Tesla ZEV revenue increases as hybrid sales stall, it’s not easy being green, on Driving the Nation

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ZEV credit's are determined based on percentage of marketshare of CA sales

In Tesla’s financial press release it shows the surprise, “Automotive revenue for Q3 included $31 million of powertrain sales primarily to Daimler for the Mercedes-Benz B Class Electric Drive. It also included $93 million of regulatory credit’s, including $76 million of Zero Emission Vehicle (ZEV) credit’s. ZEV credit revenue was much higher than expected as we closed additional contracts with several OEMs.”

The price of gasoline, right before the mid-term elections, plummeted to a low that had not been seen in years. It didn’t help the Democrats stay in office and some are pointing to that drop as the reason hybrids are declining in sells. Those sales declines mean that certain OEMs will not meet the California Zero Emission Vehicle (ZEV) requirements. If that ZEV requirement is not met the OEM will not be able to sell cars in California. Could that be the reason they purchased $76 million regulatory credit’s from Tesla in the third quarter?

The ZEV credit revenue Tesla garnered in 2014 from other car manufacturers were zero in Q1 14, $10MM in Q2 14 and $76MM in Q3.

Come to Jesus, or CARB

After talking to CARB spokesman Dave Clegern at California Air Resources Board (CARB) there is a voluntary reporting/squaring up for Zero Emission Vehicles (ZEV) credit’s that is based on the percentage of marketshare each car company has in California. It could have just been coincidence that Tesla reported $76 million credit revenue in Q3, or it could have been that the car companies realized they weren’t going to sell as many ZEV products as needed to meet their requirements.

CARB doesn’t keep track of how the credit’s are exchanged, whether it is for money or technology. For example, Daimler purchased $31 million of powertrain sales primarily to Daimler for the Mercedes-Benz B Class Electric Drive. There could have been a negotiation of money and credit’s for those power trains.

What are some of the other interesting facts that came out of the one hour and twelve minute 3rd quarter financial webcast of questions from analysts to Elon Musk et al?

Elon Musk on demand and sales:

Tesla does not have a problem stimulating demand, “That is without advertising, without endorsement, we do not pay anyone to say nice things about our car and if you see a Tesla in a movie we did not pay to have it placed there. There are many things we could do to stimulate demand if that was our problem, but that is not our problem.” Manufacturing growth is one of Musk’s biggest concern, “demand is not our issue, manufacturing is our issue. we have more demand than we can address.”

50,000 unit’s, 50 percent rise, annually with “high confidence” is what Musk is willing to commit to for 2015 sales, “geographically it is difficult to extrapolate the dual motor (AWD) and auto-pilot “because there are some people that are waiting for all-wheel drive”

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Super gigafactory in Nevada courtesy, Teslamotors

Tesla has 124 Superchargers in the United States, 23 Superchargers in China and 82 Superchargers in Europe. In China Tesla has installed 23 Supercharging locations in 10 cities and several destination-charging stations at prominent hotels, malls and commercial buildings. Tesla says their customers have driven 49 million miles for free using it’s global network of Supercharger stations and that in 2013 more than 80% of their customers use their car as their primary car.

Some of the demand questions left Musk explaining how the orders and deliveries took place and why orders are not a true measure of demand.

Europe, Asia and currency fluctuation

Chief Financial Officer Deepak Ahuja said that if you live n Europe you may want to buy a Tesla now because they will have to raise the price soon because of the currency fluctuation.

Production in China could happen “it’s not going to make sense to transport cars across the ocean, especially Model 3. It makes sense to build it where it is going to be used. I expect a factory to be in China, Europe and more in North America.” Musk said he is in pursuit of helping other OEMs make electric vehicles and has been from the beginning.

Tesla is working with the Chinese government to get on the electric car list. They need to lay the groundwork much earlier in advance of when the cars are delivered in order to have the charging stations etc in place.

