Good morning! Welcome to The Morning Shift, your roundup of the auto news you crave, all in one place every weekday morning. Here are the important stories you need to know.

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1st Gear: We May Have Reached Peak ZEV Credits

Tesla announced its second-ever profitable quarter as a public company last week, a victory that it owes to carbon pollution credits, aka ZEV credits. It’s complicated, but basically thanks to California-led state regulations, automakers are required to have a certain number of EV sales represented by “credits,” and they can buy and sell those credits to other automakers. That’s been a key source of Tesla revenue thus far. In Q3 2016 Tesla sold $139 million worth of ZEV credits.

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Bloomberg reports Elon Musk thinks those credits should be worth more if California tightened its regulations. Instead the California Air Resources Board may instead keep those targets related to credit values unchanged, which will basically enforce the status quo:

The extension of the status quo also would come as a blow for Musk, who funded Tesla to help create what he has called “a solar-electric economy.” He wants stricter zero-emissions standards that would boost demand for electric vehicles, including Tesla’s, and force other automakers to sell more of these models instead of using credits to meet their goals.

The board’s “credit mandate is incredibly weak and needs to be fixed,” Musk, Tesla’s chief executive officer, said on an Oct. 26 conference call to discuss earnings results with analysts. They “really should be doing more; it is unfortunate that they are not.”

The board’s “credit mandate is incredibly weak and needs to be fixed,” Musk, Tesla’s chief executive officer, said on an Oct. 26 conference call to discuss earnings results with analysts. They “really should be doing more; it is unfortunate that they are not.”

In other words, Tesla may have already hit its peak from selling ZEV credits, but Musk and his company also complain that the status quo will just let automakers put the minimum number of EVs on the road.

2nd Gear: Honda Picks Japan Over Silicon Valley

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Honda, maker of robots, is starting a new R&D center for artificial intelligence development next year, and it will be located in Tokyo rather than Silicon Valley. From Bloomberg:

Underpinning Honda’s decision is its belief Japan has the necessary talent to compete with Silicon Valley, home to the likes of Alphabet Inc., Facebook Inc. and Uber Technologies Inc. Also implicit is the desire for the research dollars spent to translate into products with real-world demand and value.

Artificial intelligence research has for years failed to find large-scale commercial application until the recent advent of products and services such as Apple Inc.’s Siri. Recent progress has prompted carmakers including Toyota to join tech giants like Google and Facebook in Silicon Valley to adapt deep-learning capabilities for cars and mobility services.

Honda will tap into Japan’s talent pool at universities and may collaborate with startups to boost its AI capabilities, Matsumoto said. To attract talent from outside the auto industry, Honda will adopt a more flexible work and salary system rather than the rigid, seniority-based pay grades used elsewhere within the company.

3rd Gear: While It Pumps Out Profits

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Things are looking up for Honda, which in recent years has been dogged by recalls, declining quality and the costs of recovering from natural disasters.

Luckily for them, crossovers are selling well—as is the new Civic, which may be the only small car you can say that about—and shifting the retirement age up by five years. Via Automotive News:

Those factors combined with a better mix of higher-margin products, including crossovers and the hot-selling, redesigned Civic small car North America, to outweigh hefty losses from fluctuating exchange rates.

Honda booked a big hit from currency swings. The Japanese yen’s appreciation over the past year is expected to undermine the balance sheets of all Japanese automakers. Still to report results are Toyota, Nissan, Mazda and Subaru-maker Fuji Heavy Industries.

At Honda, shifting foreign exchange rates lopped 102.2 billion yen ($1.01 billion) off the carmaker’s quarterly operating profit, as the Japanese currency climbed in value against other currencies, including the U.S. dollar and Thai baht. Further losses came from the U.S. dollar’s appreciation against the Canadian dollar and the Mexican peso.

4th Gear: Toyota Poised To Go Full Electric

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Believe it or not, most of Toyota’s hybrids over the years have used older nickel-metal hydride batteries rather than newer (but ostensibly less safe) lithium-ion batteries.

Now Toyota researchers say they’ve cracked the code to make those batteries safer, and that paves the way for pure electric cars, especially since hydrogen cars are a pipe dream. Via Reuters:

While rivals including Tesla Motors and Nissan Motor Co began adopting lithium-ion battery technology nearly a decade ago, Toyota has largely held back due to concerns over cost, size and safety.

Lithium-ion batteries can be unstable and have been blamed for incendiary Samsung smartphones and smoking Dreamliner airplanes.

Having Toyota endorse lithium-ion will be a fillip for the developing technology, and gives the automaker the option to produce for an all-electric passenger car market which it has avoided, preferring to put its heft behind hydrogen fuel-cell vehicles (FCVs).

Toyota says its Prius Prime, a soon-to-be-launched plug-in electric version of the world’s top-selling gasoline hybrid, will use lithium-ion batteries, with enough energy to make the car go around 60 kms (37.3 miles) when fully charged before the gasoline engine kicks in. Because of different methodology in measuring a car’s electric mode range, the Prime’s 60 km range will be listed in the United States as around 25 miles (40.2 kms).

5th Gear: Why Has No One Tested The Buick Envision Yet?

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Is Donald Trump to blame for a lack of coverage around the Buick Envision crossover? The Detroit Free Press posits the answer is yes, given how the GOP nominee hammered Ford (inaccurately) over shifting small car production to Mexico. The conspiracy theory is that maybe General Motors didn’t want this Chinese-built crossover to suffer the same fate, so they’ve intentionally kept it out of the press:

GM has been completely open about the fact that it builds the Envision in China, where Buick is hugely popular and the SUV became a hit when it debuted last year.

Normally, automakers can’t wait to get a vehicle like this into the hands of journalists who will write about its technology, design, efficiency and value.

Not so the Envision, which went on sale months before most reporters and critics got to sit in one, much less give it a meaningful test.

Why? The theory — first espoused in Automotive News in the summer, I believe — was that GM felt the political winds blowing from an ugly quarter this year and battened the hatches.

I didn’t buy it. Building the Envision in China didn’t cost a single American job, and strengthens GM and Buick with sales of a vehicle they wouldn’t have without Chinese production.

I changed my mind earlier this month, when Buick didn’t send an Envision to the North American Car of the Year jury’s test of semifinalists for the car, truck and utility vehicle of the year awards.

Maybe that or it’s just not very good.

Reverse: A Car From JAPAN? Harumph!


Neutral: How Long Can The ZEV Credit Game Last?

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Or should that system be tightened to encourage EV production?