Tesla Analyst Miffed by Credit Sales Missing From Musk's Call

(Bloomberg) -- A Tesla Inc. analyst is disappointed Elon Musk neglected to mention a major source of revenue last quarter was the sale of certain regulatory credits the company discloses days after its initial earnings reports.

While Musk noted in his April 24 letter to shareholders that Tesla sold $15.4 million in zero-emission vehicle, or ZEV, regulatory credits in the first quarter, the company didn't notify investors of $200.6 million in non-ZEV credit sales until posting its 10-Q filing Monday.

When taking the non-ZEV credit sales into account, Tesla's fundamental automotive margins were “worse than first believed,” Toni Sacconaghi, a Bernstein analyst, wrote in a report Tuesday.

“We are disappointed at Tesla's decision to not report or discuss non-ZEV credits explicitly on last week's earnings call, given their material impact on this quarter's automotive gross margins,” Sacconaghi said.

Tesla shares slumped as much as 1.9 percent and were down 1.4 percent to $238.16 as of 3:25 p.m. Tuesday in New York. The stock is down about 28 percent this year.

Tesla's home state of California has a ZEV mandate that requires automakers to sell electric and other non-polluting vehicles in proportion to their market share. If manufacturers don't sell enough of them, they have to purchase credits from competitors like Tesla to make up the difference.

Read more on how California's ZEV credits benefit Tesla

It's unclear from Tesla's filings where non-ZEV regulatory credit sales are coming from. A Tesla spokesman didn't immediately respond to an email. Sacconaghi wrote in his report that non-ZEV includes federal greenhouse gas credit sales. Tesla's total automotive revenue in the first quarter rose $988.5 million from a year ago to $3.72 billion.

Without the benefit of any credit sales, Tesla's automotive gross margin would have been 16.1 percent, Sacconaghi estimated. The company excludes ZEV credit sales from its calculation of automotive margin in quarterly letters to shareholders but doesn't break out non-ZEV credit sales. The margin it disclosed to investors last week was 20.3 percent.

Tesla's sales of non-ZEV credits have been on the rise, and the momentum may continue thanks to Fiat Chrysler Automobiles NV. The Italian-American automaker said earlier this month that it will pool its fleet with Musk's to comply with stricter European Union rules on carbon-dioxide emissions.

It's unclear whether the deal with Fiat Chrysler is already yielding non-ZEV regulatory credit sales. When an analyst asked for more detail on Tesla's arrangement with the carmaker during last week's earnings call, Musk demurred.

“It's a confidential deal with FCA,” he said. “We agreed with FCA not to comment on it publicly, so we must abide by that.”

To contact the reporters on this story: Dana Hull in San Francisco at dhull12@bloomberg.net;Craig Trudell in New York at ctrudell1@bloomberg.net

To contact the editors responsible for this story: Craig Trudell at ctrudell1@bloomberg.net, Chester Dawson, Kevin Miller

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