Tesla ZEV windfall could lead to lower prices

Tristan Young

4 Dec 2023

Tesla looks set rake in a near £400 million windfall in 2024 by selling Government electric car credits to rival brands which the company could use to further reduce price of new cars, lower insurance costs or offer better trade-in deals.

Under the Government’s Zero Emission Vehicle (ZEV) Mandate 22% of each car maker’s sales in 2024 must be battery electric cars. For every car below the 22% target, a manufacturer faces a fine of £15,000. However, one option to avoid a fine is for car makers to buy credits from those brands above the 22% target.

For those brands such as Tesla where 100% of its sales are fully electric this could mean a significant number of credits.Tesla is on course to sell more than 50,000 cars this year. If it sells a similar number in 2024, then this will give them close to 39,000 credits (22% of 50,000).

Industry experts believe each credit is unlikely to be sold for the same price as the Government £15,000 fine, but could be sold for between £10,000-£14,000. At this level, it would generate between £390 million and £546m for Tesla.

Polestar is also in line for a windfall

With Tesla looking for increased car sales and having already gained form for cutting prices to achieve this, it could use the windfall to further reduce prices just at the point where rivals who don’t hit the magic 22% will see their costs increase.

Industry consultant Andy Carroll, who’s held roles including running Glass’s Guide and Chevrolet in the UK, said: “£10,000 a conservative number, it could be £13,000-£14,000, but it depends on negotiations. The more buyers for the credits there are, the closer to £15,000 you’ll get.

“My take, listening to what Tesla has said is that they finally understand the relationship between new and used cars, and residual value of cars. They can’t rely on fleet sales as much anymore [because there’s more competition].

“They’ve stepped away from new car price reductions, so they could push the money toward the used car market. However, lots of other manufacturers will be putting downward pressure on pricing. 

“They could do something to help their insurance situation [because Teslas are very expensive to insure]. This could be in the form of lower parts prices.” Carroll also agreed that it was possible for them to stimulate the market by paying over the odds for trade-ins against a new Tesla. 

Tesla won’t be the only company benefiting from ZEV credit trading. Assuming Polestar sells more than 10,000 cars again in 2024, it would have at least 7,800 credits which could be worth, conservatively, £78m. Other brands in a strong position include MG, which could have a similar number of credits to Polestar, and BYD which only sells battery electric cars and could be selling several thousand vehicles in 2024.

Electrifying.com has approached Tesla for comment.

Tesla could use the cash to lower parts prices and improve insurance ratings

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