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Elon Musk Explains How Trump Energy Policies Could Help Tesla Motors Inc (TSLA)

Tesla Model 3 (TSLA)

Tesla Motors Inc CEO Elon Musk recently addressed the growing concerns that the incoming Trump administration could threaten clean-energy businesses like Tesla. Instead, Musk assured shareholders that removing zero-emission vehicle (ZEV) credits could improve Tesla’s competitive advantage.

Will Trump abolish ZEV credits?

Donald Trump, who tweeted that the concept of global warming was created for and by China to make the US manufacturing non-competitive, is threatening to pull out of the Paris Climate Agreement. Trump’s position on climate change has many scared that he might remove the ZEV credit program, says Gizmodo. Trump, who has expressed his support for the US coal and oil industries, has led many to think that he could force California to abolish its ZEV mandate.

Tesla Motors Inc (TSLA) Factory Freemont, California

CARB – the California Air Resources Board – with nine other states including Maryland and Maine, have a ZEV mandate. The CARB basically demands that automakers sell a fixed amount of zero-emission vehicles. The car companies that are not able to earn sufficient ZEV credits (of their own) can buy them from other automakers that have a surplus.

As per Business Insider, Tesla Motors Inc made $139m from selling ZEV credits in the Q3. However, there is an oversupply of ZEV credits engulfing the market because of the way the program is set up. That had made it more difficult for the EV firm to consistently turn a profit from selling them. For instance, in the Q2, the ZEV credits were so negligible that Tesla did not even “break them out,” says BI.

Why Trump’s presidency won’t hurt Tesla?

Previously, Musk – in an earnings call – talked about the failures of the ZEV program in August. The CEO said that the CARB is being “incredibly weak” in its application of ZEV credits. The standards are pathetically low and there is a huge lobbying by the big automaker to prevent CARB from hiking the ZEV credit mandate, which they should, Musk said.

“It’s a crying shame that they haven’t,” said Musk. “And as a result, you can barely sell the ZEV credits for pennies on the dollar.”

Last week, Musk said, when they sell ZEV credits, it typically makes “50 cents on the dollar.” He said the incentives either do not scale or are disadvantageous. Tesla Motors Inc CEO added that if Ford or GM or any other carmaker makes EVs, they get to monetize their ZEV credit at 100 cents on the dollar. So, if there are 2 two ZEV credits per car, then GM would have a $5,000 cost advantage over the EV firm.

“Broadening it out to the big picture, if you’re buying Tesla stock or even holding it, you’re not dependent on the ZEV credits for your thesis,” CFRA Research analyst Efraim Levy told BI.

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Aman is MBA (Finance) with an experience on both marketing and Finance side. He has work as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, playing PC games and cricket.

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