Tesla Battery Swap: CARB’s Bridge To Nowhere

Tesla and California’s Air Resources Board are standing by the controversial “fast refueling” credits that are directing as much as hundreds of millions of dollars to the California-based electric car maker for its little-used battery swap capability. At the same time, both Tesla and CARB admit that battery swap has not shown much promise and CARB staff tell Daily Kanban that they tried to completely eliminate the credits out of concern over Tesla’s “gaming” of the system only to be overruled by board members. The tension between Tesla and CARB’s defense of ZEV credits earned by Tesla’s battery swap capability and their apparent lack of optimism about the technology going forward confirms the fundamental concerns that surfaced in Daily Kanban’s initial investigation: battery swap credits seem to have done nothing to advance the cause of ZEV adoption, Tesla appears to have gamed the credit system for huge financial gain, regulators show little interest in ending Tesla’s obvious abuse and the public remains under-informed about the entire situation.

In a telephone interview with Daily Kanban, CARB’s Emissions Compliance, Automotive Regulations and Science branch chief Analisa Bevan revealed that CARB staff had recommended fully eliminating fast refueling credits for battery swap in late 2013 out of growing concerns that Tesla was “gaming” credits intended to make electric vehicles competitive with gas-powered cars. The “staff solution was to just get rid of [credits for battery swapping],” Bevan explained, but the board rejected that proposal in favor of “a more thoughtful approach.” The compromise that emerged from that discussion was that Tesla would have to document swaps to prove the capability was actually being used by customers but that it could earn credits for up to 25 swaps per vehicle (up to a limit set by the size of its qualifying fleet, preventing it from earning more swap-related credits than it would if every qualifying vehicle swapped once).

This standard currently applies to vehicles from Model Years 2015-2017, and was in effect over Memorial Day weekend when Daily Kanban observed a total absence of swaps taking place at the Harris Ranch station in spite of hour-long lines for Supercharger access. These findings echoed concerns expressed by environmental and auto industry trade groups to the effect that even the newly-tightened standard for swap-related credits was insufficient to promote the policy goal envisioned for fast refueling credits: making the EV experience more viable for consumers. Almost half a year after Tesla announced it was opening the Harris Ranch swap station to its customers (and years after it began earning credits for its swap capability) Tesla owners were still experiencing the major downsides of EV ownership –long recharge times, from carbon-emitting power sources— while the much-subsidized solution to these problems sat unused. On the ground in Harris Ranch during one of the busiest traffic weekends of the year, the failure of CARB’s battery swap stimulus could not have been more obvious.

From the more abstract perspective of CARB regulators and policy stakeholders, however, the battery swap credit policy apparently looks less like an obvious failure than it does on the ground. Bevan demurred when asked outright if the swap credit policy was a failure, and defended the board’s decision not to end battery swap credits entirely saying “we would change the regulation if we didn’t believe in the ability to fast refuel [battery electric vehicles]”. CARB Communications Director Stanley Young added that “on a meta-level, you’ve got to remember that this is a regulation that is designed to drive innovation.”

Yet when compared with even the most basic context, these cheery and unequivocal defenses of CARB battery swap credits quickly devolve into a far less convincing picture. The fact that CARB staff had pushed to end all battery swap credits in 2013 suggested –by Bevan’s own logic– that confidence in battery swap had in fact hit rock bottom with regulators years ago. And in spite of her defense of the board’s “more thoughtful” modification of swap credit rules, Bevan admitted that “we’ve already determined that we aren’t satisfied with the 25 swap rule.” Later this year CARB will announce another modification, according to Bevan, requiring Tesla to swap the battery on every car it wants to earn swap credits for thereby finally tying the firm’s swap credits to actual mass deployment. When asked, CARB regulators may insist that their swap policy is a success but their actions indicate exactly the opposite.

As Bevan explains it, CARB is simply “adjusting to complexities” at the slow pace that regulatory bureaucracies operate at. Though a lack of nimbleness is clearly an issue for CARB, it’s resulted in remarkably positive outcomes for Tesla compared to most anecdotal evidence about interactions with slow-paced bureaucracies. Tesla had earned swap credits for several model years with no verification requirement of any kind before CARB staff recommended ending the credit. When CARB did require verification that swap credits were making battery swap more widely available (after staff recommended ending them), it did so with a massive loophole (the 25 swap rule). Now that CARB recognizes that the policy must be reined in further, it won’t be able to institute the change until the last model year before swap credits sundown in 2018. Even more bafflingly, CARB won’t actually receive any of Tesla’s data about swap capability use until next year, when it will be too late to make any further rule modification based on it. Not only has CARB been unwilling (rather than unable) to reign in Tesla’s clear gaming of swap credits years after staff raised red flags, it’s also denied itself any data with which to measure the success or failure of swap credits until the program is all but over.

