1/ I've dug into Tesla's reg credit sales #'s, and found some surprising (to me) details about their FCA agreement.

In the thread, I've assumed that Tesla sells all its credits to FCA and FCA buys all from #Tesla.

Let's dig further.

$TSLA $TSLAQ https://twitter.com/fly4dat/status/1269748277160734720

2/ The Q1 surprise credit sales can have 3 reasons:

a) Tesla has recognized more sales in Europe
b) sold more ZEV/GHG in the US
c) they've started selling NEV credits in China
( d) sheer fraud)

3/ Let's start with Europe.

In Europe, there is no direct sales of credits. You need to sign a yearly pooling agreement (and you can obviously ask for $$ to do so). These agreements need to be filed with the EU, and they are public.

4/ For 2020, there is a single intra-OEM pool: FCA-Tesla.

All the others (like BMW-Rolls, Merc-AMG, Ford USA-Ford-Europe-etc, Tata-Jag) are within the same group.

5/ This means that in Europe, Tesla can only sell to FCA, and FCA can only buy from Tesla. There is no way for Tesla to sell to anyone else in Europe, and FCA can't buy from others either.

6/ FCA has credit purchase commitments to (at least) Tesla. On the other hand, Tesla most probably needs to sell a certain # of cars to supply FCA with a sufficient # of credits.

7/ @jaberwock2 estimated 60k Teslas worth of credits were needed for FCA at pre-COVID sales levels.

This raises two questions. https://seekingalpha.com/article/4297181-likely-impact-of-eu-emission-regulations-on-teslas-european-sales

8/ First, FCA is most likely only going to sell 25% fewer cars in Europe, reducing the number of BEV/HEV credits needed. But, BEV/HEV sales are still growing at a rate of 20-50% per country, so the # of Teslas needed in the pool drops by more than 25%. https://twitter.com/fly4dat/status/1269706904630067201?s=20

9/ Second, Tesla sold 24k cars in Q1 and will likely sell around 10k in Q2 for a total of 34k in H1. As competition arrives at the end of Q3 with BEV sales at full steam in Q4, although likely, it's not to be taken as granted that Tesla will sell 60k in Europe in 2020.

10/ Either case, if Tesla changed its accounting to allow the delivered proportion of the expected 60k to be recognized in Q1, that's interesting why they only did it now (did they only do it now?). At 24k delivered in EU in Q1, it could have been 24/60=40% of expected EU revs.

11/ Let's move on to China.

There are 2 types of reg credits in China: NEV and CAFC. The system is complicated, but to make it simple: NEV credits can be traded, while CAFC cannot, but a deficit can be satisfied with NEV credits. So the market is in NEV credits.

12/ It is unclear what will happen in future years, but 2019 credits were allowed to be carried over to 2020.

If an OEM is in deficit, the production or sales of their most polluting vehicles could be stopped to make up for the deficit. Actually, I find this smart.

13/ BEV's (or NEV's as China calls them) are given NEV credits based on a set of formulae. Teslas are earning the maximum # of NEV credits, 6 each.

So if an OEM makes 1M ICE's and 0 BEV's, and in 2020 12% NEV credits are required, they need 1M*12%/6=20k Teslas worth of credits.

14/ Due to several factors (% of NEV credits needed growing, a decline in NEV (BEV) vehicle sales due to the reduction of subsidies, partially offset by ICE sales drop, etc), the previous surplus of credits has probably disappeared.

15/ It's close to impossible to estimate precisely how many NEV credits will be needed in a certain year in China. So let's assume that Tesla will sell all that they produce.

16/ In 20Q1, Tesla has sold 18,586 cars, earning them 111.5k NEV credits. In 2019, it was 45,365 cars for 272.2k.

In 2019, a NEV credit sold for $28-$71.

17/ Let's assume that NEV credits trade at the higher and for $71. That means that Tesla's 20Q1 credits are worth 111.5k*$71=$8M. 2019 credits are/were worth $19.5M.

So even if Tesla hasn't sold its credits in 2019, which I find unlikely, they could have booked only ~$28M in Q1.

18/ Worth mentioning that at $71 per NEV credit and 6 credits per car, Tesla can possibly earn in the magnitude of ~$450 per car. Very far from EU/US $$.

19/ To sum up China, although it could have contributed to Q1 reg credit sales, and will continue to contribute some, it's not the answer for the Q1 spike in credit sales revenue.

20/ That leaves us with the US.

We know from the filings that Tesla sells to FCA in the US too, and most probably, the two can adjust sales in Europe and the US according to their needs.

21/ With ICE sales falling in the US too, it's a question if Tesla could have sold that many more credits or at higher prices, even if to other OEM's? I find it unlikely.

22/ But it has to be stated that my assumption that Tesla only sold to FCA in the US was wrong: at least in 19Q1 GM was a buyer too. Probably not a big one though. https://twitter.com/fly4dat/status/1269748291979395074?s=20

23/ So place your bets: what's the answer for the mysterious spike in Q1 reg credit sales? Europe rev accounting change? That small $$ from China? New US buyer/higher prices? Fraud? Pls comment your thoughts!

24/ This thread was inspired and helped by @BradMunchen, @jaberwock2, @markbspiegel, @doogiekidd, @ContrarianShort and a few others not willing to be named.