California’s Zero Emission Vehicle credit program boosts Tesla Motors’ profit

By Chris Spahr

Tesla Motors, Inc., the Palo Alto based electric vehicle maker, has taken full advantage of the credit system through California’s  Zero Emission Vehicle program to help post its first-ever profit at the start of this year. The ZEV program requires that automakers build a certain percentage of zero emission vehicles, such as hydrogen fuel cell, battery electric, and hybrid vehicles, for sale in California. The state also offers credits for cars with no tailpipe emissions and other automakers can buy these credits to meet state emission mandates. Tesla reported this month that it made $11 million in the first three months of this year as compared to a $90 million loss for the same period last year. The company revealed that of its $562 million in revenues, 12 percent—or $68 million—came from selling ZEV credits.

While great strides have been made in producing “greener” cars, regulators in the state of California see the only path to cleaner air being through vehicles that produce no emissions at all.  The state must meet an Environmental Protection Agency deadline of 2023 to clean up its air or risk losing federal highway funds and face other penalties.

California’s Air Resources Board currently requires that less than one percent of an automaker’s fleet be zero emission vehicles, however, this requirement will increase to 15 percent of new-car sales by 2025.  With a projected increase in sales from 2,650 vehicles in 2012 to 20,000 vehicles in 2013, the selling of ZEV credits could provide substantial income for Tesla Motors.

However, the company has forecast that it will no longer be cashing in ZEV credits by the end of the year. Tesla chairman and CEO Elon Musk plans on increasing profit by creating more savings through improving the cost of logistics, getting better deals from suppliers, and improving the designs of the vehicles.

Chris Spahr is a Graduate Assistant with SSTI.