CARB’s all-too convenient “adjusting to complexities” narrative also just happens to track Tesla’s equally implausible storyline about its battery swap program. At the recent Tesla shareholder’s meeting, CEO Elon Musk continued to pour cold water on the battery swap program that has earned his firm huge amounts of credit-based revenue, even going as far as to suggest that he had never believed battery swap would take off. “We thought people would prefer Supercharging, but we weren’t sure,” Musk told shareholders. “So that’s why we built the pack swap capability in. And based on what we’re seeing here, it’s unlikely to be something that’s worth expanding in the future unless something changes.” Like CARB, Musk refuses to frame the swap subsidy as a failure, but unlike CARB he is happy to admit that he never really thought swap would go anywhere. After all, “experimenting” with the technology had earned his firm untold amounts of cash at a critical point in its development; if Musk knew all along it was going nowhere, that was CARB’s problem not his. Certainly Tesla’s shareholders weren’t about to complain about the flood of free cash that will help shore up its balance sheet right up to the launch year of Tesla’s mass-market Model 3.

Meanwhile, even the policy stakeholders who have helped quietly call out Tesla’s credit gaming in regulatory comments seem oddly at peace with a swap credit program whose only measurable success was its ability to provide Tesla a discreet revenue stream to carry it through to the launch of the Model 3. Simon Mui of the National Resources Defense Council, one of the environmental groups that has argued for better accountability for swap credits, calls battery swap a “trial balloon” and “a technology that’s ahead of its time.” While Mui admits that CARB staff has had to “tidy the ship” as it became increasingly clear that swap credits weren’t delivering on policy goals, he was more worried about “backlash” affecting the overall ZEV program than overfunding a technological dead-end. “We should see [battery swap] as a test case,” said Mui. Emphasizing CARB’s “good intent” and the overall success of the ZEV program, Mui explains that “we don’t want [swap credits] to become the issue that causes the public to lose sight of what the ZEV program is about.”

Yet by refusing to acknowledge the clear failure of battery swap credits, CARB and its stakeholders raise very real questions about who exactly their policies are designed to serve. Were CARB and NRDC really worried about the health of the overall ZEV program, they would be willing to admit in plain English that the swap credit policy had failed, that its reporting requirements have never been strong enough. By defending swap credit policy as a noble experiment years after its own staff tried to kill it off, and even as its main beneficiary admits he never thought battery swap would go anywhere, ZEV program stakeholders run the risk of associating their entire program with what appears to be a highly sophisticated and cynical subsidy of a local automaker. For a policymaker as perennially contentious as CARB, admitting failure when it is this obvious is the only way to defend its broader policies and goals.

Instead, CARB and Tesla are wrapping their unconvincing “noble experiment” narrative in a thick layer of non-transparency. Huge amounts of information critical to measuring the success or failure of the swap credit program is protected by CARB and Tesla as commercially sensitive, protecting it from public oversight. The program even lacks internal transparency, as Tesla won’t have to submit any data about actual swap use until the credit program is all but over. According to Mui, this has been a major, long-term issue for stakeholders who invested “years of advocacy” into making ZEV credit bank information public. And, as Mui explains “more transparency is better because the success of the program can be assesed not just by CARB but other stakeholders.”

Given that CARB’s public assessment of the battery swap credit program is so at odds with the facts, it’s clear that more transparency and oversight is needed. Indeed, given how little opportunity remains to clean up the battery swap credit mess before it sundowns, increasing transparency around the ZEV program may be the only viable response to Tesla’s credit gaming and CARB’s studied lack of action to end it. Staffers for California state representatives who asked not to be named tell Daily Kanban that they are currently looking into the options for a ZEV program audit in response to concerns raised about battery swap credits. Though it is almost certainly too late to prevent Tesla from earning untold millions for a technology it has no intention of making widely available, at least the citizens of California may still be able to gain some better understanding of this expertly-concealed boondoggle and precisely how much money it has diverted to Tesla.

If Californians want to subsidize its only local automaker, it would hardly be the only locality to make that decision. But if that’s the case, the subsidy should be clear and disclosed, not concealed as an ineffective incentive for a technology that everyone involved knows is going nowhere. As it stands, the swap credit policy is not only failing to produce its stated policy goal of proliferating battery swap, it also encourages public servants into intellectual contortions that border on self-parody. When asked if CARB thought Tesla’s battery swap program would survive past the expiration of credits in 2018, Communications Director Stanley Young replied that “the market will provide the answer to that question.” Given that, by Tesla’s own admission, years of subsidies have resulted in just a handful of customer battery swaps, it’s safe to say the market came to its conclusion some time ago.