When Elon Musk unveiled Tesla's (NASDAQ:TSLA) Model X in September, he highlighted that the new electric SUV has an optional HEPA filter that can filter air within the passenger cabin to hospital-grade quality. In an small jab at Volkswagen's (NASDAQOTH:VWAGY) Dieselgate scandal, he added, "We designed the car well before recent events."
As one of the biggest champions of the environment, you might think that he'd be quite supportive of all the punitive fines that the German automaker potentially faces. Well, it turns out that he doesn't think making Volkswagen fix all of its polluting diesel cars is the best way to go. Let me explain.
Stop looking back
Musk, along with dozens of other influential investors and environmentally friendly industry executives, have penned an open letter to the California Air Resource Board, or CARB. In it, the group points out that Volkswagen's cheating is indicative of the fact that diesel engine technology has reached a point of "de miminis returns" in its ability to improve performance while also abiding by tightening emissions regulations.
The current solution of drivers voluntarily bringing in their cars for recalls and fixes may not prove too viable, since those drivers may not want to hurt the performance of their vehicles. Plus, retrofitting these cars with urea tank systems is expensive. In essence, Musk and others don't believe that pursuing this option is a viable solution, nor is it particularly enforceable where it matters. Instead, the letter lays out another plan that does not involve Volkswagen fixing the affected models:
- The letter suggests that CARB release Volkswagen from its obligation to fix the vehicles, since there are an "insignificant" number of total affected vehicles within the state of California, and these cars don't present any active emissions-related risk.
- CARB should instead require Volkswagen to accelerate its timeline for the development (which Volkswagen is already doing as part of its crisis response) and launch of a fully electric vehicle with zero emissions. The group points out that this step requires no resources to verify, since electric cars emit zero emissions by definition.
- CARB should also require that this timeline result in a 10-to-1 (or more) reduction in emissions compared to the pollution related to the diesel vehicles, and this should be accomplished over five years.
- Volkswagen should be required to invest in manufacturing plants and development of electric cars. This amount should be comparable to the fines that it would otherwise face.
- Grant Volkswagen some flexibility in the timing and execution of this plan with zero-emission-vehicle credits.
According to the letter, this five-step plan is more desirable because it is more enforceable, does a better job at reducing overall emissions and offsetting the damage from the diesel engines, creates jobs, and builds long-term electric vehicle infrastructure. The group notes that a similar solution was enacted way back in 1990 for an industrywide emissions scandal. Instead of focusing on fixing affected vehicles, the EPA accelerated its timeline on stricter emissions regulations.
Put simply, Musk and others think that the current proposal focuses too much on the past, while this solution could have a greater positive impact on the future.
Evan Niu, CFA owns shares of Tesla Motors. The Motley Fool owns shares of and recommends Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.