Posted on May 12, 2017 by Charles Morris
In the constant flood of media articles about Tesla, there are a lot of misguided predictions being made by people who don’t understand the dynamics of the current electric vehicle (EV) market. As stock analysts found out on Tesla’s [NASDAQ: TSLA] recent Q1 earnings conference call, Elon Musk is happy to explain the issue.
Contrast in design: Tesla Model 3 goes for sexy while GM's Chevy Bolt goes for boxy (Image: Tesla Central)
Musk addressed two common misconceptions, explaining why government EV incentives actually benefit the legacy automakers more than they do Tesla, and why GM's Chevy Bolt is unlikely to offer any real competition for Tesla’s Model 3.
First, Musk debunks the notion that Tesla is dependent on subsidies: “Over the years there’s been all these sort of irritating articles like Tesla survives because of government subsidies and tax credits. It drives me crazy. Here’s what those fools don’t realize... Tesla has succeeded in spite of the incentives, not because of them.”
Above: First multi-coat red Tesla Model 3 recently spotted (Instagram: gobi.man)
Of course, the Tesla-relies-on-government-subsidies trope is a common one in the naysaying community. In fact, the company currently receives no direct subsidies, although all EV-makers benefit from a range of government incentives, particularly the federal EV tax credit and California’s Zero Emission Vehicle (ZEV) program.
Musk explains that there are many car companies, and all (including GM) are eligible for federal and state incentives for plug-in vehicles. “What matters is whether we have a relative advantage in the market. And in fact the incentives give us a relative disadvantage.”
Above: Tesla CEO Elon Musk (Image: Electrek)
Speaking of the California Air Resources Board’s Zero Emission Vehicle program, Musk said, “[Because] the rules are relatively weak, there are some quarters where we can’t even sell CARB credits. And when we can, it’s maybe 50 cents on a dollar or something like that, whereas the other car companies get to fully absorb the value of the CARB credit. So [that] gives GM roughly, from my count, a $7,000 to $10,000 advantage over Tesla for their Chevy Bolt.”
The legacy automakers can use their ZEV credits to offset sales of other, thirstier vehicles such as trucks and SUVs. Tesla, of course, has no gas-burning models to apply the credits to, so it must sell the many ZEV credits it earns to other automakers, at a discounted price.
Above: Chevy Bolt's ZEV credits used to offset sales of other GM trucks/cars (Image: Hawk Chevy)
“That’s why you shouldn’t ask why GM appears to be losing $10,000 a car on the Bolt,” explained Musk. “No, they’re not. They are making it up on CARB credits. But they get the full retail value of the CARB credit, whereas we get the wholesale value when we’re lucky.”
Now, here’s where Musk’s little lecture gets interesting (or embarrassing, from GM’s point of view). Many Tesla skeptics expect Model 3 to face stiff competition from the Chevy Bolt. However, those with more knowledge of the EV market understand that (unless there is a major change of strategy in Detroit) GM will likely produce the Chevy Bolt as a "compliance car" in limited numbers.
Above: CNET describes a "compliance car" and, according to Musk, GM's Chevy Bolt may fit into that category (Youtube: CNET)
Elon explained one reason why this is so: “The CARB credits are only effective at a production rate of about 20,000 to 30,000 vehicles a year,” said he. “So that’s why you’ll see - mark my words - it’s not going to be any higher than that for the Chevy Bolt. That’s on order of 25,000 units a year, or 10% of our initial production rate for the Model 3, or 5% of what Model 3 will be next year.”
Musk is not the first one to throw out that 25,000-per-year prediction. A couple of years ago, when the Bolt was in its planning stage, InsideEVs reported that “supplier sources who need significant lead time to prepare for production say they are being told that General Motors expects to sell 25,000-30,000 Bolts per year once production is underway.”