Tesla Motors, as an automaker that only builds electric cars, has a great advantage in its home state of California, which asks carmakers to achieve a minimum amount of zero emission vehicle sales to keep its business in the state.
But, as not all automakers have the power or willingness to develop and market such models, to keep selling cars in the most populous state of the country need to purchase these ZEV credits to meet the draconic Californian standards. So, while enough carmakers have a surplus of ZEV credits to sell, the largest left over comes from Tesla. And that can be seen from its 10-Q and 10-K filings for the recent quarter – the California based company had a $76.1 million contribution to the revenue and gross margin from one-time contracts with various OEMs. That’s a great increase from the $10 million accounted in the previous (June) quarter – though the company expects the contributions to drop in the near future.
ZEV credits had an 8.2% impact on Tesla’s total revenue and if you remove them, then subtract the non-GAAP gross margin and the Powertrain components & related sales we can see that Tesla’s adjusted gross margin is just 21.9%. This compares to the previous quarter – when it was 27.1%. That means the quarter was seriously impacted by the manufacturing changes operated at the company’s sole assembly factory – the company adjusted the process to build more cars, accommodate the introduction of the all-wheel drive Model S and prepare for the output of the Model X crossover.