This Simple Tesla Production Trick Could Cost Taxpayers An Additional Half Billion Dollars
The Federal government provides a $7500 tax incentive for the buyers of electric cars. This is an attractive discount on a $100,000 Tesla Model S, but is a huge incentive for a $40,000-ish Tesla Model 3. However, there is a sunset for this incentive. It turns out it begins to phase out for a given company in the first quarter after that company sells its 200,000th eligible electric car (two quarters at $3750, two quarters at $1875, then zero).
By the end of the second quarter, Tesla will be approaching its 200,000th car. The numbers will likely be close enough that Tesla could likely easily manage to move the date for this event either just before or just after the end of the quarter. The obvious incentive for Tesla, if it is going to be this close, is to build inventory at the end of the quarter, but keep actual deliveries under 200,000, then go full speed ahead with deliveries in the third quarter to maximize the last of the full tax credit. Randy Carlson has created a model that looks at the case of Tesla delivering its 200,000th car on June 30 vs, July 1 (ie 2nd quarter or just in the third quarter) and demonstrates that the additional tax incentives by pushing this even into July are as high as a half billion dollars! His model is below.
Depti Gaur:
Really It will happen
April 25, 2018, 1:06 amorcik:
This is interesting, but it's disappointing to see you perpetuating the fallacy that somehow tax credits "cost" money to "taxpayers."
April 25, 2018, 5:39 amDan Wendlick:
But Elon Musk would never game a government program for his personal benefit, would he?
April 25, 2018, 5:52 amsean2829:
Someone's gaming a government program for the benefit of their business? I'm shocked!!
April 25, 2018, 6:48 amMJ:
There is no such thing as a free lunch. The foregone tax revenue must be offset by either 1) higher tax rates on the remaining base of taxpayers, or 2) less services consumed by the taxpaying public.
April 25, 2018, 3:28 pmLoneSnark:
It is offset by borrowing, as revenue is lower than it otherwise would be.
April 25, 2018, 4:48 pmSam P:
This doesn't really benefit Tesla so much as some number of future owners. Tesla has a big backlog of orders, their big near term problem is that they can't get production anywhere near as high as they would like. That graph would only potentially be true if they are able to grow production closer to their desires than they have been the past several quarters.
April 25, 2018, 8:23 pmErikTheRed:
Has he done literally anything else since he left PayPal? ;-)
April 26, 2018, 8:24 amErikTheRed:
Shhhhh... there's an entire class of people who can't comprehend that there are costs for things if those costs don't show up directly on their bill. Yes, it's annoying handicap for the rest of us to put up with, but if you point it out too often then they throw food and smear feces on the walls.
April 26, 2018, 8:25 amslocum:
They have backlog of refundable deposits, not firm orders, and a lot of the folks who put down those deposits seem to be passing on the opportunity to convert them to actual purchases:
https://www.caranddriver.com/news/is-tesla-struggling-with-low-model-3-take-rates
April 26, 2018, 8:37 ammarque2:
Yeah and per simple economics, a government rebate benefits the company because either they can sell more cars, or they can jack the price up a bit to keep some of that rebate for themselves.
April 26, 2018, 3:25 pmSam P:
Over the long term, this means that Tesla might start reducing prices/squeezing margins a bit. I highly doubt you'll see a significant price reduction on existing models when the current tax incentives run out.
Note: It looks like GM has sold 165,562 Volts and Bolts through the end of March. Jan 2017-end of Mar 2018, they've sold an average of 3433 Volts & Bolts/month, though sales has generally been growing year over year, so it is quite possible GM will sell their 200,000th electric vehicle near the end of Q4 or sometime 2019 Q1.
April 26, 2018, 3:36 pmmarque2:
They will call you the greedy 1% and demand you pay for their sedentary lifestyle on the couch.
April 26, 2018, 3:37 pmAimless6:
3) The Middle East and China sell their goods for Petrodollars. Those things are worth less than toilet paper.
But if you don't take them, you get bombed. Just ask Saddam or Ghadaffi.
4) The Federal Reserve changes some numbers on a computer screen and loans the Government whatever they need. Those loans will NEVER be paid back, but a long as the numbers in the left and right column match, nobody cares.
April 27, 2018, 7:20 amHanrahan:
"it's disappointing to see you perpetuating the fallacy that somehow tax credits "cost" money to "taxpayers." "
May 6, 2018, 4:00 amTrue, 99% of tax credits are simply deducting the cost of doing business from your gross profit. But a rebate is nothing like that, it is a CASH payment available to all buyers whether they pay tax or not.