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Tesla earned $1.79 billion from carbon credit sales last year, as disclosed in its Q4 2023 and annual financial report, bringing its total earnings from such credits since 2009 to nearly $9 billion.
The revenue stems from trading regulatory credits to other automakers who are unable to meet emission regulations in the US, Europe, and China.
Tesla remains profitable by fulfilling its rivals’ needs to meet emissions standards. It is a business that was initially expected to decline. Since the EV giant incurs minimal additional costs to earn these credits, the sales represent nearly pure profit.
According to the recent Q4 and annual 2023 filings, Tesla reported a $433 million income from the sale of carbon credits. The figure represents a 7% decrease year over year compared to $467 million in Q4 2022. But the total annual revenue from selling carbon credits in 2023 increased to $1.79 billion from $1.78 billion. That enabled the EV maker to hit another record high in 2023.
The sustained revenue may have caught the company by surprise, given previous expectations that credit income would decrease as competitors ramped up EV production.
In 2020, Tesla’s former CFO Zachary Kirkhorn cautioned about relying too heavily on this revenue stream. He forecasted a decline in its significance over time.
Contrary to expectations, Tesla’s earnings from regulatory carbon credits have not seen a significant decrease, as last year’s earnings slightly exceeded the previous year’s income.
The revenue generated from the sale of carbon credits has become a substantial source of income for Tesla. In fact, the credits account for 11% of its overall gross margin for the quarter.
The growing sales of carbon credit underscore the value of the EV maker’s clean energy initiatives. This is also evidenced by the growth in another business of the company, energy generation and storage. In Q4 2023, revenues from the sector totaled more than $1.4 million, up from the year-ago earnings of $1.3 million.
With the global focus on reducing emissions and addressing climate change, the demand for carbon credits is expected to rise in the future.
