Elon Musk: California’s ZEV “Credit Mandate Is Incredibly Weak”

Elon Musk

NOV 5 2016 BY STEVEN LOVEDAY 47

Tesla CEO Elon Musk

Tesla CEO Elon Musk

The California Air Rescources Board (CARB) sets strict guidelines for automakers regarding the number of zero-emission vehicles (ZEV) each must sell. The system is set up so that companies earn credits. Automakers that fall behind, can buy credits from other automakers. Tesla sold $139 million ZEV credits in the third quarter.

Tesla Model 3 - Image Via Datcode on Imgur

Tesla Model 3 – Image Via Datcode on Imgur

Musk made it public during the Q3 conference call, that he is unhappy with the ZEV credit system and that California needs to be doing more.

It is true that many companies basically beat the system by making compliance cars to marginally meet the guidelines and/or purchasing credits to make up the difference (somewhat ironically mostly via Tesla these days). In the eyes of Musk, and many other environmental activists, the system is not working as it should.

Diarmuid O’Connell, vice president of business development for Tesla explained:

“It’s just inconvertibly true that the oversupply of credits is going to allow manufacturers to comply by putting the absolute minimum number of electric vehicles out there. History shows that with few exceptions, manufacturers only ever deliver the minimum number of electric vehicles to comply with regulations. These two facts will mean significantly fewer zero-emission vehicles than the ARB has previously committed to, and also fewer than the governor publicly supports.”

If the system stays as it is, people won’t flock to purchase electric cars. This is obviously something that will make a negative impact on Tesla. The board’s goal was that 15.4 percent of vehicles would be zero-emission vehicles by 2025. However, at the rate of current growth (and with each EV sale netting 3-4 credits that each can be counted as a ‘sale’), it may end up being more like 6 percent. Musk said:

The board’s “credit mandate is incredibly weak and needs to be fixed,” … They “really should be doing more; it is unfortunate that they are not.”

Tesla sold 80,227 credits in 11 months. The company only has about 3,500 left. The California board said that Tesla’s credits account for 86 percent of total credits. Musk had to sell them for less than was expected, but it still helped Tesla immensely in finally reporting a profit. Musk shared:

“When you have a weak mandate, obviously the value of those credits decline. There were some quarters where we simply cannot even find a buyer for credit. And then when we can find a buyer, it’s typically 50 cents on the dollar.”.

The board is reassessing the situation, but according to those with information on the process, it’s not looking positive. However, Stanley Young, a spokesman for the board disagreed:

“Incentives and regulation work together in this early market, and over the next year, we’ll be focused on how we use both to build the most vibrant market possible for ZEVs in California through 2030.”

Regardless, low gas prices and lack of charging infrastructure is still deterring consumers. The added cost of EVs has been an issue as well, but that is finally beginning to change.

Despite any mandates or lack thereof, companies like Tesla have started a fire beneath other automakers. Manufacturers have informed the board that collectively, 68 BEVs, PHEVs, or fuel-cell vehicles are being readied for release by 2021. Tesla still plans to be producing 500,000 vehicles a year by 2018. Musk added:

“We’re still highly confident of reaching volume production in the second half of next year.”

Source: Automotive News

Categories: Tesla

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47 Comments on "Elon Musk: California’s ZEV “Credit Mandate Is Incredibly Weak”"

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The CARB pricing bias for FCVs smells of Fracked Fossil Fuels and sustainable policy failure.

Yep CARB sold out to the hydrogen “future” 15 years ago when they killed their EV mandate and this is remants of that while we are all still waiting on that “future”…

The mandate was modified to be more reasonable, then the auto makers sued them saying they changed the rules. No good deed goes unpunished.

@Anon,
If you give the general public an EV that is desirable and at the right price then there won’t be a need for the “credit crutch.”

Tesla is on its way to making that happen with the Model 3. We just need to get the market boot strapped to self sustaining mode.

So all the legacy auto makers who are deliberately dragging their feet will be so far behind by that time they will have signed their own death warrant.

