Why This Data Point From Tesla's Q1 Earnings Spells Trouble For Legacy Automakers

Tesla Inc. TSLA posted strong quarterly results on Wednesday, with positive commentary from the management on the earnings call. But one particular data from its report signaled legacy automakers could be struggling with their transition away from internal combustion engine (ICE) vehicles.

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What Happened: Tesla reported regulatory credits of $679 million for the first quarter, more than double from the previous quarter and a 31% jump from a year ago.

Regulatory credits are given by governments to automakers for producing green-energy vehicles, with a fixed amount of credits for each company to earn. Those deficient in the credits can buy from peers who have a surplus.

Legacy automakers usually fall back on pureplay EV makers to make up for any shortfall.

Parsing through the regulatory credits, Loup Funds co-founder Gene Munster said in a tweet that the traditional auto space could be facing trouble. The unexpected increase in Tesla's regulatory credits suggests that the legacy automakers are further behind in their target for EV credits.

"Tesla's competitors are further behind and need to buy these credits to stay compliant," Munster said.

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Why It's Important: Traditional automakers have invested billions of dollars in moving away from gas guzzlers to green-energy vehicles. Global automakers are planning to spend a cumulative $515 billion on batteries and EVs through 2030, according to data compiled by Reuters.

Notwithstanding the concerted efforts, the ramp, however, is slow for any of these automakers to make a meaningful impact.

General Motors Corporation GM sold only 457 EVs in the fourth quarter despite talking up its prospects of becoming the EV leader.

For Tesla, the increase in regulatory credits, however, raises questions. The bulk of the 230-basis-point increase in automotive gross margin may have come from the increase in regulatory credits.

Following quarterly results, Tesla shares jumped 5.57% to $1,031.60 in after-hours trading on Wednesday, according to  Benzinga Pro data.

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Photo courtesy: Tesla