Dan Morain

Elon Musk seeks more California gold

Elon Musk, CEO of Tesla Motors Inc., talks about the Model X car at the company’s headquarters, in Fremont, Calif.
Elon Musk, CEO of Tesla Motors Inc., talks about the Model X car at the company’s headquarters, in Fremont, Calif. Associated Press

Mary Nichols, chairwoman of the California Air Resources Board, looked up from her cellphone to answer a simple question: What did she think of what Elon Musk had said the other day?

Simple, yes, and a little bit loaded.

On an earnings call with investors the week before, Musk, the billionaire founder and chief executive officer of Tesla Motors, snapped at the hand of the agency that, more than any entity in the world, has plied the Fremont automaker with a variety of lucrative subsidies.

“CARB should damn well be ashamed of themselves,” Musk said, his chutzpah on full display.

Bureaucracies can handle themselves. They don’t need me to defend them. But this would be the same California Air Resources Board that presides over the nation’s strictest smog program and the toughest regime to reduce greenhouse gas emissions. Without such programs, there would be no market for the $100,000 electric vehicles produced in Fremont.

The air board oversees a rebate program by which purchasers of cars deemed to be zero-emission can collect $1,500-$3,000 checks, courtesy of taxpayers. Because of that rebate program, 25,120 Tesla buyers have received $63 million in rebates. And owners of zero-emission vehicles receive stickers so they can zip along in carpool lanes.

Then there’s the real money: zero-emission vehicle credits. By law, Chevy, Ford, Toyota and all other automakers face a mandate to make and sell zero-emission vehicles. Many do. However, Tesla sells nothing but zero-emission vehicles, and, under the rules of the regulatory road, Tesla receives valuable credits for each car it sells.

Tesla markets those credits to other manufacturers, collecting roughly $14,000 for each car it sells, $450 million since 2013, according to public filings. Since 40 percent of Teslas are sold in California, California accounts for the vast majority of the credits that Tesla sells.

California’s handling of those credits is what got under Musk’s skin: “The California Air Resources Board is being incredibly weak in its application of ZEV credits. The standards are pathetically low. They need to be increased.”

Musk contended that more established car makers are engaged in “massive lobbying” to blunt the impact of zero-emission credits and get out from under the requirement. Certainly, automakers have fancy lobbyists. But it’s funny that Musk would mention massive lobbying.

Demonstrating that he fully grasps how a bill becomes a law, Musk last week hired Lang, Hansen, O’Malley and Miller, the second-richest billing firm in town, to go with the sixth-, seventh- and 21st-biggest billing firms, Platinum Advisors, California Strategies and Sacramento Advocates, which have collected no less than $26 million from their lobby clients since the beginning of 2015. Various other lobbyists are cruising through the Capitol on Musk’s behalf, too.

The result rolled off the production line last week, in the form of a sleek new piece of legislation that would benefit Tesla. The bill might be a fine idea. Getting gas guzzlers off the road is a good idea. But with two weeks left in the session, lawmakers would need to bend the rules to jam the legislation through.

The bill seeks put into law current policy, that 15 percent of all cars sold in California be zero-emission. The rub comes in the definition of zero-emission. The bill would exclude plug-in hybrids, which run on batteries, with gasoline as a backup, and account for 40 percent of the vehicles eligible to receive rebates.

And so back to the question posed to Nichols. Adept politician that she is, she flashed a mirthless smile, turned away, mumbled something and quickly offered her analysis of Musk’s view:

“I know he is very frustrated. He’s interested in what’s good for Tesla. But he’s not listening to what’s going on in the market.”

Without a doubt, Musk is an innovator. But there are other smart and innovative car makers. There are 36 zero- or near-zero-emission cars for sale now, more than twice as many as there were in 2013.

“You need a variety of vehicles produced by different manufacturers,” Nichols said.

Musk has bet the house of Tesla on battery technology. Toyota is manufacturing and marketing the Mirai, a car powered by hydrogen fuel cells. Their exhaust is water.

“We don’t have a crystal ball,” Hector De La Torre, an Air Resources Board member, told me. “We don’t know what will take off. Fuel cells, electric, and anything else, as long as it is zero or pretty close it. That’s always been our mantra.”

The issue confronting the state is not what’s good for Tesla, or any other manufacturer, but rather how to persuade consumers that zero-emission vehicles make sense. After reaching 3.2 percent of the roughly 2 million new cars sold in California in 2014, the percentage has fallen to 3 percent. With pump prices low, gasoline sales are rising.

Musk has built a sleek car. But Tesla hasn’t turned a profit yet. Subsidy will remain important to his company’s future. That helps explain why he is building the massive battery factory in Nevada. Gov. Brian Sandoval provided $1.25 billion in subsidies, far more than California was willing to offer.

Even so, California has nothing to be ashamed of. If it weren’t for the Golden State’s gold, there wouldn’t be much of a market for those battery-powered cars.

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