Despite concerns raised earlier this week that a Trump administration would be catastrophic for Tesla Motors, Musk said it would be a “fundamental misunderstanding” to jump to such conclusions. Specifically, skeptics pointed to the possibility of Trump’s elimination of zero-emission vehicle (ZEV) credits as a reason for worry. But in fact, doing away with ZEV credits might actually help Tesla’s competitive advantage, Musk told shareholders in a question and answer session held earlier this week.
Originally implemented by the California Air Resources Board, the ZEV mandates demands that automakers sell a minimum number of zero-emissions vehicle or pay a fine. Nine other states have since adopted such a practice, including Maryland and Maine. Of course, not all carmakers are actually able to sell the required number of environmentally friendly automobiles, in which case they have the option of buying credits from other companies that have a surplus. Of course, given that Tesla is in the electric car industry, and exclusively sells electric cars in states where the mandate is in effect, the company always has more than its share of credits. In the third quarter of this year, Tesla turned a $139 million profit simply by selling its excess ZEV credits.
But that isn’t to say that Tesla relies upon ZEV credits to make money, or that it’s even a consistent source of income for the company. As such, Musk said that even if Trump, an outspoken climate change denier, were to eliminate the ZEV mandate, Tesla wouldn’t really be affected. On Thursday, Musk noted that the company generally makes around “50 cents on the dollar” by selling its credits, and as such, “The incentives either don’t scale or are disadvantageous. If General Motors or Ford or somebody else makes electric vehicles, they get to monetize their ZEV credit at 100 cents on the dollar, so if there are two ZEV credits per vehicle, General Motors would have a $5,000 cost advantage over Tesla.”
Ultimately, as CFRA Research analyst Efraim Levy told Business Insider, ZEV credits simply aren’t crucial to Tesla when it comes to the company’s profitability. “Broadening it out to the big picture, if you’re buying Tesla stock or even holding it, you’re not dependent on the ZEV credits for your thesis,” he said.
All the same, that doesn’t mean that Musk is eager for Trump to do away with ZEV credits. “We do believe there should be incentives and government incentives for electric vehicles, he said. “But we believe they should be there for the good of the industry and to accelerate the advent of sustainable transport.”
