Tesla Battles Other Car Makers Over ZEV Rules

In 2013, California promulgated new rules requiring car companies to sell 15% zero emissions cars by 2025. At present, only the Tesla Model S, BMW i3, and Toyota Mirai fuel cell sedan meet those ZEV rules.

Auto companies are permitted to make up a smaller portion of the ZEV requirements selling two types of low emission vehicles — plug-in hybrids like the Chevrolet Volt and Toyota Prius PHEV — and battery electric vehicles outfitted with a range extender engine — like the BMW i3 REx.

If a company does not sell enough ZEV vehicles, it must buy credits from a company that does. Toyota Mirai sales are expected to be extremely limited until many more hydrogen refueling stations are built. BMW i3 sales are doing well, but not as well as sales of Tesla’s Model S. That pretty much means car companies must go to Tesla to buy their ZEV credits.

 The other companies are crying foul, claiming that Tesla is really in the business of selling credits, not cars. “All they care about is protecting their market to sell credits,” harumphed one unnamed auto executive, according to Automotive News. Tesla’s income from selling ZEV credits came to $76 million in the 3rd quarter of 2014 alone.

Elon Musk has fired back, saying that those other companies had just as much opportunity to design and build electric cars as Tesla did. They just chose not to, largely because they all saw electric cars are money losers. Only Elon Musk was smart enough to figure out there was a market for high end electric cars costing $100,000 and more.

Now Honda and others are lobbying California to relax the rules and allow plug in hybrids to qualify. Not so fast, says Tesla. “The [rules are] already far too weak,” says Tesla’s vice president of business development, Diarmuid O’Connell. “I don’t think it was ever conceived that a pure-play electric car company like Tesla could exist, let alone thrive, but we have. The inconvenient truth is that our success has revealed the weakness of the [rules].”

O’Connell went on to say, “Credit revenue used to move the needle at Tesla. It doesn’t anymore, and it hasn’t for some time. What is a strategic driver of the company is to put as many EVs on the road as possible, whether they’re ours or whether they’re produced by other manufacturers.” In other words, Tesla figured out how to take advantage of the rules they were given and it’s just too bad if others did not.

During a hearing over the rules last month, Tesla executive Ken Morgan said companies like Subaru and Mazda “have access to the same financial markets that enabled Tesla to raise all of the funding it needed to launch electric vehicles.”

Will California officials bow to pressure from the other automakers? “I don’t think California is going to roll back the standards,” said Simon Mui, director of California’s Vehicles and Fuels, Energy & Transportation Program. “Now that we have leaders within the industry with a competitive advantage in EVs, it’s a very different game than it was 10 years ago.”