Tesla’s profit reliance on carbon credits tracks with Musk’s recent bitcoin moves.

I’ve been reading Elon Musk’s market moving tweets for some time.

What can I say? Meh……..each to their own.

But more recently I couldn’t help delving into his possible reasons for about facing on #bitcoin as a means of payment for Tesla vehicles.

To understand his agenda, you need to understand how Tesla makes money.

Tesla’s most recent quarterly net profit was generated through the sale of carbon credits (and gains on its #btc holding) and not directly from car sales.

And it’s the protection of those carbon credits in light of growing comments about bitcoin’s ‘proof of work’ consensus power usage that may well be at the heart of his tweet twerks.

Anonymous has a theory about all of this and other aspects which is well laid out, and well worth a watch. Watch the YouTube above or tap here.

Carbon credits?

Yep, virtual, non-existent assets. Sounds like what gold bugs say about bitcoin, right?

But its more (and less) than that.

Carbon credits are rights to emit carbon that are funded by taxpayers.

Here’s how they work. A government issues credits to car makers that are carbon compliant over and above emission targets set by the Environmental Protection Agency (EPA).

Targets are attached to fuel efficiency improvements and/or the sale of electric vehicles.

Manufacturers with a surplus can sell the surplus to other manufacturers/emitters, which in turn enables other manufacturers to emit more greenhouse gases over and above the EPA limit.

As a result, carbon credits are a step in the right direction but they do not encourage all emitters to lower CO2 emissions, nor to achieve zero emissions.

Tesla is gaming the EPA/tax payers.

Tesla’s Model CC (carbon credit) only works while there are sufficient emitters to buy those credits, and provided that Tesla continues to sell cars, home batteries, solar roofing and other credit stapled entities, at volume.

And while it does that, its non-car sales profits can counterbalance operational losses, and fund/build new factories.

For example, Tesla’s net profit in Q1 2021 (latest quarter) was $438m, but that was as a result of income from carbon credits of $518m. Otherwise, it made a loss.

You see the issue?

Tesla ships out cars and product (good or bad), earns credits and generates profits from the sale of those credits to emitters, who still emit but choose to buy the credits as a slap on the wrist. Net zero incentivised? Nope.

Last quarter, Tesla leveraged up its operational loss with carbon credit sales and paper gains from converting over $1 billion of cash into #btc, which inflated in value - until his recent tweets.

So it seems more than plausible that Elon’s falling out of love with accepting bitcoin as payment (but still holding the bitcoin stash) was more about protecting the flow of carbon credits.

That is, realising that the sale of a carbon credit stapled product in exchange for what anti-bitcoiners call high energy footprint money, would be bad optics for the EPA/government.

Timing, it’s always ….. timing!

Musk’s tweets come at a time when #crypto is bumping into the rusty guardrails of the old economy. This is causing a double impact on crypto prices.

But these old rails were originally set up by regulators, taxing authorities, banking systems and governments before there was internet money.

Bankers want it regulated within their guardrails for fear of what crypto yield curves and decentralised finance (Defi) will do to traditional savings and loans.

Central bankers wonder how cryptocurrencies will coexist within their central bank digital currency guard rails, mainly because other than for a couple of picturesque Islands, China and Dubai, most countries don’t have any yet.

And tax authorities/governments want to tax digital asset gains to fund welfare and spending commitments, instead of issuing more bonds - that being a future state that would no doubt make U.S. Treasury Secretary Yellen and Fed Chair Powell pretty happy.

In reality, they all want a piece of it - and we are yet to hear anyone say that they want to ban or nationalise it (noting that Gold and Silver have been nationalised at their prevailing values in the past, on several occasions).

So how do they achieve this?

The answer can already be found in the State of Wyoming.

Despite Elon Musk’s tweets, regulation is the answer, and not, with the greatest of respect, Elon Musk’s twitter proclivities.

And Wyoming, yup, the U.S. state of Wyoming has laid out the blueprint.

Wyoming has passed laws and regulations to define and regulate blockchains and value tokens as well as crypto banks and businesses that support the ecosystem. Here’s a short summary.

And the state has also built a sandbox where new ideas and technologies can be carried out under the watchful eye of the regulators.

So, the answer is not to try and make bitcoin and crypto fit on old rails which never contemplated internet money. Rather, it’s to build a new framework with appropriate on and off ramps to the existing monetary, credit and tax highway.

And that’s how you build out a new and disruptive asset class.

Crypto regs coming, but buy your car from a car company!

Regulation will be the antigen to cure the fear and uncertainty that currently overhangs crypto markets.

Once sensible regs are adopted in other states and countries, more detail comes out on hydro/waste energy generated coins, and proof of work is replaced with proof of stake or other more user friendly consensus variants, Elon can have his cake and eat cream again.

So as always do your own homework before you buy or sell any asset whether that’s a digital asset, your home, or an asset built from the proceeds of tax payer funded carbon credits.

And for a pure exposure to carbon credits, check out carbon futures.

Oh, and if you want to buy an electric vehicle - check out Volvo, it’s a car company.

Expect us.

Mike.