manages the Zero Emission Vehicle program, which has been adopted by 10 other states as well. Those who exceed the program's standards, such as Tesla, are given credits. Credits per vehicle vary depending on the car's drivetrain and the electric range. These credits can be sold to manufacturers who are slow to go green and need to achieve compliance. Fiat Chrysler, General Motors (GM), and Honda have purchased credits to avoid heavy fines while packing their fleet with gas-guzzling automobiles. However, Tesla's income from the sale of credits is expected to decline and disappear completely in the next few years. It depends on two things: the changing rules in the jurisdictions and how fast other automakers move to zero emission. Trends in the jurisdictions indicate that some requirements will become less stringent, which is bad news for Tesla as companies are expected to be able to more easily comply on their own without purchasing credits. But if requirements become more rigorous, Tesla may continue to make a significant amount of money selling credits. There is a lack of transparency around zero-emission vehicle credits, which makes it difficult to predict how Tesla will be affected quarter to quarter. If regulatory credits disappear, many profitable quarters would have been negative for Tesla. Essentially, Tesla seems to be losing money selling cars and making money selling credits. How much it is losing no one really knows because the company doesn't disclose overhead and production costs. The company's plans for the future do not necessarily instill confidence either as Musk stresses that Tesla vehicles will become more affordable, which will cut Tesla's profit margin that he already claims is around 1 percent. Musk continues to claim that Tesla will grow so fast that the loss from credit sales will not be noticed, but so far there doesn't seem to be any evidence to back up his claim.7 Critical Thinking Questions 1. How does Tesla profit from regulatory credits? 2. Why is Tesla's income from the sale of credits expected to decline? 3. What will happen to Tesla if regulatory credits disappear?

manages the Zero Emission Vehicle program, which has been adopted by 10 other states as well. Those who exceed the program's standards, such as Tesla, are given credits. Credits per vehicle vary depending on the car's drivetrain and the electric range. These credits can be sold to manufacturers who are slow to go green and need to achieve compliance. Fiat Chrysler, General Motors (GM), and Honda have purchased credits to avoid heavy fines while packing their fleet with gas-guzzling automobiles. However, Tesla's income from the sale of credits is expected to decline and disappear completely in the next few years. It depends on two things: the changing rules in the jurisdictions and how fast other automakers move to zero emission. Trends in the jurisdictions indicate that some requirements will become less stringent, which is bad news for Tesla as companies are expected to be able to more easily comply on their own without purchasing credits. But if requirements become more rigorous, Tesla may continue to make a significant amount of money selling credits. There is a lack of transparency around zero-emission vehicle credits, which makes it difficult to predict how Tesla will be affected quarter to quarter. If regulatory credits disappear, many profitable quarters would have been negative for Tesla. Essentially, Tesla seems to be losing money selling cars and making money selling credits. How much it is losing no one really knows because the company doesn't disclose overhead and production costs. The company's plans for the future do not necessarily instill confidence either as Musk stresses that Tesla vehicles will become more affordable, which will cut Tesla's profit margin that he already claims is around 1 percent. Musk continues to claim that Tesla will grow so fast that the loss from credit sales will not be noticed, but so far there doesn't seem to be any evidence to back up his claim.7 Critical Thinking Questions 1. How does Tesla profit from regulatory credits? 2. Why is Tesla's income from the sale of credits expected to decline? 3. What will happen to Tesla if regulatory credits disappear?

Auditing: A Risk Based-Approach to Conducting a Quality Audit

10th Edition

ISBN:9781305080577

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter10: Auditing Cash And Marketable Securities

Section: Chapter Questions

Problem 69RSCQ

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