Addressing concerns that the incoming Trump administration could threaten green businesses like Tesla, CEO Elon Musk assured shareholders that eliminating zero-emission vehicle (ZEV) credits could actually improve the company’s competitive advantage.
Trump, who once tweeted “the concept of global warming was created by and for the Chinese in order to make US manufacturing non-competitive,” is already looking into pulling out of the Paris Climate Agreement.
The president-elect’s position on climate change had many scared he might eliminate the ZEV credit programme.
The California Air Resources Board (CARB), along with nine other states, have a ZEV mandate. Basically, it demands that car companies sell a fixed amount of zero-emission vehicles. Automakers unable to earn enough of their own ZEV credits can purchase them from other companies who have a surplus. This is where Tesla comes in. Business Insider reports:
Tesla made $139 million in the third quarter from selling ZEV credits. But because of the way the programme is set up, there’s an oversupply of ZEV credits flooding the market. That’s made it harder for Tesla to consistently turn a profit from selling them. For example, ZEV credits were so negligible in the second quarter that Tesla didn’t even break them out.
In a company earnings call in August, Musk went on a rant about the failures of the ZEV programme. “The California Air Resources Board is being incredibly weak in its application of ZEV credits,” the CEO explained. “The standards are pathetically low... There’s massive lobbying by the big car companies to prevent CARB from increasing the ZEV credit mandate, which they absolutely damn well should. It’s a crying shame that they haven’t. And as a result, you can barely sell the ZEV credits for pennies on the dollar.”
Musk is not in favor of eliminating ZEV credits, but he did assert that such incentives “don’t scale or are disadvantageous.” He thinks there should be government incentives to encourage the production of sustainable vehicles. However, he believes “they should be there for the good of the industry and to accelerate the advent of sustainable transport.”
CFRA Research analyst Efraim Levy told Business Insider, “If you’re buying Tesla stock or even holding it, you’re not dependent on the ZEV credits for your thesis.” ZEV credits, nevertheless, are a source of income for Tesla, earning the company $57 million in the first quarter of 2016. (In Q2, the profits were so minor, Tesla didn’t bother reporting them.)
The moral of the story? While a Trump presidency might screw over normal people, Elon Musk will likely continue to flourish. [Business Insider]