Why Tesla wants stricter emissions rules

Zero-emission vehicle rules in California will become stricter soon, and some carmakers are already requesting changes. Tesla Motors, meanwhile, is openly opposing its competitors on the issue, arguing that the California mandate should be even more stringent. 

California's zero-emission vehicle (ZEV) rules will become more stringent soon, extending to more carmakers and requiring more battery-electric or hydrogen fuel-cell cars to be sold.

While the new set of regulations won't take effect until 2018, carmakers have already requested changes that could make the rules more lenient or easier to comply with.

And that doesn't sit well with one company that's earned significant benefits from the zero-emission vehicle mandate: Tesla Motors.

The company is openly fighting other carmakers over the issue, arguing that the California mandate should be made stricter.

"The mandate is already far too weak," said Tesla's vice president of business development Diarmuid O'Connell, in a recent interview with industry trade journal Automotive News.

"The inconvenient truth" is that Tesla's success "revealed the weakness of the mandate," O'Connell said.

From 2012 through 2017, the zero-emission vehicle rules apply only to the six top-selling carmakers in California: Fiat Chrysler, Ford, General Motors, Honda, Nissan, and Toyota.

While the Nissan Leaf is the bestselling electric car in the world, the other companies have built "compliance cars" that are sold only in volumes large enough to meet the rules.

But in 2018, the mandate will extend to a new tier known as the "Intermediate Vehicle Makers"--those with global annual revenue of less than $40 billion.

That includes Jaguar Land Rover, Mazda, Mitsubishi, Subaru, and Volvo, which collectively issued requests to modify the ZEV rules to the California Air Resources Board (CARB), which oversees them.

Beginning in 2018, the rules will also mandate increases in the sales volumes of qualifying vehicles--by 1 percent for each following year.

Last month the board issued a notice that it plans to allow these carmakers to use plug-in hybrids to meet the requirements.

Tesla does not like that idea, something that was made abundantly clear during a May 23 CARB hearing.

Going against the social mores of lobbying, Tesla openly attacked the proposal made by other carmakers.

The smaller carmakers "have access to the same financial markets that enabled Tesla to raise all of the funding it needed" to build electric cars, testified Ken Morgan, the company's director of business development and government affairs.

Morgan said the current rules could allow carmakers to meet them solely by purchasing ZEV credits from other makers, rather than actually building zero-emission cars.

He said their existing stockpiles of credits could allow all carmakers to comply with the rules through 2022 without building a single car.

And they could extend that moratorium for another year after that if they bought additional credits from Tesla.

The Silicon Valley electric-car maker is already the largest seller of ZEV credits. The company received $152 million from the sale of ZEV credits last year, according to its financial reports, or about 5 percent of its total revenue.

CEO Elon Musk characterized this as "not a big deal" in a talk with analysts in May.

Other carmakers dispute Tesla's claim, saying that it would be foolish for them to rely solely on ZEV-credit purchases.

If nothing else, they argued, standards beyond 2023 are bound to get stricter, but no one can yet predict by how much, meaning how many additional credits they will need in future years.