Free Enterprise strikes again;)

Oh we like sheep have gone astray.

https://www.youtube.com/watch?v=LmeyG5LlFWU

Or maybe, we are poor little lambs who have lost our way:
https://www.youtube.com/watch?v=DAJ-Y5TZQAs

Free enterprise is slow, weak and has little interest in changing for the better unless it comes with profits.

That is why free enterprise most of the times need a big kick in the behind to get where it’s supposed to be.

A stronger ZEV credit mandate and higher percentages of ZEV sales needed to get them would be the kick needed to put in the effort to make desirable and affordable EVs by all companies but Tesla (who can’t do everything alone).

Tesla will need to shake up the market again , by comming out a 25k+ EV that just has the same power excelleratiin similar to Nissan leaf or Chevrolet Volt, now he just starting to understand how to mass produce for example Henry Ford from 1908 from first factory then from 1913 to 1915 second factory reached 1 million per year, it ironic that 100 year later rate of increase is not much different , but it’s exciting , I wish more people like Tesla keeps comming and successfully does reach that king of production.

If Tesla is doing that with Model 3 then GM has already done it with the Bolt. To Europeans at least I think it’s as desirable.

Good to see Elon speak some sense again, speak about something that matters; there’s been too much cowbell lately.

Subsidies for FCVs in no way affect total ZEV mandates from CARB, which should definitely be more aggressive. More ZEV cars (of any type) should be on the roads. That’s the bottom line.

SparkEV-Fiat500-Leased - M3 Reserved - Bolt- TBD

With only 3500 left; market demand for those credits are going to only go up, so Tesla should be happy about them. I guess the existing credits were about to expire, otherwise he probably would have hoarded for higher price.

This bodes well though. It may put price pressure to lower Bolt and Leaf even further on the CARB states 🙂

“I guess the existing credits were about to expire, otherwise he probably would have hoarded for higher price.”

No, they sold the credits to show a profit this quarter to bolster stock price and gain approval by stockholders for upcoming purchase of Solar City.

or with bolt and prius arrival market will be oversupplied with credits?..

non-ev enthusiasts are not going to “flock” to BEVs – they are just not better than ICEVs in the ways that matter most to most drivers, and BEVs tend to be not as good in ways that do matter. it might be a bit much to scrap the zev credit buying scheme immediately, but it can be phased out. so you start by limiting the percentage of total credits that can be purchased, to say, 50% for example. this would mean that there is a degree to which credits can be bought but beyond that, the company would have to produce actual cars that meet the regulations. this percentage of “buyable” zev credits could decline with time. so it might be 50% this year, 40% next year, 25% the year after that and 0% the year after that. this would put auto makers on notice that they have develop a product plan for zev development within a defined schedule. of course, the whole idea could get derailed. when the buyable zev credits got ot 0%, some automaker would file a lawsuit that would get assigned to some paid-off federal judge who would conveniently declare the whole thing to be “unconstitutional”.… Read more »

Lol! A Tesla is not better than an ICE? Really? In what way?

Perception is reality, I think, is the point he is making.

If you don’t have $70,000, then the car you can afford is better than one you cannot.

And a car that exists is ALWAYS better than one that does not.

As far as I care Tesla doesn’t exist due to it being $80,000 for a car and even a $35,000 dollar wouldn’t exist.

The only cars right now in my plain of existence are a Nissan Leaf for under $6000 dollars or Mitsubishi -miev.

Granted the trouble with those two cars is there is a very high possibility that I could get offered a job outside of their one day driving range.

three reasons immediately come to mind:
————–
1. less cost for an ICEV versus an equivalent BEV;
2. more range for a fill up versus recharge;
3. less time to fill up versus recharge.

ICEVs are better for “anywhere, anytime” driving. i appreciate that you can always concoct stories about BEVs and 90% of your driving, and such, but if you have a car that handles 100% of your driving and has the advantages above, why buy a BEV over an ICEV?

of course, the government can do things to encourage people to adopt electric vehicles (many of which they won’t do because it makes for bad politics), but people will need incentives that they don’t currently have to do so.