Why the Model X will be late – “It is something that should exist”
Musk said it’s Model X Sport Utility Vehicle (SUV) deliveries will begin in the third quarter of 2015, “a few months later than previously expected,” and it trimmed it’s forecast for vehicle sales this year to 33,000 from 35,000. Musk explained, “X production depends on production, the bottom end of the car is sorted out but with the gullwing door and second row seats, we’re adding some new stuff that hasn’t been out there.” Musk is sure there will be a great demand once the car is out there because some people want an SUV and some people want a sedan. Musk sees a 50% growth in 2015 (for just Model S) and 2016 “will be higher because of Model X.”

If Musk looked at 2020 the Model X would not be necessary to get to the Model 3, which has been the goal all along. “It will serve to generate great capital to get to the Model 3. I think the Model X will be something special. It is something that should exist”

“Everyone and their Mom”
Do you have a lithium-ion battery that you think Tesla would be interested in? Apparently everyone and their Mom is approaching Tesla about technology improvements. Musk says if you have a cell, send it to them. They are not interested in a powerpoint about the battery cell, just send one cell that works with all the caveats.

Somebody should shot us
Musk said, “If we can’t get 30% improvement someone should shot us.” That’s without taking technology improvements into account, just economies of scale.

What? Only five stars?
In an earlier press release Tesla said that the only car to receive the maximum-possible five-star safety rating from the European New Car Assessment Program (Euro NCAP) is the Model S.

It’s not easy being green or 60 KwH
Tesla is discontinuing a couple of car colors and, sadly, the greenest car in the world in discontinuing the color that lends it’self to the nomenclature of environmentally clean, the exterior color green and brown. The Model S will not come in dual-motor 60kWH.

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A Model S, no longer in green or brown. courtesy, Tesla Motors

Verbatim, “I think it’s probably not going to have a big effect on the average sales price, but we have had to make some tough decisions on essentially having fewer versions of the Model S in order to streamline manufacturing and thus be able to ramp production better and have better control in logistics and not have like a million variations on the Model S. The dual motors, we’re not going to produce the dual motor 60-kilowatt hour car at all. We’re not taking additional orders for the performance 85. We’re only doing the performance 85 dual motor and we’re cancelling green and brown as colors. These are a few examples. But this helps us streamline the manufacturing and supply chain logistics and enables us to better ramp production.”

Improvements in the interior and technology
More comfortable seats (with P85D), larger sun visors (offered to all Model S owners) and the sticker has been moved and is no longer in French, wipers,actuating port door, wider-opening rear doors and generally improved fit and finish will be new for the new Model S. Lane-departure warning and speed-limit alert are now standard features, the company said. In the coming months there will be a software update that will add advanced cruise control, highway steering and emergency braking.

Panasonic and achieving the deadline
Tesla is a bit ahead of schedule from where they thought they would be with the gigafactory in Nevada, which is “a super good idea for Nevada. I thought we got an okay package for Nevada, but not a super huge one. The Nevada tax incentive is a few percent, compared to what Boeing got for keeping one airplane in the state.” Musk complimented Panasonic on being “a great partner.”

Self-piloting/autonomous vehicles?
Seven to ten years from now is Musk’s predictions and, according to Musk, Tesla is likely to be the leader in that.

And for those people that care
Non-Generally accepted accounting principles (GAAP) revenue for the third quarter came in at $932 million versus the Non-GAAP 2013 figure of $603 million. 29.6% GAAP profit, excluding ZEV credit’s and all one-time credit’s it is 27%. Musk doesn’t see near-term reasons to raise money and maybe not at all till the Model 3. Tesla’s stock closed at $230.97, down 3.33%. A day later it was back up to $241.22.

About the Author:

Lou Ann Hammond is the CEO of Carlist and Driving the Nation. She is the co-host of Real Wheels Washington Post carchat every Friday morning and is the Automotive, energy correspondent for The John Batchelor Show and a Contributor to Automotive Electronics magazine headquartered in Korea. Hammond is a member of the North American Car and Truck of the Year (NACTOY), Women's World Car of the Year (WWCOTY), and the Concept Car of the Year.