Tesla Could Take a Hit from Likely Loss of ZEV Credits

By · August 05, 2013

Tesla Model S

The Model S: Thanks to swappable batteries, worth more than just its selling price. (Tesla Motors photo)

Tesla Motors has a great record of proving its critics wrong, and it might end up doing so with regards to California’s zero emission vehicle (ZEV) credits. Critics often point to that revenue stream—which rewards automakers fielding green cars—as a major source of profits, but the company says, “Tesla is not dependent on ZEV credit income.”

Its ability to live up to those words may soon be tested. The Los Angeles Times reported in May that, according to a Gartner Group analyst, Tesla could be raking in as much as $35,000 per Model S from selling ZEV credits, to Honda and other companies. Its take in 2013 could be $250 million, the paper said. In the first quarter of 2013, Tesla reported its first profit, $11.2 million, and also the sale of $67.9 million in credits. In 2010, Tesla said in an SEC filing that it had made $13.8 million from Honda alone, on credits for 368 cars.

Credits Could Disappear

Some of that money may go missing, as the California Air Resources Board contemplates a change that could eliminate the bonus credits Tesla earns for having a car, the Model S, with switchable batteries. Battery-swapping currently satisfies requirement for fast fueling, but CARB staff has recommended the phasing out of those swap credits, with a ruling expected from the commission in October.

“No comment,” said Tesla spokeswoman Shanna Hendriks, pointing out that Tesla’s next earnings call is Wednesday.

Musk Says He Can Go it Alone

Elon Musk has been trying to lower expectations about credits, and has predicted profits on operations alone in the fourth quarter. But in the first quarter, when the company made money, it lost $73.8 million on operations. But Model S sales are continuing to ramp up. The stock seems unfazed by any CARB machinations. It stood at $144 per share, up more than six percent, late Monday afternoon.

The highest ZEV credit tier is reserved for cars that can go 300 miles on a charge (check for the Model S) and recharge 95 percent in 15 minutes. The latter is not only beyond the capacity of the Tesla, it’s a bridge too far for any electric car. But Model S batteries can be swapped in less than 15 minutes, and that’s made the car eligible for the major money. Indeed, though Tesla now has major battery swapping plans that include installing switch capability at its Supercharger locations, it may not have bothered without the CARB rule.

The credits are basically doomed as a revenue source, anyway, because nearly every major automaker will field EVs soon and won’t need to buy their way out of legal compliance. Tesla’s credit faucet won’t shut down if the rule changes, but its payments will be much smaller. By 2018, in any case, ZEV credits will be determined solely on battery range and Tesla will have to stand on its own four wheels.

Comments

· · 36 weeks ago

I think it is great if they get credit for having swappable batteries . . . but there should at least be a few battery swapping stations available before they can claim this credit.

· · 36 weeks ago

The "300 miles on a charge and recharge 95 percent in 15 minutes" was a requirement pushed by fuel cell people.

· · 36 weeks ago

In fairness, CARB started discussing making swapping ineligible long before Tesla demoed this capability, possibly in the wake of Better Place's demise.

From the linked article:
CARB spokesman David Clegern said, "We were worried an OEM might make the battery swappable, but not have any supporting locations or infrastructure available to the user."

Great thinking on the availability issue (they anticipated exactly what Tesla did), but excluding a specific technology isn't a remedy I think is smart; they should instead base their evaluation on the proportion of drivers having access to such quick-refueling, or a similar metric.

Several EVs today quick-charge to 80% in less than 30 minutes; CARB's criteria is 95% in 15 minutes, so not that far off. CARB will be scratching its head again as soon as a company announces such 2x faster quick-charging yet makes no such station available.

· · 36 weeks ago

Since Tesla didn't demonstrate their battery swapping ability until June 20th of this year; am I correct in assuming that none of the ZEV credits earned in Q1 were at the top tier anyway?

So this article is about the potential loss of just the top tier of credits that they never earned in the first place, correct? This should not impact the type or quantity of the credits that they have been earning all along.

New to EVs? Start here

  1. What Is An Electric Car?
    Before we get going, let's establish basic definitions.
  2. A Quick Guide to Plug-in Hybrids
    Some plug-in cars have back-up engines to extend driving range.
  3. Electric Cars Pros and Cons
    EVs are a great solution for most people. But not everybody.
  4. Seven Things To Know About Buying a Plug-In Car
    A few simple tips before you visit the dealership.
  5. Federal and Local Incentives for Plug-in Hybrids and Electric Cars
    Take advantage of credits and rebates to reduce EV costs.
  6. Eight Factors Determining Total Cost of Ownership of an Electric Car
    EVs get bad rap as expensive. Until you look at TCO.
  7. Quick Guide to Buying Your First Home EV Charger
    You'll want a home charger. Here's how to buy the right one.
  8. Electric Car Utility Rate Plans: Top Five Rules
    With the right utility plan, electric fuel can be dirt cheap.
  9. The Ultimate Guide to Electric Car Charging Networks
    If you plan to charge in public, you'll want to sign up for charging network membership (or two).
  10. Eight Rules of Electric Vehicle Charging Etiquette
    Thou shalt charge only when necessary. And other rules to live by.