Elon Musk’s Cybertruck Won’t Add To Tesla’s Hefty $2.3 Billion Emissions Credit Haul (Yet)

Elon Musk told investors last week how excited fans are for Tesla’s Cybertruck, a “badass, futuristic, armored personnel carrier.” But there’s one thing the pickup won’t haul: extra revenue from emissions credits, a perk for manufacturing emission-free, all-electric vehicles. It’s just too heavy for these government incentives.

California, and 10 states that follow its zero-emission vehicle rules, mandate that a portion of automakers’ annual sales produce no tailpipe exhaust, creating an opportunity for Tesla to sell credits it doesn’t need to big carmakers who come up short. It also sells credits to manufacturers who don’t meet federal Corporate Average Fuel Economy requirements. Proceeds from these sales were very handy in 2019, helping Tesla top forecasts by analysts (who never know precisely when it will report them). Tesla’s surprise $143 million third-quarter profit last October, which sent the stock on a surge, was goosed by $134 million of credits. Its $105 million fourth-quarter net income got a $133 million credit sales lift.

“Every once in a while you get an analyst saying ‘oh, this is some kind of scam.’ It’s not a scam. They are generating ZEV credits and emissions credits they can sell to other companies because they don’t make any internal combustion cars,” Joe Osha, an equity analyst for JMP Securities with a market perform rating on Tesla shares, tells Forbes. “There’s nothing nefarious about it.”

Separately, Tesla rose nearly 20% Monday to another record high, jumping $129.43 to close at $780 and pushing its market cap to $140.5 billion. Musk is the company’s biggest shareholder and Forbes estimates the share price gain pushed his net worth to $39.3 billion.

Heavy Pickup

Current California rules for Zero-Emission Vehicles, which generate the credits, cover only lighter cars and trucks, meaning Cybertruck (apparently weighing more than 8,500 pounds ), won’t produce the same green bonus Tesla enjoys from Model 3 and S sedans and X and Y crossovers for at least six years. That’s because new rules for medium-duty vehicles, those weighing more than 8,500 pounds, exclude pickups until model year 2027 (typically, model years begin in the latter half of a calendar year). Tesla’s website says Cybertruck may arrive in 2022, suggesting it may be a model year 2023 vehicle.

Tesla has asked California regulators to revise its timetable and bump up the start of new ZEV rules for medium- and heavy-duty pickups to the 2024 model year in a letter to the state’s Air Resources Board, arguing that in terms of technological readiness there’s no need to delay the program for three additional years. California hasn’t altered its plan at this time. Tesla didn’t respond to a Forbes request for comment.

Tesla’s credit revenue “tends to track pretty reliably between 2% and 2.5% of their automotive sales,” Osha says. “Details have been really thin (about Cybertruck) but it seems they’re kneecapped by the absurd weight.”

Though the company is less reliant on them than during its shaky early days, credits brought in $594.2 million of extra revenue last year–with an enviable 100% profit margin. Tesla booked $2.3 billion of ZEV and U.S. emissions credits from 2008 through 2019, with more than half of that coming just in the past three years, based on company data compiled by Forbes. No automaker comes close as a net credit generator.

Tesla is expanding into pickups for a simple reason: They’re the top-selling vehicle in the U.S., led by Ford’s F-150, the perennial volume leader, and have average transaction prices above $40,000. With its heavy steel and aluminum frame and chassis and battery pack weighing well over a ton, Cybertruck is about twice the curb weight of F-150, which ranges from 4,069 to 5,697 pounds. Even Ford’s beefier F-250 and F-350 models, with bigger engines and more towing ability, weigh in below 8,000 pounds.

Cybertruck polarized critics when Tesla showed off the metal hunk with blocky geometry out of the computer game Minecraft. Though its November debut was marred when metal balls cracked windows Musk had described as nearly indestructible, “demand has been incredible” since then, he said last week.

“We’ll sell as many as we can make. It’s going to be pretty nuts. The product is better than people realize even, they don’t have enough information to realize just the awesomeness of it,” he said on the call. Production may start in 2022 and it costs just $100 to reserve a Cybertruck. Tesla claims more than 250,000 people have done so. Musk didn’t provide an updated figure last week.

If California, the top market for ZEV credits, isn’t open to Cybetruck until 2027, can Tesla turn to companies needing credits to meet federal emissions requirements for heavy vehicles? The U.S. adopted tougher fuel efficiency and greenhouse gas rules for trucks in 2016, but manufacturers can probably meet them without need electric-drivetrains for a while, says Margo Oge, distinguished fellow at Washington-based Climate Works Foundation and a former career EPA official who helped draft U.S. fuel-economy rules.

Federal Credit Outlook

“I don’t expect that Tesla will be able to sell (Cybertruck) credits” through 2027, Oge tells Forbes. “The standards will be met by implementing existing technologies,” such as making vehicles lighter, more aerodynamic or using more efficient transmissions and engines, she says. “The only way for Tesla to sell credits in this market is if CARB is successful in implementing EV standards for commercial trucks.”

Julie Domike, an attorney with Washington-based law firm Babst Calland who works with manufacturers on federal regulation compliance, agrees Cybertruck credits won’t be a hot commodity in the near term, but that could change. “It’s hard to predict the viability of that market and where it’s going to be even in two or three years, but I strongly believe there will be a very real market for these credits.”

If there is demand for medium-duty pickup credits, Cybertruck may be the only game in town for a while. Fast-moving, heavily-funded startup Rivian, backed by Amazon, aims to start delivering its R1T pickup and R1S crossover late this year. Rivian tells Forbes those models will be classified as light-duty and qualify for existing California and federal pollution programs. Ford and General Motors, which have their own electric pickup plans, haven’t released curb weights or technical specifications.

Ultimately, to generate significant credits, Cybertruck has to sell in high volume. And despite Musk’s optimism, JMP’s Osha has doubts. “Cybertruck is not going to be a really high volume product,” he says. “Does anybody really believe they’re going to have the Cybertruck running at 10s of thousands of units a quarter? It’s kind of a moot point, to be honest.”