Tesla’s $739 Million Carbon Credit Revenue Fuels Q3 Earnings Surge

Tesla delivered better-than-expected 3rd-quarter earnings and profits, bringing relief to investors while reversing a trend of declining earnings. The electric vehicle (EV) maker saw its first year-over-year profit growth in 2024, beating expectations in its 2024 Q3 report.

More remarkably, Tesla shows an impressive $739 million carbon credit, also called regulatory credits, revenue for the said quarter. The company reaffirmed its plans to make its EVs more affordable, which added to investor enthusiasm.

Tesla Recharges Earnings with Cash Flow from Carbon

The EV giant’s revenue rose 7.8% year-over-year to $25.18 billion, although this fell short of analyst forecasts. However, the company outperformed on its bottom line.

It reported adjusted earnings of $0.72 per share versus the $0.60 expected, up from $0.66 a year ago, with a net income of $2.5 billion. This beat analyst expectations, which had an estimated $0.59 per share and $2.01 billion in net income.

Tesla’s operating margin climbed to 10.8% of sales, up from 6.3% in the previous quarter and 7.6% in Q3 of last year. The company’s net income grew by 8% compared to last year, breaking a streak of four consecutive quarters of declining profits.

Tesla noted that it is currently between “two major growth waves,” suggesting optimism for the future. It also shared an upbeat outlook on vehicle deliveries, predicting “slight growth” this year. This came as a surprise since market forecasts had expected deliveries to dip from 1.81 million in 2023 to 1.78 million.

Following this announcement, Tesla’s stock jumped about 12% in after-hours trading, adding about $81 billion to the company’s market value.

Another big standout from the earnings report is Tesla’s carbon credit revenue totaling $739 million. The figure is well above the $539 million analysts had predicted and an increase of 33% year-over-year.

How Carbon Credit Sales Boosted Tesla’s Profits

More notably, these credits bring full profits to the company and account for almost 34% of its net income ($2,183 million). This Q3 carbon credit sale is the second-highest since Tesla started selling them in 2009. The highest was during the previous quarter.

These credits, which Tesla sells to traditional carmakers to help them meet emissions obligations, provide significant profits as they can be sold at 100% full margins. Thus, carbon credits have played a pivotal role in Tesla’s overall financial performance.

Since the EV maker began selling carbon credits to other companies, this revenue stream has turned into a billion-dollar opportunity. In the past year, Tesla earned $1.79 billion from carbon credits, marking its highest-ever annual income from automotive regulatory credit sales.

While details about Tesla’s carbon credit buyers are often undisclosed, Chrysler is known to have purchased $2.4 billion worth of credits by 2022. Stellantis, a major auto group, has also been involved, buying significant credits to offset emissions as it targets zero emissions by 2038. This highlights the challenges automakers face in reducing carbon footprints, given the high emissions associated with key EV components like batteries, steel, and aluminum.

China remains another vital market for Tesla’s carbon credit sales. Reports indicate that a joint venture between Volkswagen and FAW Group in China might have purchased credits from Tesla, potentially earning Tesla around $390 million in 2021. However, details about specific buyers in China remain unclear.

Driving Forward: Tesla Eyes 25-30% Delivery Growth

The positive momentum continued as CEO Elon Musk addressed investors during the earnings call. Musk forecasted a 25% to 30% increase in Tesla deliveries for next year and announced plans to roll out a self-driving taxi, Robotaxi, service in California and Texas by 2025.

Tesla had previously announced that it delivered 462,890 vehicles in Q3, with production totaling 469,796 units. About 3% of these deliveries were under operating lease accounting.

This figure compares to 443,956 vehicles delivered in Q2 of this year and 435,059 in Q3 of last year. Tesla’s all-time delivery record remains at 484,507 units, achieved in Q4 2023.

Looking forward, Tesla emphasized that its plans to produce new, more affordable vehicle models remain on track, with production expected to begin in the first half of 2025.

Beyond EVs: Energy Storage Sets New Records

Tesla’s energy storage business also showed strong performance. Although energy storage deployments decreased sequentially in Q3, they hit a record 6.9 GWh, up 75% year-over-year.

Tesla highlighted that energy services and other segments are increasingly contributing to the company’s profitability. It anticipates continued profit growth from these segments as energy storage products scale up and its vehicle fleet expands.

Additionally, Tesla advanced its efforts at Gigafactory Texas, where it is building a high-performance 29,000 H100 cluster, aiming for 50,000 H100 capacity by the end of October.

The energy storage market significantly influences Tesla’s strategy, especially as it diversifies into energy solutions beyond EV manufacturing. This shift is evident in Tesla’s growth in energy storage deployments, with key products like the Powerwall and Megapack battery systems.

In 2023 alone, Tesla deployed 14.7 GWh of energy storage, generating $6.035 billion in revenue—a 3x increase since 2020.

Tesla’s energy storage segment’s growth aligns with the broader clean energy transition, especially as demand for storage solutions rises to balance renewable energy production.

SEE MORE: Tesla Signs A Landmark Multi-Billion Dollar 15 GWh Megapack Deal

Tesla’s Q3 2024 earnings report reaffirms that carbon credit revenue remains a crucial part of its financial performance. It allows the carmaker to boost earnings while continuing its push toward more affordable EVs and expanded energy solutions.

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