Sign In or Create an Account.

By continuing, you agree to the Terms of Service and acknowledge our Privacy Policy

Electric Vehicles

How Trump Could Kill Tesla’s Secret Profit Center

California’s Clean Air Act waiver may not be long for this world.

Elon Musk and Donald Trump.
Heatmap Illustration/Getty Images, Library of Congress

Nobody quite knows where Donald Trump stands on electric vehicles these days. While he’s reportedly coming for the $7,500 consumer EV tax credit and previously characterized the switch to EVs as a “transition to hell,” once Elon Musk threw his support behind Trump, the once and future president’s rhetoric has softened. But if past is prologue, Trump’s policies could still hammer one of Tesla’s primary income sources: the emissions compliance credits the EV giant sells to other automakers.

That windfall comes from California’s Zero-Emission Vehicle Program, which sets ambitious ZEV production and sales mandates that other states can then voluntarily adopt. Automakers earn credits based on the number and type of ZEVs they produce; they can either put those credits toward meeting their annual targets under the law or, if they have an excess, sell them. Since Tesla is a pure-play EV company, it has always generated more credits than it needs, while most other automakers need to buy credits to meet their emissions targets. Last year, selling credits represented about 12% of Tesla’s net income, and so far this year, it comprises a whopping 43%.

Underpinning this whole regime is California’s Clean Air Act waiver, granted by the Environmental Protection Agency, which allows the state to set stricter vehicle emissions standards than those at the federal level due to the “compelling and extraordinary circumstances” it faces when it comes to air quality. During his first term, Trump sought to rescind portions of this waiver related to greenhouse gas emissions and the ZEV mandate, and his campaign stated that he will do so again. While the federal government’s comparably weaker emissions standards ensure that the credit market won’t disappear completely, eliminating the waiver would cause it — and Tesla — to take a major hit.

“Given that Tesla has no new major high-volume product that they’ve announced, not having access to these credits is only going to be harmful,” Corey Cantor, an EV analyst at BloombergNEF, told me.

Tesla understands this — or at least it used to. The company strongly opposed the first Trump administration’s efforts to decrease penalties for automakers that fell short of federal fuel economy standards. “Tesla was in there in all those lawsuits arguing that the Trump administration was wrong and the penalty should be increased,” Ann Carlson, a professor of environmental law at UCLA, told me. As she explained, this is “evidence of how important that market is to them.” The higher the emissions penalties, the more automakers will rely on credits to avoid them.

Right now, California’s emissions targets are quite ambitious, and they’re poised to get even more so over the next decade, which would cause the credit market to heat up, too. With the introduction of California’s Advanced Clean Cars II program, 35% of all 2026 models sold must be ZEVs. These new vehicles, which include passenger cars, trucks, and SUVs, will start hitting production lines next year. The targets ramp up quickly from there — 68% of 2030 models must be ZEVs, while a full 100% of 2035 models must be zero-emissions. Besides California, 11 other states, plus Washington D.C. have signed onto these regulations.

Under Trump, all of these goals are likely gone — though it’s probable that they wouldn’t have been met anyway. Based on total retail sales so far this year, no states are selling a large enough percent of EVs and hybrids to comply with California’s forthcoming standards — not even California itself, which CNBC reports is sitting at 27% EV and plug-in hybrid sales. Toyota came out and called these standards impossible to meet, but there’s no indication that California is backing down.

The first time a Trump administration rescinded the state’s waiver, a number of automakers, including BMW of North America, Ford, Honda, Volkswagen Group of America, and Volvo agreed to abide by California’s original standards anyway, in exchange for an extra year to meet emissions targets and increased flexibility overall. The waiver ordeal ultimately got tied up in courts, and California’s regulations ended up being inactive for just two-and-a-half years, until Biden reinstated the waiver in 2022. Litigation is still ongoing, however, with a suit from an Ohio-led coalition of red states expected to end up in the Supreme Court.

Carlson told me we should know whether the court decides to accept this case in the next few months. At the heart of the argument is a question about whether California’s “compelling and extraordinary circumstances” extend to limiting climate change-causing greenhouse gas emissions and not just smog-causing air pollutants such as nitrogen oxides or particulate matter.

“All states are affected by climate. [California]’s not unique in the way that it had unique air pollution problems,” Carlson told me, explaining the argument Trump and red state allies will likely make. “California is going to retort by saying, We have very compelling and extraordinary circumstances. We have drought, we have higher temperatures, our ozone pollution is going up. We have wildfires, we have water supply issues.”