1. Tesla Model S is very competitive priced regarding comparable BMW, Audi and MB offerings.
The TCO of the Model S is lower.
2. ICE drivers have to interrupt their journey about twenty times as often to fill up compared to BEV drivers have to visit a quick charger.
3. Most charging is done in zero subjective time at night or when the car is parked at a destination. On average an ICE driver will spend yearly (a lot) more time at gas stations then a BEV driver at a Quick Charger location.

The Model 3 looks to be even more competitive against the offerings of its competition.

The BEV offerings from mainly ICE carmakers are less competitive for a variety of reasons. But that is fast changing in the next two or three years.

In my experience, that’s not true. There are many reasons I own BEVs, but convenience is not one of them. Yes, you can charge every night, but you have to remember to plug in (even in the rain and snow, of parking outside). You’re always plugging the damn thing in. It gets old.

Even when planning a road trip vacation in my Tesla this summer, I had to make compromises around charging. At least for now, BEVs take away some of your automotive freedom.

1. in the US, the price range of the tesla model S spans that of the mercedes-benz e-class and s-class. neither of them are cars for the “hoi poloi”. as to total cost of ownership, once you get out of the warranty period, maintenance cost on a b#@z-o is *very* high. i knew a guy who bought a w220 s-class used, and he was paying big money to get stuff repaired on it. 2. as to your claim that you would have to stop to refill more often in a ICEV than you would have to stop to recharge in a BEV: where do you get this stuff??? a b#@z-o has a 23 gallon gas tank and gets 26mpg on the highway…you do the math. when you have to refill, it takes 5 minutes. 3. the main value, as i see it, in bigger batteries is that it gives you more of a buffer against days when you drive more miles than you can recover in home charging on that day. this would hopefully mean that you would have to use quick charging less often. when you do go, you would have to spend more time at the quick charging… Read more »

“no comment” commented:

“non-ev enthusiasts are not going to ‘flock’ to BEVs

400,000 people have paid $1000 to say you’re wrong. That’s a very large flock indeed!

When are you going to give up this outdated and increasingly silly argument?

no comment — The car makers already tried suing CARB over the ZEV program. They lost. The case was Green Mountain Chrysler, Central Valley Chrysler-Jeep, Inc. v. Witherspoon, which relied upon Massachusetts v. E.P.A. for authority. The Supreme Court ruled on Massachusetts v. E.P.A. in 2007, making all of this now settled law.

The car makers have consistently sued and/or lobbied against every single safety and emissions regulation ever introduced.

you can’t read case law more broadly than the issues that were decided in a a given case. it appears that the case that you cited addressed issues of whether carbon dioxide was a pollutant and whether the EPA was therefore required to issue regulations on carbon dioxide emissions.

if the state of california required auto makers to produce ZEVs, i would expect that the challenge would involve claims of interference with commerce, or some such. in any event, you can’t say whether a lawsuit would succeed or fail until you know the grounds on which the lawsuit is based. my point was that the federal courts in california tend to be a bit “loony tunes” so you never know what they are going to say.

The only pressure i could supply over here in austria was reserving a model 3 and telling volvo that i did it. (after a total of 8 volvos, 2 still used by my girls)

What do mean by telling Volvo you did it?

Most likely by going to the Volvo dealership where he usually bought his Volvos and tell them that there won’t be more sales because of not having a similar BEV.

That is what my dad did at the Mazda dealership at least. When he bought his last Mazda (2014) he told them that his next car will be electric so if they didn’t have one for him then he would take his business elsewhere.
He has been faithful to Mazda by buying a number of those from the same dealership for the last three decades.

This year he got a Nissan Leaf and drove past the dealership to tell them that they lost a customer because of not having a BEV (he would have preferred any Mazda BEV or EREV over a Nissan). He also told them that they could call him once they had a Mazda BEV for sale.
He left out the part of having a Model 3 reservation though, so even if they get a BEV it will probably be too little too late.

