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Tesla Motors Inc (NASDAQ:TSLA) and ZEV Credits: Right or Wrong, The Market Decides

Tesla Motors had a rough trading session yesterday as its share price fell by 0.25% to close at $267.20. The drop in share price can be traced to a UBS analyst coverage placing the stock in the “Neutral” to “Sell” range.

Tesla_Tokyo_2011

It appears that the shares might recover in today’s session as the stock has gained 0.54% to $267.20 in pre-market trading at 04:46AM EDT. However, it is doubtful if the pre-market gains will see the light of day as fresh news throws Tesla into a controversial spotlight.

Tesla Motors looks at ZEV

A report by Watchdog shows that Tesla Motors  “has earned more than $295 million in green subsidy emission credits during the past three years for a battery-swapping technology (that) customers weren’t getting”.

In the report, it was noted that the firm might have earned up to half a billion dollars from the 11 states that offer the Zero Emission Vehicle barter program. For one, California has paid Tesla $173M in tax credits between 2012 and 2014. Tesla gets about $4000 in ZEV credits for each car sold.

The ZEV credits are doled out to Tesla as parts of plan to promote its battery-swap program. The crux of the matter is that Tesla has a battery-swap program in principle but the battery-swap is all but dead in practice. Nothing is wrong with Tesla’s collection of ZEV credits based on the demonstration; except that the firm is being paid for what it says it can do rather than for what it has done.

How will the Market React?

Tesla’s CEO, Elon Musk revealed last month that the battery-swap program is dead. The firm is not likely to expand the availability of the battery swap program. Add 1+1 and it doesn’t seem right for Tesla to continue to get paid for the service.

On the other side of the equation, it might too hasty to accuse Tesla of any wrongdoing because the firm does have the battery-swap program in place. If people chose not to swap their batteries, that’s not really Tesla’s problem to fix. Tesla Motors is trying to discourage trips to its Supercharger networks in order to encourage home charging and battery swap.

When the market opens today, forces that think Tesla is right and those that think that Tesla is wrong will determine the movement of Tesla’s shares.

If Tesla runs with its pre-market trading gains and closes the session in the green, you can take it that the market doesn’t think that Elon Musk’s firm has done any wrong. If Tesla closes in the red today, you can take it that the verdict of the market is that Tesla is as guilty as charged.

 

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Victor Alagbe is a seasoned business and finance writer with a specialty in writing about how to invest for the long-term in healthcare, pharmacology, energy and tech stocks. His long-term focus is on stocks that provide a nice mix of growth and income. For the short term, he passionately writes about trading stock options for the excitement and leverage that stock options offer.