Tesla Cashes In, Sells Zero-Emission Vehicle Credits to Honda

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2012 Tesla Model S

2012 Tesla Model S

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Ever wondered how car companies make money fast? Sexy electric sports car creators Tesla motors have figured it out: sell off its excess zero-emission vehicle credits for much-needed hard cash to Honda, the only mainstream automaker to not yet fully commit to making an EV.

In 2008, a revised version of the Californian zero-emissions mandate came into force, requiring any major auto manufacturer wishing to sell vehicles within the state to make some form of plug-in vehicle, or face strict penalties.

While Toyota, GM, Nissan and Ford have all worked to some extent on plug in hybrid and pure electric vehicles, Honda has turned its attention to hydrogen fuel cell technology, leasing its FCX Clarity in select locations in California.

Tesla Roadster Sport

Tesla Roadster Sport

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Honda has illustrated time and time again that it does not see electric vehicles as a viable alternative to the gasoline car at this time.  While the FCX Clarity satisfies zero tailpipe emissions, it does not satisfy the necessary portions of the Californian Air Resources Board (CARB) legislature.

However, Honda are able to purchase credits for making plug-in cars they didn't actually make. How? Under the zero-emission vehicle credit scheme, carmakers who do build zero-emission and plug-in vehicles receive credits for doing so.

Only a certain threshold of vehicles from any manufacturer need be plug-in, but Californian startup Tesla only make electric vehicles and can sell any spare credits on.

Enter Honda, keen to buy up enough credits to satisfy Californian law. In court papers released as part of Tesla's up-coming IPO, Honda are the only named automaker buying zero-emission vehicle credits from Tesla, but Tesla have sold zero-emission vehicle credits to at least one other non-disclosed automaker.

So far, Honda has purchased enough zero-emissions credits equivalent to the credits awarded for the manufacture of 655 zero-emissions EVs.

2009 Tesla Roadstser

2009 Tesla Roadstser

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Tesla has taken more than $100 million in sales of its all electric Roadster and Roadster Sport models since its founding in 2003 but has yet to enter the black. The sale of zero-emission vehicle credits has netted the company $13.8 million in the past two years.

Many activists argue that the zero-emission vehicle credit trading scheme is an automotive equivalent of cap and trade and does not encourage the lowering of carbon emissions or the building of zero emissions vehicles, since those with enough money can buy credits in in order to escape hefty fines for non-compliance.

For Tesla however, the importance of the trade is a little extra cash to help steady the company coffers -- which continue to haemorrhage cash in preparation for the company's $100 million IPO.

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Comments (13)
  1. Tesla? Emissions credits? IPO? LMAO If I'm not there, just go ahead and start without me.

  2. I have got to hand it to you, Nikki, this is a well balanced article. Not so sure how comfortable I am with automakers dealing their credits to get out of the red. I will stay tuned for the rest of the comments.

  3. Most activists I know are actually ok with the idea of a credit market, because the cars get made either way and it allows for the smaller/medium-sized companies to play. It's the transparency (who's buying, who's selling, etc.) they want- and stakeholders have asked repeatedly for it to be built into CARB's ZEV program.

  4. Very interesting! Wonder why Honda doesn't believe in EVs ?

  5. I think Honda is making a huge mistake on avoiding the EV trend. I hope it comes to bite them in the butt because they have really lost their way. Honda is no longer a leader IMO, just a builder of average cars - nothing bad but nothing special either.

  6. you got to love capitalism- one company does something by the law but cant make money at it. The other can sell and make money but not obide by the law. The company that cant make money selling its product sells credit to the other company. BEAUTIFUL!!!

  7. @Charlie Yankos: So, ummmm, who's not "obiding" by the law? I'm confused here.

  8. Sounds like another win for the big automakers in the long run, and particularly the pricey brands. Too bad it's only a token award for the innovators.

  9. Good for Tesla, they are the innovators and I am glad to see they can be creative with these credits to keep their books out of the Red.
    Honda; one more reason for me to NOT buy any of your vehicles. I have never owned a Honda and now that they are not an EV player I never will. Also, Hydrogen is too costly and requires way to much energy to refine.

  10. Actually I take that back. I forgot about the Civic CNG. Priced a little higher that a standard Civic you can drive on Domestic Clean Natural Gas. I looked at this early this year before the Nissan LEAF announcement. I could have tapped into my gas water heater line and installed a connector to refill in my garage. Last time I checked per mile on CNG is about a 50% savings from unleaded, cleaner and domestically produced.

  11. @charlie yankos, Sure the accountability is not there, but the economic/environmental goal (in CAL's eyes) is still being met. Yea some may not agree but, so what? All-in-All it only affects Honda's and whoever else's pocket that buys these "credits" from Tesla.

  12. @James, See with electric, you technically can get it for free from solar/wind/etc power. If not free, than alot less than keeping a life line with the utility company. This "Natural Gas" I'd imagine, would be alot harder and more expensive to self produce for a CNG as well.

  13. This doesn't bother me, because at some point they'll have to adjust or people just won't buy their cars.

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