Elon Musk Argues Trump Could Be Good For Tesla

Convershaken Staff
February 23, 2017

Environmental groups in the US are preparing for the worst. Donald Trump has appointed Scott Pruitt as head of the Environmental Protection Agency - an organisation he sued multiple times as Oklahoma's Attorney General - and already overturned a law against dumping coal-mining debris into rivers and streams. But Tesla CEO Elon Musk, who sits on the president's business advisory council, argues less government support would help the electric car-maker.

"If electric-vehicle incentives went away tomorrow, Tesla's competitive position would improve," he said in a recent earnings call. He highlighted California's Zero Emission Vehicle (ZEV) programme, which aims to cut harmful tailpipe emissions by allocating automakers ZEV credits based on their sales of electric cars and trucks, and requiring them to maintain credits equal to 4.5% of non-electric vehicle sales in 2018, rising to 22% in 2025.

Hybrid vehicles - which run on electricity and fossil fuels - can only account for 55% of the required credits; the balance must stem from vehicles that rely solely on electric batteries (BEVs) or hydrogen fuel cells (FCEVs), which are also worth more credits. For example, if Ford sells 100,000 cars in California in 2018, it will need at least 4,500 ZEV credits, including 2,000 from BEVs and FCEVs.

GM can sell its Chevrolet Bolt EV for less than $37,500 because the company's ZEV credits are worth about $10,000 more to them than Tesla, says Musk. Tesla can only sell them for half their market value, when there's even a buyer. Many manufacturers choose to produce the "puny" number of electric vehicles needed, he says, while Tesla produces 20 or 30 times as many cars. 

The ZEV incentive is "just not important at scale because the mandate is too weak", says Musk. The credits are only used in 14 states, don't apply internationally, and he expects Tesla to eventually have a larger stockpile than the rest of the US industry combined.

Musk mentioned other incentives that have limited benefit for Tesla. A key draw for customers is the $7,500 federal tax credit they can receive for buying an electric vehicle, but it only applies to the first 200,000 vehicles sold by the automaker. Tesla is likely to hit that mark in early 2018, meaning the credit would be phased out over the next 15-to-18 months.

California has also changed its tax credit for electric vehicles, offering greater relief to poorer buyers and excluding individuals above a certain income threshold. Musk derided the move as "counterproductive to the biggest manufacturing player" in the state, adding that it was "weird" that California seemed to help out-of-state manufacturers more than Tesla, and that state officials should do more to help the company remain competitive.

Although Musk played down the importance of government incentives to Tesla, he expects incentives and subsidies to be uniformly applied across all industries. "It would obviously be wrong to get rid of any sort of government intervention in sustainable energy while retaining it in fossil fuels," he said. 

Other highlights of the call included Musk's description of the 'term paper problem', to explain why a few suppliers always miss deadlines due to overoptimism or getting unlucky. "I was a teaching assistant in college. And no matter what date we set the exam paper for, when the term paper was due, there's always some number of people that are late."

Musk also referenced the flood of leaks coming out of the White House. "Nothing is a secret these days, it seems," he said. "Major intelligence organizations cannot keep a secret. Really, I don't know who can, honestly."

Trump, whose tax returns remain under wraps, may have slipped his mind.