Tesla Disputes the Importance of ZEV Credit Income

· · 8 years ago

Tesla Motors has always shown a certain proclivity for engaging its critics. Yesterday, the electric carmaker fired back at an article by former executive Darryl Siry, which alleged that Tesla stands to lose 25 percent of its profit margin on its forthcoming Model S thanks to a forecasted decline in value of Zero Emissions Vehicle credits.

The credits are awarded for the sale of electric vehicles in California and 12 other states, which mandate that all carmakers sell a certain number of EVs each year. Obviously, no major automaker has yet been able to earn ZEV credits on its own, so the credits have come to be worth an estimated $5,000 each to small startups like Tesla, as they're traded to larger companies. Siry wrote that Tesla was depending on ZEV credit trading for 50 percent of its projected bottom line, a claim that Tesla strongly denies.

In a response post on Wired.com, Tesla accused Siry of "conveniently ignoring" several widely available facts about the story and incorrectly quoting its Finance Vice President. "Tesla is not dependent on ZEV credit income," says the company. "In the most recent publicly filed quarter, we generated only $0.5 million of ZEV credit income—which represented a mere 13% of our gross margin. We think many readers might have drawn a different conclusion about our dependence had both facts been presented."

Tesla didn't dispute that it stands to lose a source of income once tens of thousands of new plug-ins hit the market later this year (significantly limiting the scarcity of the credits and driving prices down.) But it's difficult to imagine that Tesla and other startups haven't known about and been planning for this situation for years.

On a separate note, Barron's provides a rundown of how Wall Street analysts view Tesla's prospects. The consensus from Deutsche Bank, J.P. Morgan, and Goldman Sachs is that Tesla is fairly valued at its current stock price of about $20. Morgan Stanley is more sanguine, looking ahead two years to when Tesla delivers the Model S. "If many things go right, we can see a path to $100 per share," said Morgan Stanley's Joshua Paradise.

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