Could Tesla have underestimated ZEV/CARB credits for Q2?

[sleepyhead]

Tesla pre-announced earnings only once, so inquiring minds want to know why. I would bet that they needed some weight in the "leasing" arrangement negociations. So I think it is very likely that it won't happen again soon. But they have done some unpredictable things lately, so there is still a chance that they will, especially if Elon want to treat shorts as Pavlov treated his dog.

I agree and even mentioned in another thread that I think that Tesla should not pre-announce earnings, because then everyone expects it every quarter.

I look at risk differently than most people and that is why I have been successful thus far. The market is not "expecting" an announcement and most likely there will not be on. If there is an announcement it will be good and lead to a 10%-20% increase in stock price, but if there will not be one then I will sell a portion of my TSLA stock and not really lose anything. I look at this as a low risk/high reward scenario. Or in other words, it is a free option! Can't beat that in the investment world.

 

[Citizen-T]

It is pretty common practice to preannounce when your results are drastically different from your guidance. For instance, if you guided a loss but will actually make a profit. I don't think Tesla is setting any kind of precedent that they will be doing this for every beat. If the guidance is way off, they should preannounce.

 

[CapitalistOppressor]

This is completely wrong. From those 12%, only a small fraction of credits have to be generated from ZEV vehicles, the rest can come from hybrids and various clean vehicles. See for example page 51 of
http://www.arb.ca.gov/msprog/zevprog/factsheets/zev_tutorial.pdf

It clearly says that for 100k cars sold, you need 790 credits from ZEV. Model S generates 3-5 credits per car (5 if the battery swap is "validated" as a fast refuel car) so about 200 MS could cover ZEV credit needs for 100k ICEs sold. And this is only in a dozen states. Sorry to interrupt the happy talk (so it amounts to 0.2% - that if we forget there are Leafs and Volts around)

You need to re-read your own tutorial. The ZEV "requirement" for 2012-2014 is 12% of sales. Here is their example -

Note that the total obligation is 12,000 ZEV credits per 100,000 vehicles sold. Here are the key slides -

and

You are required to "fill up the glass" with credits. But you can only fulfill a maximum of 6% of the requirement with PZEV's (Prius Hybrid), 9% with AT ZEV (Volt/PiP Hybrid), 11.21% with Enhanced AT PZEV (Volt/PiP when they give it a 150k mile warranty) or NEV (Big golf carts), or all 12% with pure ZEV. The program is structured in this way to prevent Toyota (for instance) from being able to satisfy the entire ZEV requirement with just credits generated from the Prius. At the same time California wants ZEV's, so they allow each level of technology to satisfy more of the requirement.

So if Toyota sells 100k Prius's (and no other cars) they will get 20,000 Bronze level ZEV credits (Edit: 0.2 credits/prius). Their ZEV requirement is 12,000, but the maximum number of bronze credits they could allot to their requirement would be 6,000, so they would still need to purchase 6,000 superior credits on the West Coast Exchange.

• They could purchase 6,000 gold credits
• or 3,000 silver and 3,000 gold
• or 3,000 silver and 2,210 silver+ and 790 gold.

Because gold credits can satisfy 100% of the requirement, they are the most valuable credit when selling on the exchanges. But if manufacturers fail to meet their 12,000 vehicle quota (with 100,000 sales), they are fined $5,000 per credit, period. So when it's all said and done manufacturers must meet the entire quota, and to the extent that they are deficient they need to pony up $5,000 per credit.

- - - Updated - - -

Has tesla released any data on zev credit customers? What about transaction info? Are they priced at a flat rated or based on demand? Could they make more by withholding sales towards the latter part of the year when customers are itchy to fill their quotas?

Tesla doesn't release anything. California will release credit balances, and net manufacturer transactions for 2012 in September.

The minimum price for a credit is $5,000, but the price tends to be more than that depending on supply and demand.

ZEV credits are traded on two exchanges, the West Coast Exchange for all states west of the Mississippi, and the East Coast Exchange for all Eastern states.