1.5mm ZEVs on CAs roads, by 2025 would be an achievement, no matter what Musk says. That is the goal. CA is 3% of sales, where the rest of the country is approaching 1% ZEV.

It is appearing more makers will not need to buy credits, in a couple years. The treasure for Musk is probably within that this upcoming time frame. Moodys put out a “ZEV” scenario, which basically implies 18% annual growth thru 2020, then 25% annual growth to 2025. This is what Musk is saying is not strong enough.

CARBs and the EPAs ZEV and fuel effiency standards are both weak as a poster above said it would be much better for them to do away with credits and force the manufactures to sell actual EVs as Dodge and others have actualy stockpiled enogh credits to last a couple of years…
On the EPA side Mazda was able to crush the “really hard” fuel effiency requirments with out a single plug in or hybrid…

Unfortunately, it needs to be repeated OVER AND OVER that what Musk says about 6% adoption by 2025 is true, and that only if the ZEV regulations aren’t weakened.

Currently, hydrogen cars earn 9 ZEV credits per car, and virtually ALL of the battery Electric Vehicles earn either 3 or 4 credit.

So, to meet 16% ZEV credit, any 4 credit car would satisfy that with just 4% of the fleet.

2018-2025 CARB-ZEV requirements (compiled May 2016):

http://www.arb.ca.gov/msprog/zevprog/zevtutorial/zev_tutorial_webcast.pdf

Model year —- ZEV Credit % of total annual sales

2012 ———— 0.79%
2018 ———— 2.00%
2019 ———— 4.00%
2020 ———— 6.00%
2021 ———— 8.00%
2022 ———– 10.00%
2023 ———– 12.00%
2024 ———– 14.00%
2025 ———– 16.00%

Just to add to Tony’s very accurate assessment of the baseline path to compliance being at somewhere between 4 and 6% market share of BEVs in 2025 (depending on the common ZEV credit amounts be claimed per BEV as Tony mentions)…this would not be the ‘actual’ on road amount of plug-ins. Currently, the plug-in mix is about 60% BEVs to 40% PHEVs, meaning a ~6% adoption rate of BEVs in 2025 would mean (assuming the same uptake rate and exact standard hitting) a net amount of plug-in vehicles at around 10%. Further to that, if 6% BEVs is the ‘minimum’ the number, it would not actually be hit precisely – not even close, it would be higher as some OEMs would be achieving a higher fleet average than required (as we see today with Nissan, and Tesla of course) with all requiring the minimum…so one assumes 6% industry wide compliance would result in more like at least 12% on the road, which would mean a total corresponding uptake rate of 20% plug-in adoption in 2025 including PHEVs. ie) today’s compliance mandate is .79%, with most BEVs getting just over 3 credits on average, or put another way the actual BEVs… Read more »

that’s a lot of detail, Jay, and thanks, but you didn’t go far enough out on a limb 😉 What linear growth rate, to 2025, matches the non-linear growth expected until then. Or, put another way, how many more than the estimated 1.5mm ZEVs do you think CA will have on the road at that time?

Analysts love “CAGR”s, but linearity is the problem with that, as is the still low base level of penetration, away from CA’s 3%. Since CA has hit that number, predicting numberts like 50% YOY may be getting a little crazy, no?

And thanks for couching the ZEV requirement with OEMs who’ll go long of the need. Moodys study was picked up by WSJ, today, and we already know their “high growth”/ZEV scenario is apt to lag reality. Fitch is even weaker, stating a need for “breakthroughs”, and continuing the recognition of hydrogen. The meat of that study was battery peakers (which itself had a high implied ESS storage assumption, of $355/KWh).

