Tesla got $295M in subsidies for technology it didn’t offer

watchdog.org By Tori Richards / July 23, 2015

Tesla Motors has earned more than $295 million in green subsidy emission credits during the past three years for a battery-swapping technology customers weren’t getting, a Watchdog investigation reveals.

In fact, the electric car company, owned in part by billionaire Elon Musk, may have earned credits up to nearly half a billion dollars in value from the 11 states that use the Zero Emission Vehicle barter as part of a green auto industry mandate. California created the program and leads the pack, doling out $173 million in credits to the Silicon Valley-based Tesla.

Tesla claimed the credits between 2012 and mid-2014 — part of a program designed to encourage the carmaker to promote its new battery-swap technology. The program did not require evidence the company actually provided the service.

“What they were getting (the credits) for was the demonstration that they had a workable technology. And they do,” said Dave Clegern, spokesman for the California Air Resources Board. “It was demonstrated (by Telsa). They had it at a Tesla facility in California; we went there and saw it.”

That demonstration was in 2012, the same year Tesla started selling its Model S sedan. For each car Telsa sold, it received four ZEV credits plus an additional three credits for being part of a rapid refueling program. Each credit is worth about $4,000, Watchdog found.

California state Sen. Ted Gaines: “This isn’t a science fair. We should be paying for results.”

But even a state agency has limited patience. CARB re-evaluated its program and decided to yank the extra three credits last summer when it discovered that Tesla wasn’t providing the technology to its customers.

Even with this change of heart, California state Sen. Ted Gaines has nothing but criticism for an agency he claims gave Tesla an unfair advantage over its competitors for something Tesla didn’t earn.

“This isn’t a science fair. We should be paying for results, not ideas having no practical effect on CARB’s program goals,” said Gaines, who has clashed with CARB over its policies. “This strikes me as a giant giveaway. It’s like we are donating valuable credits for absolutely nothing, and that’s bad policy.”

Gaines accused CARB of creating “a huge market distortion. I’d rather see all of these technologies fighting it out in a marketplace where consumer choice – not a giant subsidy – is driving decisions.”

Tesla did not respond to a request for comment.

CARB started awarding ZEV credits in 1996 as a way to incentivize automakers facing the state’s mandate to sell electric cars. Any company that could prove a “rapid refueling” of 15 minutes or less was awarded an extra three credits. In 2014, Honda – and then Hyundai – introduced hydrogen cars. Hydrogen cars now earn nine ZEV credits because they can refuel faster and travel farther than electric cars.

The credits are typically sold in a marketplace to companies that haven’t met state mandates. Watchdog discovered that Tesla received credits worth more than $11.5 million from New York, $3.5 million from Oregon, $384,000 from Maine and $204,000 from Vermont. Data was not available in the other states, and Tesla refused Watchdog’s request to disclose the information.

ADVANCE NOTICE PLEASE: Drivers need to make an appointment 48 hours in advance

But a Tesla SEC report states that the company sold a total of 37,820 cars nationwide in 2012, 2013 and 2014. That would yield $453.8 million in extra battery-swap credits if all of Tesla’s cars were sold in the 11 eligible states.

In November 2014 – after collecting extra ZEV credits for nearly three years – Tesla built its first battery-swap station in Coalinga, California, a dusty spot on the map halfway between Los Angeles and San Francisco. It’s here, along the West Coast’s Interstate 5, that Harris Cattle Ranch – one of the nation’s largest suppliers of beef – has set up a rest stop for weary travelers with a hotel, restaurant, gas station, Tesla Supercharging stations and Tesla’s battery-swap facility.

But it wasn’t long before Tesla forum bloggers, magazines and newspapers began reporting that there was no sign of life at the battery-swap station. Soon, CARB figured it out as well.

The policy of extra ZEV credits “was changed on staff recommendation. We wanted to see proof that someone was actually using the technology,” said CARB spokesman Clegern. “We keep up with what (technology) they are actually using.”

In 15 minutes or less

RED GLOVE TREATMENT: Tesla’s valet booth and tent at the battery swap station

During the summer of 2013 – a year after the CARB demonstration – Elon Musk declared with great drama that he could swap out a battery within 90 seconds and send travelers on their way. That’s far faster than conventional fueling a gas-powered car, and far faster than Tesla cars, which take up to nine hours for a full charge –unless utilizing a Supercharger, in which case, the company says, the charge will take “minutes”). The 90-second swap seemed like a bargain to upscale Tesla drivers whose time is more valuable than the $80 fee required for the swap.

In June, Tesla sent out an invitation to Tesla owners informing them of the technology. Drivers mostly stayed away.

Watchdog called Tesla headquarters asking for information on the program.

“We are just introducing the technology,” a receptionist stated. “There is no battery-swap station available.”

When Watchdog told the receptionist she must be mistaken, that there is one at Harris Ranch, she said: “It’s not open to the public.” A phone call to the number at the bottom of the invitation revealed that the station was indeed open, but that drivers needed to make an appointment 48 hours in advance.

AT YOUR SERVICE: A special waiting room is available for motorists waiting for their swap

Watchdog visited the facility on June 16 and, over the course of the day, saw just three cars receive a battery swap. None were back on the road in 90 seconds. One car took 10 minutes; two others each took 15 minutes.

Located in a building that was apparently a former car wash, drivers entered the station through one bay door and exited another. One driver opted for the valet service a few feet away, beneath a red tent with a white Tesla logo.

Once the vehicle is inside, a smaller bay door slides open to reveal a waiting area bathed entirely in white except for bright red seat cushions on two plastic tulip chairs situated next to a small refrigerator.

The Supercharging stations are a five-minute walk away, and that’s where a Santa Monica woman named Judy – last name not revealed – was waiting for her car to finish charging.

“I don’t value my time so highly,” she said of the $80 swap price tag. “I stop (at the Supercharger), use the restroom and check my email. (The $80 battery swap) just isn’t worth it to me at all.”

A SUPERCHARGER IS FINE WITH US: Tesla owners opt for free charging over an $80 battery swap across the parking lot

But out of curiosity, Judy walked over to the battery swap to find out what all the hoopla was about because she had never received an invitation. Both bay doors were closed, but workers inside hovered over a Tesla. Judy knocked on a small door and someone answered. She came back later to report.

“They are doing training in there and they’re not open,” she said. “I asked about it and they said I swap my battery and have to come back and get it. I don’t think it will work. What if my trip is one way?”

Musk himself now acknowledges the problem.

“It’s just, people don’t care about pack swap,” Musk told a group at the annual shareholder meeting in June. “We thought people would prefer Supercharging, but we weren’t sure, so that’s why we built the pack-swap capability in. And, you know, based on what we’re seeing here, it’s unlikely to be something that’s worth expanding in the future, unless something changes.”

So what is next for Musk, who has a knack for getting taxpayers to support his billion-dollar ventures via grants, land giveaways and tax breaks to such companies as Tesla, SolarCity and SpaceX?

It’s not likely he’ll follow the enthusiasm for hydrogen cars – he once called them “mind-bogglingly stupid.”

And the window is closing on extra refueling credits. “What we would like to be able to do and will do – when the market is self-sustaining – we won’t do credits anymore,” CARB’s Clegern said.

Reporter Sarah Chavey contributed to this story.