How Tesla's massive Hertz deal should make the brand's EVs cheaper
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Tesla’s mega deal with Hertz has widened the gap between the US car maker and the rest of the industry.
The order for 100,000 cars is the single biggest order of electric cars to date and could be worth as much as $US4.4 billion ($5.9b) to Tesla, according to reports.
The brand, whose value recently topped $US1 trillion, is now more valuable than the next nine biggest carmakers.
The valuation is remarkable given the fact that Tesla makes a fraction of the cars made by its two closest rivals. Toyota (valued at $280b) and Volkswagen ($160b) each make an estimated 10 million vehicles each year.
Tesla is on track to build about a tenth of this number after having delivered roughly 250,000 vehicles in the past quarter.
A sizeable chunk of Tesla’s profit comes from the sale of regulatory credits, which totalled about $280m in the previous quarter and more than $500m in the first quarter of this year.
A regulatory credit is handed out to carmakers to help promote the development low or zero emissions vehicles.
Car makers are given the credits by governments for producing a certain amount of zero emissions vehicles each year. Car makers are required to have a certain amount of regulatory credits each year and if they can’t reach their required number they can buy them off other car makers or suffer significant penalties.
Enter Tesla, which only sells zero emissions vehicles so has an excess of credits, which it then sells to other companies, boosting its profit at no extra cost to itself.
It has been reported that Stellantis, which owns Fiat, Chrysler and Jeep brands among others, bought more than $2b worth of credits from Tesla between 2019 and 2021.
Tesla’s perceived dependence on the sales of these credits to remain profitable has been one of the reasons the company has been heavily shorted. As more and more car makers go electric, the sales of these credits will dry up.
But the company may be in a position shortly where it no longer needs the sales of credits as its production capacity and popularity continue to ramp up.
It is in the process of building two new massive factories to make cars and batteries in Texas and Germany.
The latest European car sales figures prove Tesla’s growing dominance. In September, for the first time, the Tesla Model 3 was the best selling car in Europe, beating the Volkswagen Golf according to UK publication Autocar.
Second-hand car shoppers are set to benefit, too, as the price of used Teslas should drop when the rental companies renew their fleets in a few years and sell the current stock.