One significant consideration is the “traveling provision” changes for Model Year 2018 and beyond. California won’t be the only game in town. Auto manufacturer’s Oct 19, 2012 request to EPA for waiver from CARB: http://www.globalautomakers.org/sites/default/files/document/attachments/JointCommentsCAWaiverRequest10-19-12.pdf “It is highly unlikely that the required infrastructure and the level of consumer demand for ZEVs will be sufficient by MY2018 in either California or in the individual Section 177 States to support the ZEV sales requirements mandated by CARB. EPA should therefore deny, at the present time, California’s waiver request for the ZEV program for these model years. During the interim, Global Automakers and the Alliance believe that California and EPA, with full auto industry participation, should implement a review for the ZEV program similar to the mid-term review process adopted under the federal GHG and CAFE regulations for MYs2017 through 2025.” That’s a whole lot of gobbledy goop to say, “keep the traveling provision so we can only sell cars in California at the minimum number, and not sell any in the other CARB states.” They lost that attempt. ****** CARB states – Arizona, California, Connecticut, Maine, Maryland, Massachusetts, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Vermont, Washington, District of… Read more »

Indeed that is a good point indeed, appreciate you bringing it up.

I had mused adding something in about the provision, but thought it might cloud up my (admittedly already pretty murky) attempt at correlating hard numbers we are seeing on the ground compared to the baseline regs.

Prediction: Starting in Model Year 2018, there are going to be fire sales on EVs in those non-California CARB-ZEV states. Some manufacturers seem to not even be prepared to sell a significant number of ZEVs in the northeast. Oregon and California will be relatively easy. So, $199 lease deals on the very popular Bolt EV, but on in Rhide Island. $379 in non-ZEV states. BMW i3? $99 in Connecticut and fellow northeast ZEV states. VW eGolf – $88, but only in New York and fellow northeast ZEV states. Ford Focus Electric – $69, but only in Massachusetts and those other northeast ZEV states. Who wins in 2018-2025? The smart companies like Toyota who only have hydrogen ZEV compliance. They only need to worry about California, because hydrogen is exempt. Toyota doesn’t sound so dumb anymore, eh? Or, did somebody actually think most auto manufacturers were seriously worried about “competing” in the EV sector? *********** For model years 2015 and beyond, both LVM and Intermediate Vehicle Manufacturers (IVM) must comply with CARB-ZEV: 1) BMW – i3, including gasoline hybrid version dubbed “REx” 2) Fiat/Chrysler – 500e (CEO of Fiat famously said, “Don’t buy my car”), 3) Ford – Focus EV 4)… Read more »

@Jay, @Tony
Interesting numbers-thx. Only need to sell 4% BEV’s in 2025 to make the 16% Bogey.

Total 2015 car and light truck sales in Ca was around 2 million-yes?

4% of 2 million is 80,000. Tesla targeting 500,000 per year by then. 80,000 is 16% of 500,000.

Those numbers seem reasonable. Sounds like Tesla is on target.

Tesla is exempt from ZEV. They don’t have to make a single ZEV, but they are allowed to benefit from the sale of ZEV credits (as they very handsomely do). Listed below are auto manufacturers that are NOT subject to CARB-ZEV due to their small sales in California. These additional manufacturers may be allowed to meet their obligation with Plug-In Hybrids (PHEV): 1) Tesla – Roadster, Model S, Model X, Model 3 (all EV) 2) Mitsubishi – iMiev (EV) and Outlander Plug-in hybrid someday in California 3) Fuji Heavy Industry (Subaru) – ? 4) Jaguar Land Rover – EV 5) Volvo – plug-in hybrid CUV 6) Aston Martin Lagonda – DBX EV Update, May 18, 2015 The California Air Resources Board rejected a plea from Jaguar Land Rover, Mazda, Mitsubishi, Subaru and Volvo to be exempted from the ZEV mandate. They had argued that their small r&d budgets will keep them from developing and selling electrified cars as easily as full-line automakers such as Ford, General Motors and Nissan, which already must sell ZEVs. Automakers with less than $40 billion in annual global revenue — which includes Jaguar Land Rover, Mazda, Mitsubishi, Subaru and Volvo — now will have the… Read more »

@Tony W
“So, to meet 16% ZEV credit, any 4 credit car would satisfy that with just 4% of the fleet.”

