost renewables, Andres Picon writes.
Picking winners with gustoRepublicans are embracing big government intervention to help fossil fuels and nuclear power, after spending four years slamming the use of the same federal arsenal to help clean energy, Zack Colman writes.
'They're picking winners and losers, no doubt of that,' said Shuting Pomerleau, director of energy and environmental policy at center-right think tank American Action Forum. 'There has been a convergence of both Democrats and Republicans into the industrial policies propping up the industries or technologies they love with the resources and the legal authorities they have.'
The aims, however, are worlds apart. The Trump administration is offering billions of dollars to fossil fuel producers while rolling back environmental rules. The Biden administration set out to steer hundreds of billions of dollars to clean energy manufacturing in an effort to counter climate change.
Upcoming barriers to wind and solarWind, solar and grid batteries could face more roadblocks once the Treasury Department releases guidelines next month for projects to receive federal tax credits, Christa Marshall writes.
The guidance is the result of an executive order after the megalaw's passage that called for 'ending the massive cost of taxpayer handouts to unreliable energy sources.'
In Other News
Tariff troubles: General Motors' profits in the second quarter fell by more than a third, but its sales of electric vehicles more than doubled.
Curbing crude: China's consumption of oil is expected to hit a peak in 2027 and then fall, as the nation moves away from imported fossil fuel and toward electric vehicles.
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Maryland regulators said they won't change the approvals for an offshore wind project that the Environmental Protection Agency said contained an error.
House Republicans included language in a spending bill that would prohibit Washington from spending any money from its climate lawsuit against the fossil fuel industry.
California Rep. Scott Peters was named Democratic co-chair of the House Bipartisan Climate Solutions Caucus.
That's it for today, folks! Thanks for reading.