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Global Credit Research - 31 Oct 2016
New York, October 31, 2016 -- The State of California's (Aa3 stable) ambitious environmental objectives
provide strong incentive for continued growth of electric vehicle (EV)
ownership, which is credit positive for the state's utilities,
Moody's Investors Service says in a report. Credit implications
are mixed for auto manufacturers as well as for the state itself,
which will collect lower gasoline tax revenues.
The report, "Infrastructure, Autos, State Government
-- California: Electric Car Growth Boosts Utilities; Mixed
Implications for Autos and State Finances," presents three
scenarios for EV adoption by 2025, ranging from flat sales to the
state's goal of having 1.5 million EVs on the road.
"California's preferred EV growth scenario would be a boon
for the state's utilities and independent power producers,
who would see sales growth and grid investment opportunities,"
says Swami Venkataraman, a Moody's senior vice president and
author of the report. "It would also reduce risks related
to future carbon compliance as EVs enable the auto sector to contribute
significantly to emissions reduction."
According to the report, EVs could account for up to 5% of
total electricity consumption for California utilities by 2030 and represent
over two-thirds of annual load growth. This would be positive
for both independent power producers (IPPs) such as Calpine Corporation
(Ba3 stable) and NRG Energy, Inc. (Ba3 stable), and
regulated utilities including Pacific Gas & Electric Company (A3 Positive)
and Southern California Edison Company (A2 stable).
Moody's calculates that each EV in California today saves about
2.7 tons of CO2 emissions per year, with potential cumulative
savings of $725 million through 2030. The report also credits
the state's policies as the primary driver of EV growth.
"The availability of new vehicle models, improved battery
technology, and federal tax credits are key factors to EV adoption,"
says Venkataraman. "But California's policies help
significantly by creating charging infrastructure, and by providing
various cash and non-cash incentives."
The significance of California's support for EVs also lies in the
state's history of setting trends relating to fuel economy and emissions
for the rest of the country.
EVs account for between 6-20% of all cars sold in 30 cities
in California today, and have the potential to cumulatively remove
up to $3 billion in gas tax revenue through fiscal 2030.
But the credit impact on the state is minimal as the gas tax is a minor
revenue source for the state's $114 billion budget.
"We see California adjusting its tax or spending policies to compensate
for any decline in tax revenues related to fuel usage," says
Julius Vizner, an assistant vice president at Moody's.
"The state also stands to gain from long-term health benefits
brought about by the reduced use of gasoline cars."
For most traditional auto manufacturers, EVs represent an area of
opportunity to enhance revenue and earnings. In the long term,
EVs could also pose significant challenges to existing business models,
as new competitors such as Tesla Motors and Uber Technologies Inc.
(both unrated) look to enter the sector.
"We view the EVs initiative within the broader context of a number
of technology-driven trends including autonomous driving and ride
sharing," says Bruce Clark, a senior vice president
at Moody's. "These trends are mutually reinforcing
and will contribute to a significantly more dynamic and challenging environment
for the auto sector globally."
The report is available to Moody's subscribers at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1032157.
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This publication does not announce a credit rating action. For
any credit ratings referenced in this publication, please see the
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for the most updated credit rating action information and rating history.
Swami Venkataraman, CFA
Senior Vice President
Public Project & Infra. Finance
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
Associate Managing Director
Public Project & Infra. Finance
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
No Related Data.
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