Here's How Elon Musk Wants to Punish Volkswagen for Cheating

A group of green tech investors is urging California regulators to hand down a kind of alternative sentence for auto giant Volkswagen over its effort to dodge pollution controls: Make it build more electric cars.

Rather than devote huge amounts of time and money to fixing the diesel-powered cars implicated in the emissions scandal, the state should require VW "to accelerate greatly its rollout of zero emission vehicles," the financiers wrote in an open letter to the California Air Resources Board (CARB). Not only that, the German automaker should have to produce enough electric cars to reduce tenfold the amount of pollution released by the diesels, they wrote — and it should have to build as many of those cars and batteries in California as possible.

Ion Yadigaroglu, the managing partner of Capricorn Investments and one of letter's organizers, said the signers want regulators "to focus on being creative and not on punishment, and to look at what incredible gains could be made from what is a bad situation."

"Don't let them off the hook," Yadiagaroglu said. "They cheated, they're going to incur a very large expenditure and reputational hit and many other things to deal with this. But rather than spend it on a few hundred thousand diesels which don't do anything for us, let's get a much greater bang for the buck."

In addition to the chiefs of numerous investment funds that are backing low-carbon technologies, the signers of Yadiagaroglu's open letter include Elon Musk, the CEO of SpaceX and electric automaker Tesla; Sierra Club Executive Director Michael Brune; and film producers Jeffrey Skoll and Lawrence Bender, who made the Oscar-winning climate change documentary "An Inconvenient Truth."

Related: The Software That Helped Volkswagen Cheat Was Developed Back in 2005

Yadiagaroglu said there was "no direct business interest at stake" for the signers. And in Musk's case, pushing Volkswagen further into the EV market "would create additional competition" for his high-end Teslas.

"At some level, everyone is self-interested," he said. But he added, "These are all problems we care deeply about, and we see a real opportunity."

There was no immediate response to the proposal by either Volkswagen USA or the International Council on Clean Transportation, which brought the cheating to the attention of regulators. But CARB spokesman Dave Clegern said, "Our focus has and will continue to be cleaning the air and advancing the cleanest vehicle and fuel technologies."

Scott Shepard, a research analyst for the consulting firm Navigant, said the proposal is similar to a settlement between California utility regulators and the power company NRG, which led to the energy giant expanding a network of speedy EV charging stations around the state. But he said the deal might not do much for the people who bought the Volkswagen diesels involved in the scandal.

"Regardless of whether they make the fix or not, they should have the option to do so on VW's dime," Shepard said in an email.

Yadiagaroglu said the idea behind the letter isn't particularly original — the Environmental Protection Agency resolved a similar cheating scandal in the 1990s by speeding up new rules on diesel emissions. But he said regulators shouldn't waste time and money to replace a relatively small number of diesels that produce a fairly small amount of additional emissions.

"You have billions that are going to be spent no matter what," Yadiagaroglu said. "Rather than have it be largely wasted, I think the people who signed it feel like it would be an enormous opportunity — a great opportunity — to actually make a dent and change the trajectory of Volkswagen, and therefore of others, in a way that's going to be way more impactful than simply complying with the regulation."

Related: Here's Why Elon Musk Might Have Just Really Pissed Off Your Utility Company

Volkswagen faces an estimated $18 billion in federal penalties in the cheating probe, which led to the resignation of CEO Martin Winterkorn. The company admitted in September that software that allowed diesels to cheat on emissions tests had been installed on 11 million cars, including 500,000 diesel-powered vehicles sold in the United States.

VW launched its first electric car, the e-Golf, in 2015. After the scandal broke, it announced it would shift its focus toward building more plug-in hybrid-electric vehicles.

The company has blamed a small group of engineers for the scandal, telling reporters they came up with a scheme to trick tailpipe tests after being unable to hit US standards for nitrogen oxides. The trade publication Green Car Journal revoked the Green Car of the Year awards it had bestowed on two Volkswagen-built diesels, the 2009 Jetta TDI and 2010 Audi A3 TDI.

Follow Matt Smith on Twitter: @mattsmithatl