California's Compliance Mandate on Electric Cars Creates Back-Door Credits Market

By Jacob Brown | May 31, 2012
Earlier this year, the California Air Resources Board (CARB) mandated that all automakers selling 20,000 cars or more per year in the Golden State will have to have a 15-percent mix of zero-emissions vehicles. They'll get credits for selling these "compliance" cars—three for a 100-mile car like a Nissan Leaf or Ford Focus EV and as many as seven credits for a long-range car like the upcoming Tesla Model S with a proposed 300-mile range. As a result of the new law, which goes into full effect by 2025, is forcing automakers to shuffle their EV credits, as they have to start bracing for doing business in California. Perhaps the biggest winner of the whole ordeal is Tesla Motors, which has been able to sell some of the credits it has accumulated retroactively since 2009 to other automakers. While it hasn't disclosed many of them, it has said Honda was a recipient of some of its green-car credits. Transaction prices are not monitored by CARB or any other government agency. As 15 percent of new cars sold for automakers selling more than 20,000 new cars will have to be zero emissions, it places a proportionately heavier burden on the top-selling automakers, which are, in order, Toyota, Honda, Ford, GM, Nissan, and Chrysler. As it stands, Nissan is perhaps the best-equipped to handle the mandate of any mainstream automaker, as its Leaf electric vehicle has been on sale for almost two full model years. Toyota will soon produce an all-electric RAV4 EV to complement its Prius range, Honda is putting an electric Fit into production, Chevrolet will be building the Spark EV soon, and Chrysler will have a version of its Fiat 500 outfitted with an electric motor. But none of them sell at levels nearing what will be 15 percent of total sales in California, which may force fines upon the automakers or even limit their abilities to sell cars in California. Or, it will force automakers to comply with the laws, reshaping the market. California tried a similar initiative in the 1990s, costing automakers millions of dollars without any long-term benefit. The big question with its latest legislation isn't whether automakers have the technology to meet the mandate; it's whether the often-expensive electric vehicles will be be commercially viable versus their cheaper gas-powered counterparts. Source: Automotive News (Subscription required)