Tesla could withhold credits, but I don't see why they would. I don't buy the itchy hypothesis.

Also, a question you didn't ask, but folks need to understand, is that manufacturers have until September to fulfill the quota from the year before. So by September 2013, they need to have enough credits in their account to fulfill their 2012 quota or face regulatory action and fines. Also, if a manufacturer is short on credits, they must purchase any available credits on an exchange (doesn't matter which, since they can shift them back and forth).

In addition, folks seem to miss the fact that 15 states, representing ~50% of the total U.S. market, are subject to this quota. Carry rules let you satisfy some of the requirement in state B with sales in state A (at least until 2017), but you can't look at just California.

 

[drinkerofkoolaid]

Any idea what the figures are for ZEV sales this year? Has any manufacturer fulfilled the .79% of total sales requirement for Zero Emissions Vehicles? Is that .79% of the vehicles companies sold in the USA or the world?

 

[CapitalistOppressor]

Another point in Tesla's favor that I often forget is that not all cars are created equal when it comes to actually generating credits. A Model S apparently generates 7 credits because of battery swap. A basic Prius or similar hybrid only generates 0.2 credits. A neighborhood EV only generates 0.3 credits. An AT-PZEV like the Volt or PiP doesn't even generate a full credit until they manage to upgrade them to Enhanced status with the better 150,000 mile warranty (which is really referring to the total emissions lifecycle guarantee as opposed to a consumer warranty).

- - - Updated - - -

- - - Updated - - -

Any idea what the figures are for ZEV sales this year? Has any manufacturer fulfilled the .79% of total sales requirement for Zero Emissions Vehicles? Is that .79% of cars the companies sold in the USA or the world?

Tesla (obviously) and Nissan have both probably fulfilled the 0.79% requirement for 2012. Toyota is getting close because they are doing massive incentives on the RAV4, and it's long range generates a significant number of credits. Nobody else is probably even in the ballpark, though I haven't looked at the sales numbers. And I am morally certain that there are massive ZEV deficits overall, once you count the total 12% ZEV requirement, and the low number of credits that are generated from inferior (non EV) technologies.

 

[drinkerofkoolaid]

This could be very interesting. Tesla and Nissan could end up the only manufacturers making money on Zero Emissions Vehicles, with Tesla being the main company profiting from the sale of Gold credits.

 

[Nicu.Mihalache]

You need to re-read your own tutorial. The ZEV "requirement" for 2012-2014 is 12% of sales.

I think you have to re-read my post, because that'e exactly what I was saying. Only a small portion from those 12% has to come from ZEV, the rest can come from the low hanging fruit of hybrids and other shorter range pseudo-EVs. Manufacturers will always choose the easiest / cheapest way to satisfy regulations.

The minimum price for a credit is $5,000, but the price tends to be more than that depending on supply and demand.

Wrong again. $5000 is the maximum price of a credit, otherwise the manufacturer just pays the $5000 fine.

- - - Updated - - -

Another point in Tesla's favor that I often forget is that not all cars are created equal when it comes to actually generating credits. A Model S apparently generates 7 credits because of battery swap.

Wrong again. To get 7 credits per car (after the swap will be validated as FR = fast refueling - I do not know if the network has to be there, or simply the theoretical possibility for the car is enough) you need 300 mi range, which is obviously not the case for Model S.

From which table we can also see that the Leaf will get two credits per car, or at 0.79%, one Leaf can be used to sell 253 ICEs.

Model S will get 3-4 credits if swap does not qualify yet as FR, or 4-5 credits if it does. In any case, about 500 ICEs could be sold using the credits from one Model S.

 

[blakegallagher]

Wrong again. $5000 is the maximum price of a credit, otherwise the manufacturer just pays the $5000 fine.[/B]

This is incorrect ..... it has been stated that 5000 is a floor and they are willing to pay it because when they have to pay the fine they have to pay lawyers and litigation will quickly push the cost per credit way up.

