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.

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