The pursuit of government goodies continues apace for Tesla Motors, even more vigorously after the Los Angeles Times reported last month that CEO Elon Musk depends on more than $4.9 billion in corporate welfare for his companies, which also include SolarCity and SpaceX.
Tesla’s quest may more accurately be portrayed as preservation of the golden goose that is California’s zero-emission vehicle (ZEV) credit scheme. The Golden State requires the six largest auto manufacturers to produce a certain percentage of vehicles that are “green” – in other words, electric – or to purchase zero-emission “credits” from companies that do, such as Tesla. According to the Christian Science Monitor, Tesla is the largest seller of ZEV credits, raking in $152 million from those sales last year (and many more prior).
But the parameters of the policy are about to change, with the next highest-selling tier of manufacturers – “Intermediate Vehicle Makers” – becoming subject to the ZEV mandate in 2018. Automakers also will need to increase by one percent every year their sales of ZEV-compliant vehicles, as a percentage of overall sales.
Tesla and Musk would be drooling at the prospect of the stricter mandate as a boon to their bottom line. However the regulator that makes the rules for the ZEV program, the California Air Resources Board (CARB), has said it will allow automakers to count more plentiful plug-in hybrids towards their compliance goals. That means less dependence on ZEV credits to meet the standards, and even worse, those companies could sell the credits themselves – in competition with Tesla – based on the amount of plug-ins they produce.
“The mandate is already far too weak,” complained Diarmuid O'Connell, Tesla’s vice president of business development, to Automotive News earlier this month.
Tesla appears to be isolated against its fellow manufacturers in lobbying for the stricter mandate, which isn’t making it any friends in the industry.
“No one agrees that there is a surplus of credits,” said an executive from a rival company to Automotive News. “All they care about is protecting their market to sell credits.”
Tesla is also losing another mechanism upon which California allowed the company to take advantage of ZEV credits. The CARB allocated credits for the ability for Model S owners to swap out batteries quickly to theoretically “refuel,” but it was based only upon a Tesla demonstration that showed it was possible – not by actually putting it into practice. Tesla finally did set up a battery-swap station halfway between San Francisco and Los Angeles off of Interstate 5 – pretty useless for Model S owners in either city. Now Musk is citing the lack of interest and sounds like he will drop the program, but it’s really due to the fact that California won’t subsidize it any more.
The reduction in dependence on Tesla for ZEV credits will disrupt one of its cash streams, which it desperately needs (despite Musk’s claim that it’s “not a big deal”). The Wall Street Journal reported that the company recently took out an additional $750 million in credit capacity, and the quarterly losses only keep growing.
Financial hits on electric vehicles are also becoming an issue for Nissan, which was given a $1.4 billion loan guarantee from the stimulus for “green” car production. As leases for the first-generation models of the all-electric Leaf are expiring, the Japanese automaker is offering up to $7,000 to customers as an enticement for them to keep their depleted-battery models. The company reportedly is anticipating its next model, which will feature a longer-range battery (105 miles! But that’s what they said the original Leaf would have!), so they obvious don’t want the original turkeys stuck back in their inventory.
Worse, Nissan – which saw Leaf sales drop by one-third in May from a year ago – expects an even greater decline in demand when Georgia eliminates its $5,000 tax credit for electric vehicle purchases, effective July 1. According to an Automotive News report, Nissan identified Atlanta as its hottest market, but now dealers in the area fear the worst. A sales manager in Kennesaw, northwest of Atlanta, said he expects monthly Leaf sales to drop to single digits, from about 100 now.
“It’s going to drop like a cinder block off the side of a boat,” he told Automotive News.
That tends to happen when you’re in the government subsidy-sucking business, where other peoples’ money eventually runs out.
Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes CarolinaPlottHound.com, an aggregator of North Carolina news.