 

[Citizen-T]

Wrong again. To get 7 credits per car (after the swap will be validated as FR = fast refueling - I do not know if the network has to be there, or simply the theoretical possibility for the car is enough) you need 300 mi range, which is obviously not the case for Model S.
View attachment 24693
From which table we can also see that the Leaf will get two credits per car, or at 0.79%, one Leaf can be used to sell 253 ICEs.

Model S will get 3-4 credits if swap does not qualify yet as FR, or 4-5 credits if it does. In any case, about 500 ICEs could be sold using the credits from one Model S.

Model S has been getting credit for fast refuse from day 1. We've been through this before. Tesla apparently demonstrated the swap capability by using a team of technicians in a "pit stop" style swap. That approach qualified.

Also, this chart does not specify how the range is rated. At the time the program was created the EPA 5-cycle test was not in use yet. In the 2-cycle test Model S can achieve 300mi.

 

[Nicu.Mihalache]

Model S has been getting credit for fast refuse from day 1. We've been through this before. Tesla apparently demonstrated the swap capability by using a team of technicians in a "pit stop" style swap. That approach qualified.

Also, this chart does not specify how the range is rated. At the time the program was created the EPA 5-cycle test was not in use yet. In the 2-cycle test Model S can achieve 300mi.

I have never seen any report with any kind of independent official test that said Model S had 300 mi range. Can you provide a link please? And another one for the pit stop and it relationship with ZEV credits? Both are news to me and I am genuinely eager to see any kind of proof (but opinions on forums would not qualify).

 

[maekuz]

I have never seen any report with any kind of independent official test that said Model S had 300 mi range. Can you provide a link please? And another one for the pit stop and it relationship with ZEV credits? Both are news to me and I am genuinely eager to see any kind of proof (but opinions on forums would not qualify).

Model S Efficiency and Range | Blog | Tesla Motors

With the 85 kWh Model S battery we set a goal of delivering a range greater than 300 miles using the 2-cycle EPA test procedure that we used with the Roadster. This is a goal that no EV in history had ever achieved. We are thrilled to say that we exceeded this goal.

 

[Nicu.Mihalache]

Model S Efficiency and Range | Blog | Tesla Motors

This is neither official, nor independent, nor a test, just a goal in a blog. Do you think other manufacturers will hand Tesla $35k per car over this?

 

[Johan]

This is neither official, nor independent, nor a test, just a goal in a blog. Do you think other manufacturers will hand Tesla $35k per car over this?

Yes, if the official agencies recognize it as "300 mile range" thus awarding Tesla 5 credits. There was a document (official) from the state of New Jersey where the 85 kWh was listed as getting 5 credits, right? ( Sorry unable to find the link).

Also perhaps slightly less than 5k per credit, since that's the penalty (unless there are other adminstrative penalties added to factor in - "handling fees" or similar)

 

[stopcrazypp]

This is neither official, nor independent, nor a test, just a goal in a blog. Do you think other manufacturers will hand Tesla $35k per car over this?

Look a bit further down:

We are very pleased to report that Model S has exceeded our initial range expectations by about 20 miles and has achieved a Roadster equivalent 2-cycle range of 320 miles and a 5-cycle range of 265 miles. This sets a new record for electric vehicle range!

As you may know, CARB uses the LA-4 range (city cycle) and the 2-cycle range is usually lower than that, so given the Model S got a 320 mile 2-cycle range, they are definitely over 300 miles for CARB purposes.

 

[EVNow]

Also, this chart does not specify how the range is rated. At the time the program was created the EPA 5-cycle test was not in use yet. In the 2-cycle test Model S can achieve 300mi.

IIRC, the range they use is the LA03 (UDDS or the city) cycle. That is why Leaf gets 100 miles - I think P85 would get 300 miles in that.

BTW, since someone else is asking, usually all these numbers don't need independent tests. Even the EPA numbers are given by the manufacturer - EPA only tests a handful.

