Tesla Battles Carmakers Over California’s ZEV Sales Requirements

Tesla Motors is gearing up for another battle, this time taking on carmakers in its home state of California.

Unlike at other times, the argument is not over the company’s factory-direct sales method, which previously has pitted Tesla against auto dealers in states like Texas and Michigan. Instead, the issue relates to California’s push to increase the number of zero emission vehicles (ZEVs) on the roads.

In October 2013, California – along with seven other states – said it will require 15 percent of all vehicles sold to be zero emission vehicles by 2025. Only battery electric (like the Tesla Model S) and fuel cell vehicles (Toyota’s Mirai is one of the few) fall under this definition.

However, the regulation does allows auto companies to make up a smaller portion of the ZEV requirements with sales of two types of low emission vehicles: plug-in hybrids (including the Chevrolet Volt and Toyota Prius PHEV) and battery-electric vehicles outfitted with a range extender (like the BMW i3 REx).

If car companies don’t sell enough ZEVs on their own, they can purchase credits from other companies to fulfill their requirements.

For the midterm review coming up next year, automakers are approaching the state to complain that the mandate is too difficult to meet. Executives with Honda, among others, have already been in the press recently, calling for changes to the mandate that allow more credit for plug-in hybrid sales.

“The mandate is already far too weak,” countered 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 mandate.”

During a hearing over the mandate 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.”

SEE ALSO: Automakers: Increase CARB Credit For Plug-In Hybrids

On the other side of the arena, large automakers are crying foul over Tesla’s ability to sell credits.

“All they care about is protecting their market to sell credits,” said one unnamed auto executive, according to Automotive News.

It’s difficult to overlook these credits, especially when they amount to over $76 million of revenue during last year’s third quarter.

Tesla has stated that these credits are no longer a major source of income, though.

“Credit revenue used to move the needle at Tesla. It doesn’t anymore, and it hasn’t for some time,” said O’Connell. “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.”

Whether the ZEV credits or increased sales are the biggest motivators behind Tesla’s actions, it all may be a moot point, according to some that have followed the debate.

“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.”