May 14, 2013 / 10:41 PM / 6 years ago

Tesla revenue to get boost from selling "green" car credits -analyst

* Tesla relied heavily on “green” car credits in Q1 -analyst

* Credit sales may allow Tesla to repay DOE loan in 18 months

By Deepa Seetharaman

DETROIT, May 14 (Reuters) - Tesla Motor Co may draw about 11 percent of its revenue this year from selling “green” car credits to other automakers under pressure to meet clean air policies in U.S. states like California, an analyst said on Tuesday.

This year, Tesla could make $188 million from selling zero emission vehicle and greenhouse gas credits, Morgan Stanley analyst Adam Jonas said. This is about 11 percent of Tesla’s expected 2013 revenue of $1.7 billion.

The automaker, which makes the Model S electric sedan, leaned heavily on these credit sales during the first quarter when the company reported its first-ever quarterly profit. Tesla shares have climbed about 50 percent since the report.

Credit sales “are a big deal to Tesla,” Jonas wrote in a research note. “At one level, it amounts to a continuous capital raise, funded by the established internal combustion engine auto competition. This is one part irony, one part grand design.”

Under tough measures passed last year, automakers selling 20,000 or more cars in California must ensure that low- and zero-emission cars account for 22 percent of sales by 2025. Eleven other states have adopted those standards.

These policies have opened up a market that benefits companies like Tesla, which has accumulated green car credits because it only sells electric cars. Tesla has been able to generate revenue from selling its credits to other companies.

During the first quarter, Tesla drew $68 million, or about 12 percent of its first-quarter revenue, from selling zero-emission credits. Jonas said Tesla made about $17.1 million from selling greenhouse gas credits.

During the first quarter, Tesla reported a gross margin of 17 percent. Excluding the effect of the credit sales, Tesla’s margin was 2 percent from its core auto business, Jonas said.

“Stripping out the credits reveals a still very low profitability for the core auto business in 1Q,” Jonas wrote in a research note. The figures suggest that “the vast majority of the company’s 1Q gross margin came from the credits themselves.”

Tesla expects revenue from credit sales to fall over the course of the year. Tesla is aiming for a 25 percent gross margin by the fourth quarter, excluding the credit sales, from higher sales of the Model S and more efficient operations.

Revenue from credit sales could “conceivably be large enough” to allow Tesla to pay off the balance of its $465 million U.S. Department of Energy loan in the next 12 to 18 months, Jonas said.

He added that it could also pay for the company’s capital expenditures in 2013 and make up a “significant” portion of capex and research and development costs in the future.

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