Morgan Stanley’s Adam Jonas has released a new note on Tesla, suggesting an unexpected twist in the EV industry’s emission reduction efforts. Ford’s ZEV credit purchases could potentially finance Tesla’s AI datacenter expansion, raising questions about the irony of carbon reduction strategies in the automotive sector. Morgan’s Stanley’s note was shared on X by Sawyer Merritt,

The ZEV Credit Conundrum

Ford has reportedly committed to buying about $4 billion worth of ZEV credits to maintain fleet compliance on CO2 emissions globally. Jonas estimates that up to 50% of these credits could be purchased directly from Tesla, potentially funneling $2 billion into Tesla’s coffers.

“Ford has disclosed it has accumulated firm commitments to purchase approximately $4bn of ZEV credits to help maintain fleet compliance on CO2 emissions globally in the years ahead,” the Morgan Stanley note states.

Tesla’s AI Infrastructure Growth

Tesla disclosed at the end of Q2 2024 that it had $2.5 billion of AI infrastructure within its PP&E, representing a 65% year-over-year increase. This growth in AI capabilities aligns with the company’s push into autonomous driving and other AI-intensive projects.

Jonas points out the irony in this situation: “Therefore, in an effort to reduce emissions, Ford would purchase ZEV credits from Tesla (with 100% margin to Tesla) which Tesla would, in turn, use to add its own power-hungry (and CO2 emitting) AI super computers.”

The Bigger Picture: Data Centers and Emissions

The Morgan Stanley Global Sustainability team forecasts that global data center build and electricity use will contribute to 2.5bn tonnes of incremental greenhouse gas emissions from 2024-2030. This is equivalent to more than 40% of annual US emissions and triple the data center industry emissions in a scenario without GenAI development.

Tesla’s Unique Position

Despite the apparent contradiction, Jonas believes Tesla is well-positioned to benefit from the growing energy demands of AI and data centers.

“We believe that Tesla’s capability in distributed energy generation (solar) and storage (Powerwall/Megapack) may hold some important cards in the evolution of the US grid as energy usage of compute/data grows,” the note suggests.

EVXL’s Take

This development highlights the complex interplay between EV manufacturers, emissions regulations, and emerging technologies like AI. While it may seem counterintuitive for Ford to indirectly fund Tesla’s AI growth, it underscores the intricate ecosystem of the EV industry. As we’ve seen in recent Tesla developments, the company continues to push boundaries in both automotive and energy sectors. The potential for Tesla’s energy solutions to address the growing power demands of AI and data centers could represent a significant opportunity for the company, further cementing its position as a leader in sustainable technology.

What are your thoughts on this complex situation? Share your perspective in the comments below.