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Published on April 23rd, 2014 | by Zachary Shahan

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Tesla Will Get Less For Its ZEV Credits Under New California Rule

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April 23rd, 2014 by Zachary Shahan
 
A considerable source of revenue for Tesla thus far has been California zero-emission-vehicle credits, which other car manufacturers can buy from Tesla thanks to Tesla’s 100% zero-emission-vehicle lineup. However, California recently updated its zero-emission vehicle program, and the result is that Tesla will get less for these credits than it has up until now.

Tesla made $129.8 million last year selling zero-emission-vehicle (ZEV) credits. It was able to sell 7 credits per car sold. However, with the changes, it can only sell 4 credits per car sold. Interestingly, this comes alongside another change that puts the maximum credits sold per vehicle at 9 instead of the previous 7.

Of course, Tesla’s business model is not based on selling ZEV credits, but there’s no denying that this is a blow to the company’s bottom line. Tesla had net income (non-GAAP) in 2013 of $46 million. The first time Tesla made a profit (non-GAAP) was in the 1st quarter of 2013, and its profit then was $11.2 million, not much off of ¼ of the total for the year. But production and sales are up a great deal since then, and Tesla is also focusing more and more on the European and Chinese markets, where these ZEV credits don’t apply. By the end of the year, Tesla expects to be selling more cars overseas than in the United States.


Getting back to the ZEV credits, the question I’m sure you have is: “Why the change in the credit rules?” I’ll let Bloomberg explain:

The credit rule change, deferred from October, comes after the [California Air Resources Board] emphasized last year a need to ensure the state awarded credits based only on how advanced vehicles are actually used, rather than theoretical capabilities. Some automakers had said that Tesla was getting more credits than it deserved, since it failed to meet the rapid-refueling requirement, the board said last year.

Maximum credits per emission-free vehicle sold in California is rising to nine from seven previously, and go only to vehicles with long driving ranges and that can be refueled within 15 minutes or less, the agency said. Hydrogen fuel-cell autos with a range of about 300 miles (483 kilometers) fulfill that requirement, while even Tesla’s Model S with its largest battery pack wouldn’t immediately qualify.

I’d summarize that as: hydrogen fuel-cell stakeholders persuaded regulators to give it some special support to hydrogen cars so that these very expensive, uncompetitive cars will not fall so completely flat on their faces that they kill people’s (illogical) dreams of a hydrogen revolution. Nonetheless, I think that sad fate for hydrogen cars is inevitable anyway.

What about Tesla’s battery-swapping stations, you ask? Here’s some info on that:

While Tesla has proposed opening battery-swap stations to let its drivers exchange depleted packs with fully charged ones within a minute or two, none have opened. When they do, the proposed change also requires detailed documentation of how much they are used, in order to get the maximum credits.

A none-too-happy Californian company (ahem, Tesla) responded to Bloomberg about to the bias. “The apparent preference for fuel cell technology appears to call into question California’s commitment to a California company employing thousands of people making thousands of zero-emission vehicles today,” Diarmuid O’Connell, Tesla’s vice president of business development, said in a phone interview.

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About the Author

is the director of CleanTechnica, the most popular cleantech-focused website in the world, and Planetsave, a world-leading green and science news site. He has been covering green news of various sorts since 2008, and he has been especially focused on solar energy, electric vehicles, and wind energy since 2009. Aside from his work on CleanTechnica and Planetsave, he's the founder and director of Solar Love, EV Obsession, and Bikocity. To connect with Zach on some of your favorite social networks, go to ZacharyShahan.com and click on the relevant buttons.



  • NickM

    According to Tesla’s Q4’13 shareholder letter, they didn’t sell any ZEV credits during the quarter anyway. Maybe this is just due to some kind of yearly limit of how many credits they can sell? I’m not sure exactly how it works.

    Either way though, their gross margins for vehicle sales in Q4 were over 25% without any ZEV credits (both GAAP and non-GAAP), so it doesn’t seem like a lack of credits is going to hold them back too much.

    • bfr12

      I think it’s a matter of the market for ZEV credits being saturated at that point. There is only so much demand for the credits since companies without compliant vehicles (or selling too few) need to buy just enough to cover their non-compliant sales. Also, several more companies have announced compliance cars.

      Tesla has said many times that they were aiming for 25% gross margins without accounting for the ZEV credits. I’m assuming this is because they’ve done the above math and saw that they would fully meet the market demand before year’s end.

      To be honest, this change should just spread their credit revenue out throughout the year. I would bet they’ll still wind up with surplus credits that nobody needs even with the reduced number they’re receiving.

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