The Tesla battery swap is the hoax of the year

What California says about zero-emission vehicles, and why Tesla is committing fraud

Guest essay by Alberto Zaragoza Comendador

I didn’t create this essay because I dislike electric vehicles. While I’m skeptical of their potential, I have nothing against EVs per se.

Sure, electric cars enjoy a laundry list of incentives. I totally disagree with these policies, but a bajillion people have already pointed out why electric car subsidies are dumb. I cannot add much value there, and EV advocates will argue they’re doing nothing illegal anyway.

The fundamental reason this blog exists is to tell the world about the fraud Tesla is committing. This has resulted in tens of millions dollars’ worth of fraudulent carbon credits being received by the company, and if nothing is done the tally will get into the hundreds of millions. This blog exists not to tell people about EV incentives, but about the illegal incentives a particular EV company is getting. I covered much of the same ground in my first post, but here I’ll give California’s own regulations as sources.

You don’t have to take my word for it.

Click here and go to slide 13. It shows how many Zero Emission Vehicle credits a car gets. ZEVs are divided into seven categories:

· Type 0: less than 50 miles, 1 credit

· Type I: 50-75 miles, 2 credits

· Type I.5: 75-100 miles, 2.5 credits

· Type II: 100-200 miles, 3 credits

· Type III: 200+ miles, 4 credits. (Also: 100+ miles with fast refuelling).

· Type IV: 200+ miles with fast refuelling, 5 credits

· Type V: 300+ miles with fast refuelling, 7 credits

This system is regulated by the California Air Resources Board. And by “fast refuelling” they mean refuelling to 95% of capacity within 10 minutes (Type III) or 15 minutes (Types IV and V). This is impossible for batteries, so it could only be done with hydrogen. Indeed, you’ll hear complaints that the regulations are designed to favor hydrogen over batteries. Well, tell California.

The Model S is clearly a Type III vehicle: it gets between 200 and 300 miles, but even in the fastest Superchargers it needs about one hour to reach 95% of battery capacity. Tesla itself quotes 75 minutes for 100% charging. So it gets 4 credits per car…or at least it should. Let’s go back to 2012.

As of June 15, the 85KWh version (called S3 here) was considered a Type III vehicle. But by October 12 it had morphed into a Type V. So the upgrade happened at some point between these two dates. Presumably, the 60KWh version was also upgraded in the same time frame. Here is a December 20 confirmation that both versions had been upgraded, showing how the 60KWh model went from Type III to Type IV. And here is an restatement in April 2013 of basically the same things, but including the cancelled 40KWh version. (CARB doesn’t seem very well organized).

In any case, production of the Model S only ramped up in the last quarter of 2012, so the vast majority of them qualified under the new classification. The real question is, why the upgrade?

Because of the battery swap. If the car can exchange batteries in 90 seconds, then it’s totally crushing the 15-minute requirement established by the California Air Resources Board. Notice that, even in this case, the 85KWh version still doesn’t meet the range requirement to be a Type V vehicle, as it’s rated by the EPA at 265 miles. So it would be stuck at 5 credits. It seems CARB bent the rules a little, or perhaps they concluded that the superb refuelling time “offset” a deficiency in range. In any case it’s no reason for alarm.

What is a reason for alarm is that CARB gave Tesla these extra credits before any battery swap station had been built. In fact, it happened about nine months before the feature was publicly demonstrated (June 2013). I’ve emailed CARB officials and Tesla twice, to find out more about this issue. Did Tesla demo the battery swap to CARB officials? If so, when and where? Did Tesla bring its own car, or does CARB have one for testing purposes? Did CARB officials check and drive the car before, during and after the swap?

They haven’t answered.

By May, the battery swap was becoming a problem: CARB openly discussed removing it from the fast refuelling category. Perhaps other carmakers were complaining to CARB that Tesla was getting credits for a feature nobody could use. In any case, the agency deferred a decision to October.

In June, after weeks of teasing, Tesla demonstrated the 90-second, fully automated battery swap in public. It was their biggest event this year. Or ever: I can’t remember any other Tesla event with such a level of media coverage.

And guess what, the company brought its own cars and didn’t let anybody near them. The official video doesn’t even show what’s happening under the car.

By August, Tesla forum users were openly calling the feature a stunt. You see, some Model S owners have already put their battery warranties to use, and the battery change takes three or four hours, and a few workers. It’s impossible to automate it, let alone to do so in 90 seconds. This somehow went unnoticed for the Internet.

The company itself hasn’t made a statement about the swap feature for several months. And looking at their SEC filings, there is exactly one reference to this swapping thing.

our capability to rapidly swap out the Model S battery pack and the development of specialized public facilities to perform such swapping, which do not currently exist;

I won’t give you a link, because the exact same sentence has been appearing in every earnings report for a couple years. No estimates of how much the swap stations could cost, or when they could open, or what areas they could serve, or any meaningful information.

