Tesla take on Californian industry
Three years after California imposed rules requiring 15 percent of cars sold in the state to be zero-emission vehicles by 2025, automakers are asking for deep changes, including permission to comply with the mandate using plug-in hybrids instead of pure electric vehicles and fuel cell cars. But Tesla, which sees California's mandate as a crucial driver in its quest to take EVs such as the Model S into the mainstream, won't let that happen without a fight. "The mandate is already far too weak," Diarmuid O'Connell, Tesla's vice president of business development, said in an interview last week at Tesla's headquarters here. "I don't think it was ever conceived that a pure-play electric car company like Tesla could exist, let alone thrive, but we have. The inconvenient truth is that our success has revealed the weakness of the mandate."&nbsp;
PALO ALTO, Calif. -- First Tesla Motors Inc. went up against car dealers, waging a state-by-state campaign to protect its factory-owned showrooms from franchise laws.

Now it's ready for another statehouse scuffle -- this time, against other car companies.

Three years after California imposed rules requiring 15 percent of cars sold in the state to be zero-emission vehicles by 2025, automakers are asking for deep changes, including permission to comply with the mandate using plug-in hybrids instead of pure electric vehicles and fuel cell cars. But Tesla, which sees California's mandate as a crucial driver in its quest to take EVs such as the Model S into the mainstream, won't let that happen without a fight.

"The mandate is already far too weak," Diarmuid O'Connell, Tesla's vice president of business development, said in an interview last week at Tesla's headquarters here. "I don't think it was ever conceived that a pure-play electric car company like Tesla could exist, let alone thrive, but we have. The inconvenient truth is that our success has revealed the weakness of the mandate."

To satisfy California's rules, the six car companies that sell the most cars in the state -- Fiat Chrysler, Ford, General Motors, Honda, Nissan and Toyota -- must either sell a certain number of ZEVs or buy "credits" from companies such as Tesla to make up their shortfall. A second batch of the market's second-tier players, including Hyundai, Mercedes-Benz and Volkswagen, will face the same requirements starting in 2018.

With a midterm review slated to begin in 2016, some automakers have started asking regulators to replace the ZEV mandate with a new formula based on miles traveled on electric power, or "e-miles," so they can comply simply by selling more plug-in hybrids.

Tesla sees that as a cop-out. To defend the rules, it has started openly challenging its rivals in Sacramento, ditching the usual decorum of lobbying, in which companies press for their own interest but steer clear of criticizing the competition in public.

This approach was on display May 23, during a hearing of the California Air Resources Board in the capital.

At the hearing, Tesla openly fought a plea for leniency from a group of smaller automakers, including Mazda, Subaru and Jaguar-Land Rover, which had argued that their size was keeping them from putting pure EVs on the market.

Those companies have "access to the same financial markets that enabled Tesla to raise all of the funding it needed to launch electric vehicles," Ken Morgan, Tesla's director of business development and government affairs, testified during the hearing.

The problem, Morgan said, is not that the rules are too strict but that they are too lenient, with too many ZEV credits being made available to automakers. He said all automakers could comply from now until 2022 without changing their product mix at all, simply by using their existing credits -- and until 2023 if they bought credits from Tesla to supplement their stockpiles. Morgan said that raises the prospect that only 600,000 electric cars would hit California's roads by 2025, well shy of Gov. Jerry Brown's goal of 1.5 million.

Tesla's claims drew pushback from other automakers. Relying solely on available credits would be a foolish strategy, critics argued, because the standards get much stricter in 2024 and 2025, and no one can predict where they might go in the years beyond that.

"No one agrees that there is a surplus of credits," said one executive from a car company that has lobbied against Tesla on the issue. "All they care about is protecting their market to sell credits," the executive said.

Tesla does stand to gain from a stricter mandate. The company reported $152 million in revenue in 2014 from sales of ZEV credits, 5 percent of its total revenue.

But speaking to analysts in May, Tesla CEO Elon Musk characterized that income as "not a big deal."

O'Connell told Automotive News: "Credit revenue used to move the needle at Tesla. It doesn't anymore, and it hasn't for some time. ... What is a strategic driver of the company is to put as many EVs on the road as possible, whether they're ours or whether they're produced by other manufacturers."

As the midterm review unfolds next year, environmental groups say Tesla's outspoken stance may make it tougher for California to weaken the mandate.

"I don't think California is going to roll back the standards," said Simon Mui, an environmental advocate who runs the California vehicle program at the Natural Resources Defense Council. "Now that we have leaders within the industry with a competitive advantage in EVs, it's a very different game than it was 10 years ago."

Tesla lacks the money and size of other automakers, but it does have a passionate fan base and a political advantage as the largest manufacturer in California.

"We know that the facts support us, and we've got a pretty big megaphone," O'Connell said. "As long as we stay credible, people will pay attention."