United States, German Regulators Accuse Tesla of Violating Emissions Standards

Tesla may not be the first company you think of when the topic of violations of regulatory vehicle emissions standards comes up. Because its vehicles don’t burn gas, it can make a lot of its money from selling carbon credits. Volkswagen recently signed a deal to buy carbon credits from Tesla China to buy time for the development of its own electric car, for instance.

However, regulatory agencies in the United States and Germany say that Tesla has been hiding information related to emissions related to its manufacturing process. In the United States, the Environmental Protection Agency alleges that Tesla has failed to prove that its method for applying surface coating is in compliance with emissions standards.

Tesla operates a “paint shop” in Fremont, California, that has seen more than its fair share of issues including fires and improper cleaning and maintenance. Fixing problems with paint jobs on its cars is handled in a tent. Fremont area building permits from 2020 indicate that Tesla has been working on the issues at the Fremont paint application facility.

The company has responded to the allegations with a filing on Wednesday stating that it “has responded to all information requests from the EPA and refutes the allegations.” It does not expect its current dealings with the EPA to have a “material adverse impact” on the carmaking side of its business.

Meanwhile, German regulators have fined Tesla 12 million Euros (about $14.5 million U.S. dollars) for allegedly failing to meet its obligations in regards to taking back old batteries from customers. Regulators have especially taken issue with Tesla’s alleged failure to issue public notifications related to accepting returns of old batteries.

In Germany, car manufacturers are required to accept the return of old batteries and dispose of them in an environmentally safe manner. Tesla does have plans to recycle some critical car components like batteries at its Gigafactory Shanghai facilities, but has not yet indicated whether it plans to have similar recycling facilities at Gigafactory Berlin. It may still be wrestling with the German government’s bureaucracy in relation to getting the final approval for the opening of Gigafactory Berlin in the first place. The company has previously expressed frustration with bureaucratic red tape holding up the final approval.

In a reply to the allegations related to the return of old batteries, Tesla said, “This is primarily relating to administrative requirements, but Tesla has continued to take back battery packs.” The company implied that a 12 million Euro fine is unwarranted for an issue that mostly has to do with making sure the proper paperwork is filled out, saying that it should not have a “material adverse impact” on the business.

According to a rare public statement issued by Tesla, the company is currently working on obtaining permits to add a battery production facility to Gigafactory Berlin, which may use the new, more efficient battery-making process that Elon Musk announced in the below “Battery Day” video. Its existing permits only allow for a vehicle assembly facility. Tesla expects to begin limited production of electric vehicles this year and ramp things up next year, pending approval from a regulatory bureaucracy that seems to have slowed to a crawl in this case.

Even with the environmental complaints, this may not hurt Tesla’s ability to sell carbon credits very much. It made $1.58 billion from selling carbon credits in 2020 even though it has argued that delays in implementing the Obama Administration’s environmental regulations has hurt the market. The trade in carbon credits has also been criticized for allowing some companies to dodge having to invest in “cleaner” technologies while still claiming to be carbon-neutral. The trade also allows other companies such as Tesla that make the upfront investment to exceed environmental standards to soak up the residual income from carbon credit sales. The latter could be seen as tacit encouragement from environmental regulators to exceed regulatory standards if possible, as the below video explains.

So it does make financial sense for Tesla to push back against allegations that it isn’t meeting environmental standards. Tesla stock reportedly slid a bit on this news, although it could also be continuing a slide that started with reports that the Autopilot software was responsible for the deadly crash of a Model X in Texas that has also earned attention from regulators and Consumer Reports’ publication of test results that show that the Autopilot can be fooled into thinking that someone is in the drivers’ seat when it is actually empty.