The writing was in the wall all this time. Tesla never intended to build the “specialized public facilities to perform such swapping”.

October came, CARB met, and the same issue came up: does a battery swap qualify as fast refuelling? See slide 12:

Some [battery electric vehicles] have been qualifying under the fast refueling definition by means of battery exchange. However, it has not been publically demonstrated that battery exchanges have occurred on the vehicles earning credits. Though staff does recognize the potential for a battery exchange to help market the vehicle, other vehicles earning Type IV and V ZEV credit depend on fast refueling for vehicle operation and success. Staff is proposing to remove battery exchange from qualifying under the fast refueling definition, starting in 2015 model year.

Translation: we know Tesla is a scammer, but we don’t want them to go bankrupt so we’ll let them milk the battery swap cow for another couple years.

As it happens, starting in 2018 all ZEV credits will be awarded on range alone, not on refuelling time (see slide 66). This means the battery swap will no longer give Tesla any extra credits. So if CARB actually takes action in 2015, Tesla could only exploit this loophole for two or three years, out of five in total. Maybe the scam could stop before reaching $200 million. Phew! Good to see those regulators doing their job.

Tesla has reported sales of the 85KWh version at 70-90% of the total. Remember this version was upgraded from four ZEV credits to seven, and the other version from four to five. If that’s the case, then 35-40% of all ZEV credits they earn in California come because of the battery swap. Only Tesla knows how much they’ve made off these credits, but over the last four quarters their ZEV revenue has been $170M. Do the math.

And that doesn’t include figures for the current quarter. Or credits they have earned but haven’t sold yet. If you check the document I just linked to, but in slide 68, you’ll see that all credits can be “banked” (stockpiled) without penalty. Presumably, this could only change starting in 2018 when the ZEV program will revamped. So even if the market is weak one quarter, they can make it up the next.

Here you can see the transfers of ZEV credits among carmakers. It seems Tesla has sold 1,311.52 “credits” from October 2012 to September 2013, which is precisely the period we’re interested in, and they still have 276.080 left. But this is a different measure of credits (grams per mile of non-methane organic gases, and I don’t understand it either). To arrive at the ZEV number, you have to divide them by the number that appears at the bottom of the website, which for this period is 0.035. So Tesla has sold 37,472 credits, and they still have 7,888 in balance. This suggests their total ZEV credits earned for the period were 45,360, so they’ve sold 82% and kept the rest.

Note: this is not an audit. There is surely something I’m missing – credits transferred among states, carried over from previous periods, etc. So this is only an approximation. I suspect their credit generation in California was greater (it has provided 40-50% of their car sales), but they transferred those credits to other states. Also: the number of ZEV credits “generated” by other electric cars cannot be reliably calculated, because the big carmakers sell a lot of low-emission vehicles and they can also generate ZEV credits with those.

Still, we’re probably looking at $150 million in sales of California credits over this period, of which $60 million correspond to the battery swap. Including credits they haven’t sold yet, the respective figures grow by $30 and $12 million.

The bottom line is that ZEV credits are a key source of “revenue” for Tesla. Pure profit, in fact. And they will remain so for the foreseeable future.

And this has serious implications for entire ZEV program. Tesla “produced” about 45,000 ZEV credits in the state from October 12 to September 13. (For calendar 2013, the figure would be higher). Of this amount, about 18,000 (40%) were fraudulent. The only other electric car selling in decent amounts is the Nissan Leaf, but it only gets three credits per car and sells less than the Tesla. Everybody else is a rounding error, and the system as a whole probably produced less than 60,000 credits.

So if 40% of the credits Tesla gets are fraudulent, that’s 30% of the entire California market. In fact, it’s probably more than 20% of the entire US market. And that’s assuming the rest of the system is clean.

In short, the ZEV mandate is a joke.

So here we are, fifteen months after Tesla started getting carbon credits for the battery swap. The company has already cashed out, probably for more than $60 million. Without building a single swap station, or demonstrating the feature in consumer cars, or bothering to provide any sort of explanation.

I have emailed them, written on their Facebook page, posted in their forum. Their only “reaction” was to kinda make the battery swap disappear from their website. It’s impossible to get an actual response from the company.

Tesla intends to shut up its way out of this mess.

The question is, how could a scam so brazen go unnoticed for so long? I think other carmakers probably don’t want to get into trouble with California officials. So they’ve been lobbying to put an end to the special treatment Tesla gets, but they haven’t publicly denounced the situation or filed a lawsuit.

And for industry outsiders, well, the idea that the whole battery swap thing could be a fake is just surreal. How could Tesla sink that low?

The Tesla battery swap is the hoax of the year.