Do you have any info on why ZEV credits are traded more heavily in certain quarters than others? More specifically, do you have any info that Q4 was a quarter that Tesla was able to sell a lot of ZEV credits?
Dave,
Thanks for the question, and the short answer is no, I can't predict ZEV sales by quarters. The long answer is a combination of resources and inferences let me sum these up as quickly as possible.
If you haven't read Capitalist Oppressor's opus on ZEV, it's worth it:
Regulatory Credits - How BMW and Daimler Will Fund Tesla's Conquest of the World
I particularly like this summary as an initial answer to your question:
"Nothing prevents an automaker from purchasing Tesla credits and banking them for future use. And there is no requirement that Tesla sell any of its credits right now. So the actual pace of sales is not necessarily driven by current needs, but rather by an attempt by both sides to maximize utility."
So a couple bullet points about Q4 and why I think this will be a good quarter for ZEV:
- Q4 2012 and Q1 2013 were good last year....while this is a small data set, the ZEV revenue looked to be 100% of ZEV credits produced for Q4 2012, Q1 2013 and Q2 2013, then the large drop from $51 million to $10 million that coincided with the changeover of the program year on September 30, 2013.
- There is a reporting requirement on May 1st. Once again from Cap Opp's Opus, "On balance, I think its likely that speculation about Q1 revenue from regulatory credits has substantially understated the potential, especially since $5,000/credit looks to be a minimum, and manufacturers had an incentive to get to a positive balance before the May 1st reporting deadline. This is very much a sellers market."
- 2013 was a catch up year, 2014 is the rump/pay it forward year. For Q4 2012 and Q1 2013 the automakers needed to catch up for cars produced in 2012 as there were very few ZEV credits on the market because Tesla just started to produce cars. For 2014, this is the last year that only .79% of sales need to be pure EV...in 2015, 3% of sales need to be ZEV. The market is about to almost quadruple at about the time the Model X is coming on line and there are very few compliance cars selling to meet the requirement.
- Increasing auto sales. In addition to the % of sales that have to be ZEV, the overall # of sales increased by over 10% last year in California, so the market for ZEV is at least 10% greater.
I don't know if TESLA will sell all their credits in Q4, but I am intrigued by the beating they took in Q3 with a pretty good report and low ZEV and if they would want to turn that part of the story around. I also think with the announcement of the giga-battery factory, they will want to show how they will pay for this new investment and revenue over $100 million for a quarter would help. I also rely some on Elon's comments from last year (and look forward to his comments this earnings call about ZEV). Tesla and Elon have the best read on the market as they are the market maker - he not only nailed last year's trend, but telegraphed it. I don't know if that means no ZEV for Q4 or massive ZEV for Q4...I'm leaning toward the latter.
Hope this helps, let me know what you think.