While we know that the conservative Supreme Court is relatively hostile to aggressive greenhouse gas regulation, which side of the debate Tesla winds up on is anyone’s guess. Now that Musk is within Trump’s inner circle, he apparently has a number of personal business interests that he’d like to pursue. These include federal funding for SpaceX and Starlink, but perhaps most importantly regulations around Tesla’s autonomous driving system, which he views as the future of the company. Despite findings that these systems have caused hundreds of crashes and a number of fatalities, Musk said on an October earnings call that he is seeking a federal approvals process for autonomous vehicles. This could expedite the current system, which requires lengthy applications for every state.

Cantor thinks it’s possible that Musk might be making strategic decisions about what fights to pick. “I wonder if there’s been so much focus on the autonomous vehicle regulations at the national level that it’s like, EV stuff be damned, I don’t really care, as long as I get my national AV authorization.“

After all, Tesla isn’t kicking up a fuss about Trump’s plan to go after the consumer EV tax credit, which Musk seems to think would cement the company’s dominant market position, on the assumption that less-experienced-makers will suffer more from the subsidy’s repeal. While looser emissions standards for Tesla’s competitors and reduced income from compliance credits seem like more of a clear-cut loss for Musk, perhaps it’s a hit he’s willing to take in pursuit of his broader goals.

At any rate, Carlson told me that an enduring rollback of California’s waiver will depend on competent administrators that are familiar with the complexity of the legislative process — not something Trump appointees are exactly known for. “The one thing that I can’t quite wrap my mind around is what the effect of Lee Zeldin combined with Project 2025 means,” Carlson said. Zeldin, Trump’s pick to lead the EPA, has no experience running a government agency and little expertise in environmental policy.

“The effect of an inexperienced administrator, combined with potentially freezing out or even firing some of the most competent and skilled economists, scientists, etc, could totally undermine the ability to do this in a way that is legally sustainable and fast,” Carlson told me.

If you squint hard enough, maybe that’s the silver lining, here.

You’re out of free articles.

Subscribe today to experience Heatmap’s expert analysis 
of climate change, clean energy, and sustainability.
To continue reading
Create a free account or sign in to unlock more free articles.
or
Please enter an email address
By continuing, you agree to the Terms of Service and acknowledge our Privacy Policy
Energy

The Nuclear Power Dealmaking Boom Is Real

Thank data center developers and, yes, Trump.

A nuclear power plant.
Heatmap Illustration/Getty Images

Whichever way you cut it, this has been an absolute banner year for nuclear deals in the U.S. It doesn’t much matter the metric — the amount of venture funding flowing to nuclear startups, the number of announcements regarding planned reactor restarts and upgrades, gigawatts of new construction added to the pipeline — it’s basically all peaking. Stock prices are up across all major publicly traded nuclear companies this year, in some cases by over 100%.

“This year is by far the biggest year in terms of nuclear deals that has occurred, probably, since the 70s,” Adam Stein, the director of nuclear innovation at The Breakthrough Institute, told me. “It’s spanning the gamut from bringing a 40-year-old reactor back to things that have not even been proven scientifically yet.”

Keep reading...Show less
Blue
Electric Vehicles

AM Briefing: U.S. Power’s Record Surge

On the Senate’s climate whip, green cement deals, and a U.S. uranium revival.

U.S. Electricity Demand Surges to Back-to-Back Records
Heatmap Illustration/Getty Images

Current conditions: Flash flooding strikes the Southeastern U.S. • Monsoon rains unleash landslides in southern China • A heat dome is bringing temperatures of up to 107 degrees Fahrenheit to France, Italy, and the Balkans.

THE TOP FIVE

1. The U.S. broke electricity demand records twice in July

An August 5 chart showing last month's record electricity demand peaks.EIA

Keep reading...Show less
Yellow
Podcast

Trump’s Move to Kill the Clean Air Act’s Climate Authority Forever

Rob and Jesse talk through the proposed overturning of the EPA’s “endangerment finding” on greenhouse gases with Harvard Law School’s Jody Freeman.

The Capitol.
Heatmap Illustration/Getty Images

The Trump administration has formally declared that carbon dioxide and other greenhouse gases are not dangerous pollutants. If the president gets his way, then the Environmental Protection Agency may soon surrender any ability to regulate heat-trapping pollution from cars and trucks, power plants, and factories — in ways that a future Democratic president potentially could not reverse.

On this week’s episode of Shift Key, we discuss whether Trump’s EPA gambit will work, the arguments that the administration is using, and what it could mean for the future of U.S. climate and energy policy. We’re joined by Jody Freeman, the Archibald Cox Professor of Law at Harvard and the director of Harvard’s environmental and energy law program. She was an architect of the Obama administration’s landmark deal with automakers to accept carbon dioxide regulations.

Keep reading...Show less