 

[Nicu.Mihalache]

Look a bit further down:

As you may know, CARB uses the LA-4 range (city cycle) and the 2-cycle range is usually lower than that, so given the Model S got a 320 mile 2-cycle range, they are definitely over 300 miles for CARB purposes.

That would be relatively cool, but it also means the Leaf gets 3 credits? Therefore much easier to oversaturate the market for ZEV credits. Once it is clear that the market will be saturated, the price will not stay anywhere near that $5k. And once enough credits have been purchased, their price falls to $0. The whole question is how fast is Tesla going there. Will they still have enough of them to approach $0 EPS this quarter? In the improbable case their EPS will be slightly above 0 (and if it is near 0, a bit of creative accounting will do the trick), we may even have a pre-announcement tomorrow. Nothing will make me happier in the short term, as I have a bunch of Jul calls I have to sell to some optimists

 

[jeff_adams]

Nothing will make me happier in the short term, as I have a bunch of Jul calls I have to sell to some optimists

So you can increase your Axiom portfolio, right? They could use your investment right now.

 

[Nicu.Mihalache]

So you can increase your Axiom portfolio, right? They could use your investment right now.

Off topic.

 

[stopcrazypp]

And another one for the pit stop and it relationship with ZEV credits? Both are news to me and I am genuinely eager to see any kind of proof (but opinions on forums would not qualify).

Here's the source for the pit stop:
http://www.teslamotorsclub.com/show...swapping/page4?p=338264&viewfull=1#post338264
I've asked GSP for verification/evidence, but he did not respond.

This bloomberg article implies Tesla is already getting the max credits:

Battery swapping capability currently satisfies that “fast refueling” requirement, David Clegern, a spokesman for the agency, said by e-mail. CARB is considering a rule change that would remove pack swapping as a fast-refueling option, he said.
Hydrogen vehicles such as Honda Motor Co.s FCX Clarity fuel-cell sedan are the only other cars that currently earn as many as seven credits per vehicle, according to California rules.

http://www.bloomberg.com/news/2013-...-battery-swap-for-faster-refuels-credits.html

 

[CapitalistOppressor]

I think you have to re-read my post, because that'e exactly what I was saying. Only a small portion from those 12% has to come from ZEV, the rest can come from the low hanging fruit of hybrids and other shorter range pseudo-EVs. Manufacturers will always choose the easiest / cheapest way to satisfy regulations.



Wrong again. $5000 is the maximum price of a credit, otherwise the manufacturer just pays the $5000 fine.

View attachment 24692

- - - Updated - - -



Wrong again. To get 7 credits per car (after the swap will be validated as FR = fast refueling - I do not know if the network has to be there, or simply the theoretical possibility for the car is enough) you need 300 mi range, which is obviously not the case for Model S.
View attachment 24693
From which table we can also see that the Leaf will get two credits per car, or at 0.79%, one Leaf can be used to sell 253 ICEs.

Model S will get 3-4 credits if swap does not qualify yet as FR, or 4-5 credits if it does. In any case, about 500 ICEs could be sold using the credits from one Model S.

I think it's pretty amazing how often you incorrectly assert that I am wrong.

Lets start at the top. The "low hanging fruit" you mention is indeed how the regulation is structured. Unfortunately for your thesis, reality has overtaken events and manufacturers have failed to grasp your precious fruit.

87.8% of all vehicles sold in California in 2012 were sold by LVM's subject to the regulation. With 1,529,000 autos sold that makes ~1,342,000 subject to the ZEV quota, which means that manufacturers need ~161,000 credits.

There were ~108000 hybrids registered in 2012, which would have generated ~21,600-64,800 credits depending on the technology mix (hybrid registrations include PiP and Volt. Maximum credits are only generated if every hybrid was a plugin, which is far from the reality)

There were 6197 EV's sold in 2012. If every one had been a model s that would generate 43,379 credits. Unfortunately only 2,400 were Model S's. So tell me. Is this market saturated?

http://www.cncda.org/secure/GetFile.aspx?ID=2500