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Theoretically, legacy automakers don’t want the transition to electric vehicles to go too fast. They want to make the most money possible from existing fossil-fueled models and production lines for those models. The investments have been made — into R&D, production lines, supply chains, etc. Now automakers want to get maximum profit out of those models.
When it comes to electric vehicles, it takes a lot of investment to develop a new model, build the supply chain, create the production lines, and, importantly, get buyers aware of the vehicle and eager to buy it. Hence automakers using existing brands, like Mustang, F-150, Equinox, and Escalade. They have to balance pouring money into these new models and living off of the profits of the old fossil-fueled ones.
However, EV startups and EV-only companies want the transition to happen as fast as possible. That allows them to ramp up production and take more market share from their incumbent competitors.
What really doesn’t make sense from legacy automakers, though, is funding these disruptors — sending money to their enemies. However, that’s exactly what they are doing.
Tesla reported its 4th quarter finances today. Included in that, it noted $692 million in regulatory credits in the quarter, and about $2.8 billion across 2024. Other automakers paid Tesla $2.8 billion in 2024, which will just be used to further disrupt their comfy market and run them over in the future. Legacy automakers don’t have to switch to 100% electric vehicles overnight, but by dragging their feet and sending so much cash money to Tesla and other EV leaders, they are digging their own grave. It’s just dumb. Put some effort in and sell enough electric cars that you don’t have to transfer your most threatening competitors millions or billions of dollars.
It’s not clear from Tesla’s reporting how the regulatory credit revenue is split geographically — how much comes from California, how much from Europe, etc. However, the company did include “+ higher regulatory credit revenue” as a highlight in revenue and profitability sections of its financial summary page. Reporting is that we can expect much more of that in 2025 in Europe as some automakers shirk their CO2-cutting responsibilities in favor of paying companies like Tesla to grow faster. In terms of California, it’s less clear what’s going to happen with Trump attacking the state’s fuel economy standards, but it seems likely to me Trump will lose that battle, legacy automakers will slack off nonetheless, and Tesla will make a boatload of cash off of its competitors. Easy work if you can get it.
I have to admit that it’s a bit stunning to me that automakers continue to choose the option of giving their competitors a ton of money instead of electrifying their fleets sooner. Especially when you consider that EVs are the future and you should want to be a leader in the tech of the future, it makes no sense. The only rationale that might make some sense is if you think this is a passing fad and it’s not worth wasting money on more serious EV development. But then how could an auto company exec believe that?…
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