I would think that the 4 credits per car would be significantly reduced by 2025.

Does CARB have some plans in the works to reduce the number of credits per BEV?

If it was only 1 credit per BEV then the manufacturers would actually have to build 16% BEV’s in 2025. That seems more reasonable and I would think CARB would do that.

It’s unlikely that there will be reductions in credit per vehicle before 2025. After that, maybe, but unlikely. The new system for Model Year 2018 – 2025 gives 1-4 credits per car, based almost solely on range. This sharply benefits EVs far more than the previous system, and may be why GM stretched the Bolt range to 238 EPA miles. Here’s the older credit system: Type V – 300+ miles range “hydrogen” – Credit per vehicle: 9 (2015-2017 only) Type V – 300+ miles range “fast refueling” – Credit per vehicle: 7 Type IV – 200+ miles range “fast refueling” – Credit per vehicle: 5 Type III – 100+ miles range “fast refueling” – Credit per vehicle: 4 Type III – 200+ miles range ————– Credit per vehicle: 4 Type II – 100+ miles range ————— Credit per vehicle: 3 Type I.5 – 75-100 miles range ———– Credit per vehicle: 2.5 Type I – 50-75 miles range ————— Credit per vehicle: 2 NOTE: “fast refueling” has been modified to require every car in the fleet to swap the battery once, or 4% of the fleet to have 25 maximum swaps, or some value inbetween (2014). Fast Refueling is described as… Read more »

@Tony
Thx. Interesting stuff.

“NOTE: “fast refueling” has been modified to require every car in the fleet to swap the battery once, or 4% of the fleet to have 25 maximum swaps, or some value inbetween (2014). Fast Refueling is described as the “ability to refuel to 95% of full capacity within 15 minutes or less”.”

So it is possible to get 7 credits for an EV if you get the charging time down as specified.

I’m not sure if one could achieve that quick a recharge time just by doubling the voltage….on the other hand it seems like the Mission-e was quoting a 5 minute recharge so who knows.

I wounder what a 400 to 500 mile range electric car be considered in this if it’s well above the 300 mile limit for 7 credits.

oops my bad that list was the old credit system.

Through Model Year 2017, yes, if they can either refuel to 95% in 15 min (obviously written to benefit hydrogen over EVs) or meet the newer battery swapping rules, yes, they can get either 7 credits still (I think).

Clearly, nobody is even trying battery swapping under the new rules.

Could Tesla build a 200kWh battery, limit it to 80-100kWh (whatever gets the 300 mile range for CARB, or about 265 EPA miles), charge it at 400kW, and get “95% of 100kW in 15 minutes? Probably.

But, it won’t matter under the new rules for 2018, as they don’t consider refueling speed.

Thanks, Tony, for the great info, always look forward to your posts.

SparkEV-Fiat500-Leased - M3 Reserved - Bolt- TBD

Hence my hope for Bolt EV lease deals in CARB California to be available and mirror Spark if the demand doesn’t turn out.

However, I truly believe with a 200+ mile range car and good specs in space and performance, there will be a robust market for this vehicle.

Leaf is surviving on its own merits already at 50 state range. The Bolt doubles on this.

I think we need to get back to the core intent of the ZEV credit program. It is NOT a program where the end goal is just to mandate a certain number of EV’s be sold per year. That in itself is just a means to a higher goal. The higher goal has always been to make EV’s competitive against gas vehicles without needing any mandates. The plan for accomplishing this was to actually put EV’s into production, so that the production of cars reduced costs. And that car makers would be forced to compete against each other, or be forced to hand their hard earned money to their competitors if they failed to build cars that successfully sold in the market. In that model, it only takes a couple of successful EV makers to advance EV’s and cut their costs. Right now, it is working. The fact that ZEV credit values are much lower than projected is actually proof that the program is currently working much better than originally planned. It is working. Slowly, but steadily, EV’s are improving while prices are dropping exactly as planned. Consumers in states without ZEV mandates have successfully demanded that more and more… Read more »