Tesla sales in EU could rack up US$ 100+ million per year in green credits

[raymond]

This has become longer than I had intended. Bottom line: when Tesla sells 10.000 EVs/year in Europe it might receive €45-90M (US$ 55-110M) or more in green credits. (Unless I'm mistaken, of course)

I've been reading up on US and EU standards meant to reduce the CO2 emissions from cars. The recent EU announcement of a manufacturer target of 95gr CO2/km (which translates to 4.0 ltr/100km or 59 mpg) by 2020 got little or no attention in the main stream media (or none that reached me).

The EU targets for 2015 (130 gr CO2/km; 5.4 ltr/100km; 43.4 mpg) are on par with the US targets for 2016 (5.6 ltr/100km; 42 mpg), but the EU 2020 targets aim for a further increase in fuel efficiency of 27% over five years time. The EU 2020 targets are similar to the US 2025 targets.

For each additional gram CO2 per km - a unit that I haven't yet been able to get used to - above the 95 limit, car manufacturers pay an "excess emissions premium" of €95 (US$ 115). What this means in practice is that a BMW X5 at current (2012) mpg levels minus 20% (accounting for an improved fuel efficiency) would rack up more than €10,000 (US$ 12,000) in excess emissions premium. At current VAT levels that could imply a price increase to the consumer of €12,000 (US$ 14,600)!
BMW can offset this "X5 problem" with the sales of their 1-Series, but even the most fuel efficient 116i is still 26% above the 2020 norm and BMW with their "efficient dynamics" may be considered one of Europe's leading manufacturers in terms of fuel efficiency!

I think - but have not been able to verify - that EVs are factored in at 0 gr/km. As manufacturers are allowed to "pool" their CO2 emissions, each EV is worth 95*€95 = €9,025 in emissions. When the profits of pooling are split evenly between the participating manufacturer (is this a reasonable assumption?) that could still give Tesla a net income om €4,500 per vehicle sold (in the EU).

Is this where the Tesla/Daimler partnership *really* becomes valuable? 10,000 EVs per year in the EU could yield Tesla an additional €45M (US$ 55M) per year (up to €90M / US$ 110M, depending on how Tesla and Daimler split the bill).

Because of above-average weight of the Model S the above calculations might need to be adjusted upwards by ~10% depending on how the EU directive will be interpreted. Also in 2012 and 2013 the value of these virtual "credits" from manufacturing low-exhaust are multiplied by 3.5 (2014: 2.5, 2015: 1.5, 2016: 1.0) which could give Tesla an initial boost.

It seems that starting in 2015 this might provide Tesla with additional "funding" that - spent wisely - could put Tesla firmly in the lead in the EV race.


Should anyone care to comment, please do. I'm pretty much still learning about most of this.


-----------------
Sources (warning: long reads!)

Reducing CO2 emissions from passenger cars
President Obama Announces Historic 54.5 mpg Fuel Efficiency Standard | The White House

 

[Robert.Boston]

Interesting, raymond; this analysis sounds reasonable (although I haven't read the underlying documents). It would be nice to think that Tesla would take these credits into account when setting the retail price of the EU Model S.

The only place where I might quibble is your assumption of split-profits. There are far fewer sellers of these credits than buyers, so Tesla should be able to capture nearly 100% of the green credits' value.

 

[Johan]

It seems unclear whether these credits can be sold on the open market, or (as in your BMW ) only can be used to offset "within" one manufacturer. And what with Tesla-Daimler? Daimler does not own Tesla (only a few % of the stock).

 

[Robert.Boston]

Manufacturers may form a pool to meet the specific emissions targets jointly. When forming a pool, manufacturers must respect the rules of competition law: the information they exchange should be limited to average specific emissions of CO[SUB]2[/SUB], their specific emissions targets, and their total number of vehicles registered.

Source: European Commission

So, no, the credits can't be "sold," but you can "pool" with another manufacturer and, under the pooling agreement, come to whatever financial arrangements you like (short of violating competition law).

