So, a Donald Trump presidency promises to stop incentives on a number of climate change-related government spending and it is threatening the electric vehicle (EV) industry. Tesla's CEO Elon Musk immediately moved to put a positive spin on this development, citing that the new policy could even work to his company's advantage.
Elon Musk's Argument
In a shareholding meeting, Musk made time to address the issue by stating that there is a fundamental misunderstanding about Tesla's competitive position. The company's market value has been declining since Trump was elected president.
"One of the biggest misunderstandings about Tesla — and some are counterintuitive — is the degree to which Tesla is reliant upon incentives or subsidies," Musk said. "Ironically, if all incentives and subsidies were removed for Tesla, Tesla's competitive position would increase, not decrease."
ZEV Credit
Musk has been talking about the Zero Emission Vehicle (ZEV) credit, which is mandated by several states on EV manufacturers. This policy requires these companies to produce a specific number of EVs otherwise it will get fined. The penalty can be avoided by buying ZEV credits from companies that have excess credits earned for selling more than the minimum number of EVs. Tesla is one of the companies that have profited from selling ZEV credits.
Musk pointed out that the market today is already flooded with ZEV credits so it is no longer possible for the company to turn a profit from it. His position is that, if the ZEV gets the ax, competitors such as General Motors and Ford will no longer enjoy their advantage. These companies could purportedly monetize their ZEV credit at 100 cents on the dollar. Musk claims that Tesla is only allowed 50 cents.
But some argue that ZEV credits are still a source of revenue for Tesla regardless of the amount allowed Musk cannot categorically claim that it is harmful to his company.
EV Incentives
What Musk did not address in his optimism is how a reduction of government subsidies on EVs could impact Tesla. This could involve the elimination of federal tax credits, which makes EV more affordable. This allows Tesla EVs to better compete with mainstream vehicles. Musk himself recognized this.
"We do believe there should be incentives and government incentives for electric vehicles, but we believe they should be there for the good of the industry and to accelerate the advent of sustainable transport," the Tesla CEO said.
The Climate Action Plan, introduced by the Obama administration, provides incentives such as federal incentives to green technologies, which include EVs. Tesla's upcoming Model 3 vehicle, for example, has a $35,000 price tag. Once federal and state tax credits are factored in, that figure will plummet to around $25,000.
