Tesla Motors Is Fighting Automakers Who Want California To Include Plug-In Hybrids Like Chevrolet Volt, Ford Fusion Energi In State’s Emissions Mandate

For years, Tesla Motors has been able to generate revenue under California’s zero-emission-vehicle mandate, which provides tradable ZEV credits based on a complicated formula involving the percentage of electric cars a company sells in the state. But now the Palo Alto-maker of the Model S luxury electric sedan is facing increased pressure from rivals to get the state to rewrite the rules to lower the number of ZEV credits available.

"The mandate is already far too weak," Diarmuid O'Connell, Tesla's vice president of business development, told Automotive News in a story published Monday.

In 2012, the state’s California Air Resources Board Chair (CARB) voted to require the state's largest automakers to derive 15 percent of their annual sales in California from zero emission cars by 2025. It’s part of the state’s plan to significantly cut its carbon emissions, a contributing factor in global warming, by 2030.

But with a major midterm review of the mandate scheduled for the middle of next year, automakers have begun to lobby the state to loosen the mandate, including changing the way it calculates the number of ZEV credits needed to be purchased from other companies, including Tesla.

Tesla has benefitted the most from the current ZEV credit program because it’s the only automaker to sell exclusively electric cars. The company has generated $451 million in revenue from selling ZEV credits in the past three years, including $216.3 million in 2014, or nearly 7 percent of the company’s total revenue for the year, according to its 2014 annual regulatory filing.

They want CARB to change the formula to count so-called “e-miles” -- the number of miles plug-in hybrid cars travel on electric power alone. This would allow, for example, General Motors to include the 50 miles that its 2015 Chevrolet Volt can travel on electric power before the gasoline engine kicks in. Plug-in hybrids like the Volt, Ford Fusion Energi, the plug-in Honda Accord and the BMW i3 would get credit for reducing emissions under the proposal.

Currently, the six biggest automakers based on California sales (Toyota, Honda, Nissan, General Motors, Ford and Fiat Chrysler) are compelled to buy ZEV credits. Beginning in 2018, “second tier” automakers, including Volkswagen and Mercedes-Benz will be required to buy ZEV credits.

During a CARB hearing last month regulators loosened the rules to allow automakers with the smallest California sales, namely Jaguar Land Rover, Volvo, Mitsubishi, Mazda and Subaru, to count plug-in hybrids. During that hearing, Ken Morgan, Tesla's director of business development and government affairs, rejected the move outright, saying all automakers have access to the same or more resources as Tesla to build, market and sell electric cars.

“Providing concessions despite the existence of reasonable and readily accessible regulatory flexibilities sends a signal to the rest of the industry that further concessions can be negotiated,” said a May 3 letter sent to Richard Corey, CARB’s executive officer, by James Chen, Tesla’s chief of regulatory affairs. “We believe this will cause automakers to slow down their investments in ZEV product lines, particularly in advance of the midterm review.”