 

[Johan]

Source: European Commission

So, no, the credits can't be "sold," but you can "pool" with another manufacturer and, under the pooling agreement, come to whatever financial arrangements you like (short of violating competition law).

That's just like selling, if you can pool with anyone and come to whatever agreement you want, I don't see how it's very different from selling?

 

[Robert.Boston]

That's just like selling, if you can pool with anyone and come to whatever agreement you want, I don't see how it's very different from selling?

It's functionally the same, I agree. But you have to sell to another car manufacturer; public interest groups can't buy up these credits, as they do carbon credits or emissions allowances.

 

[Johan]

It's functionally the same, I agree. But you have to sell to another car manufacturer; public interest groups can't buy up these credits, as they do carbon credits or emissions allowances.

True. However, as Raymond has pointed out this could turn out to be a rather substantial income for Tesla in Europe in the coming years. Surely Tesla themselves are aware of this. It would be interesting to know how much, if any, "pooling" is already going on in Europe, in which companies that are "pooling" with which (this might be publicly available?). And at what price/cost? (though this is likely not available information). It's only natural that manufacturers are already offsetting (most larger car manufacturers at least in Europe have a balanced line-up of cars, i.e. everything from small engines with high MPG to large gasoline/diesel hungry beasts for every model) within their own brand.

 

[raymond]

most larger car manufacturers at least in Europe have a balanced line-up of cars...

From the EC article (question #6): Suzuki, Nissan, Mitsubishi, Mazda and Subaru have above-average emissions.

Nissan must be pooling with below-average Renault (problem solved), but that leaves the other Japanese manufacturers excl. Toyota (why the Japanese? coincidence?) with a CO2 problem.

Daimler and BMW are just a little above the norm (2006 figures), but because of their volume they might have a lot of CO2 to compensate.

If anybody can find up-to-date data please post here!

 

[Johan]

When I say balanced I mean the line-up, however the actual sales may not be balanced. I.e. Toyota have a lot of fuel efficient cars, like the Yaris with small engines, Prius, Auris hybrid etc. etc. but they also have their Land-Cruiser, Rav-4, Minivans etc. etc. and maybe those are outselling the fuel efficient ones as a whole? They're selling a lot of minivans and pick-ups etc. to small and large businesses for example.

 

[Robert.Boston]

Nissan must be pooling with below-average Renault (problem solved), but that leaves the other Japanese manufacturers excl. Toyota (why the Japanese? coincidence?) with a CO2 problem.

Daimler and BMW are just a little above the norm (2006 figures), but because of their volume they might have a lot of CO2 to compensate.

But remember, the target is not the average -- the 2015 target is 130 g/km, and almost everyone is above that mark.

 

[raymond]

But remember, the target is not the average -- the 2015 target is 130 g/km, and almost everyone is above that mark.

My understanding is that the actual target is a function of the weighted average of the weight of the sold cars per manufacturer.

For a given manufacturer the actual target is 130 + 0.0457 * ( M [kg] - 1289) gr CO2/km, where M is said weighted average in kg. So for Daimler at an average weight of 1480 kg that comes out at 139 gr CO2/km in 2015. Fiat at 1110 kg average gets a target of 122 gr CO2/km in 2015.

The 130 gr target is a weighted average for all the manufacturers combined, but no single manufacturer can be held responsible for meeting that target.

A Mercedes A-Class comes in at 128 gr CO2/km which (almost) compensates for the 154 gr CO/km for an entry level E-class. In The Netherlands fuel efficient cars have taken a huge leap in popularity - partly due to tax regimes - so I expect e.g. Daimler to be much closer to their 139 gr/km target than they were in 2006 (at 180 gr/km).

 

[VolkerP]

The german premium car manufacturers lobbied to introduce vehicle weight into that calculation. With the effect that the Leopard 2 battle tank now get's the same fuel efficiency rating as a VW Golf. Serious! Source (in German): heise autos.

 

[jkirkebo]

But remember, the target is not the average -- the 2015 target is 130 g/km, and almost everyone is above that mark.

Average emissions of all new passenger cars sold in Norway the first half of this year is 131g/km, so we're not far off here. Excluding EVs the number is 135g/km.