Featured Others losing the Federal Tax Credit after Tesla

Rewarding automakers who used up tax-credits without having achieved the intended goal of delivering a product appealing to their own customer base poses a very real problem... what should be done?

 

Your question seems to be loaded- no complaint there, I'm just having difficulty unpacking the details.

How did these other automakers use up tax credits? Is there some other way to use them apart from building and selling electric cars? Other than the rate of sales success, what was different about Tesla's use of these credits?

I haven't followed this as long as some of you, but to me it looks like Tesla just won a popularity contest. (Congrats!)

 

GM will be next to hit the 200K number... and very soon.

They have been accused of holding back domestic Bolt deliveries the last several months to supply Korea, etc., but- it's all because of the magic 200K number here in the US.

 

That's quite intentional. Everyone should take a moment to consider what the tax-credits were put in place for. What was the goal?

It is important to know this if there is to be consideration about how a possible extension could come into play.

 

Tesla is the first to achieve 200,000. Sounds like a great time to end it for 2019 tax year.

Bob Wilson

 

It's WORSE than that. The 'status quo' auto lobby made certain that if you can afford the bigger/nicer long range tesla type ev's (because you make more money) you get NO tax credits. IT's not enough that many folks bringing down a nice living can't get tax deductions due to alternative min tax -
.

 

I haven't read the legislation that codified the tax break. I don't know what its stated intent was or if there was anything hiding behind it. But either way, somebody was able to sell 200k cars over 8 years and lots of people are talking about them and essentially every carmaker on the planet is now more interested (as compared to before) in building electric cars like them.

So, I can't really say if the scheme was meant to jump-start a movement towards electrically powered cars, but it sure looks like that's what it did.

Why extend it? The fuse is lit, people are figuring out what electric cars are all about and showing & telling their friends.

 

That is a California thing, and the hydrogen lobby's FCEVs losing out to Tesla's played a part.

The intent was to subsidize the large battery packs plug ins need in order to foster growth in the battery industry. It has been successful in that regard. For a 16kWh pack, the size to get the max credit amount, the battery cost is less than the credit. We have seen price reductions between car generations in the order of thousands. BEVs will have a higher up front purchase price for some time, but they will match and beat traditional cars in terms of total ownership costs soon.

Japan had a direct subsidy for hybrids and EVs that covered half the price difference between them and a traditional car. In case of the Volt, the tax credit was roughly half the difference between it and the Cruze. Japan had hybrid incentives of some form up to when the PiP first came out. Which really helped the growth of hybrids there.

The US tax credits need to be restructured or extended, because as they were set up, they reward the fence sitter companies. Tesla, GM, and Nissan did much of the work in bringing down the battery costs. A large part of the reduction was in the increased large scale production that their demand drove investment in. Without the forerunners and the incentives, the fence sitters wouldn't have cheap batteries now.

So the tax credits should be extended for the forerunners, or ended for everybody.

 

2 things though;
1 - most of the plugins are going to California.
2 - isn't it the Fed irs code that limits tax credits for high-wage earners?
Seems that's the reason we least the model X rather than outright purchase for our business, because it was a fed code. Though I could have failing memory.
Yeah the hydrogen Lobby. I didn't want to point too many fingers.

.

 

This is the bit I'm having trouble with. If I have this right (corrections invited) Tesla has sold 200k cars that were each eligible for a $7500 tax cut. So effectively they had a license to price each of those cars $7500 higher than they normally would, and that extra revenue ($1.5B) was ostensibly used to build the battery factory and perform a bunch of R&D work to figure out how to build more of them cheaper, faster etc.

So... they sold 200k cars, with an opportunity for profit on each one, PLUS they get this extra $7500 for R&D per car, PLUS they get all the press and social media buzz for being out front on this, PLUS they retain all the benefits they researched & developed on the battery manufacturing end. It looks to me like they got quite a lot of reward out of it.

Other automakers on that list had the same opportunity for profit on each car sale PLUS that up-to-$7500 credit passed through on each. They don't get the same reputational boost with fewer cars on the street, nobody talking about epic sales volume in the press... and only some of them are using their own batteries. The battery-buyers may not have injured themselves by participating in the program, but they also haven't exactly guaranteed themselves access to good component pricing for future production if they continue buying batteries wholesale instead of producing in-house.

The core of my argument here is that the integrated automakers who invested in the means to reduce battery costs have got themselves something pretty darned valuable. Why wouldn't they use that for a competitive advantage going forward? Is there some fine print forcing them to sell batteries to a competing automaker for the same price they would charge themselves?

 

No, not just Tesla but all manufacturers, and their joint ventures with various battery manufacturers. Panasonic and LG come to mind.

 

Being rewarded for delivering something that doesn't actually fulfill intention is a waste. In fact, this is why there was a maximum stipulated.

Vehicles which have a strong chance of actually replacing traditional choices in high-volume should at the heart of discussions.

Again, what is the goal?​

 

No, the Fed Tax Credit is very powerful because there are no income limits (which hampered the older hybrid credits).
Business tax I am not the expert. The only limit on high wage earner is if they are paying no tax then they have no tax paid to get a credit on.

Busniess tax IIRC there was a loophole favoring lease but I forget what it was, I wanna say having to do with weight of car qualified for bigger exclusion or something. .

 

The goal? More plugins? Greater battery range? Get cars with styling & carrying more people/stuff? Doesn't all that show by sales? The goals?
.

 

No, the fed tax code does not limit the $7500 tax credits. It is not affected by the AMT, the only requirement is that you have $7500 in tax liabilities.
There is a separate tax benefit for large SUVs used for business purposes. This is completely separate from the Model X being an EV. It is treated the same way as any other large SUV for those credits.

 

Iirc, only the 100 X meets the "3 tons or larger" exception & that just means you can depreciate in 1yr instead of several years (recapture applies if sold early).

 

I got a tax credit for buying the "clean diesel" and we know how that worked out.

 

I've only heard of California tying any incentive values to income.

When the first plug ins arrived, quoted costs for the batteries were in the $800 to $1200 per kWh range, do the credit was only covering part of the battery cost, and even less so for BEVs with packs over 16kWh. The Volt back then was $40k, and the Leaf was in the mid to high 30's. The credit value was added in, but the extra revenue it could have netted ended up paying for factory incentives.

Tesla started way before the credit was a factor, I don't think they had any input into the law like the other car companies; the original draft would have excluded the PiP by having too small of a battery. Tesla always intended to start with high end cars, which have higher profit margins to begin with. We'll have to see how their pricing goes once the credit is gone. They did make make out in the CARB ZEV credit market.

The battery R&D was mostly done by battery companies. Even Tesla is working with Panasonic, who is also partnered with Toyota. Much was made about the Gigafactory, but another battery company(LG Chem, IIRC) already had a factory capable of that type of output. Other car companies are moving to secure sources for batteries. As part of a package deal with LG Chem, GM paid less per kWh that Tesla does for the Bolt's pack.

I'm not saying Tesla, GM, and Nissan didn't benefit from being forerunners with the credit. I'm saying the fence sitters are benefiting more, because they can take advantage of the credits for their products while also reaping the benefits of the advances batteries have made while they waited. Wait and see is a fine strategy, but now those companies cars will be competing against Tesla, and soon GM, with the advantage of having the credits in addition to the lower battery prices, while Tesla and GM no longer have it. Instead of using the credit for higher profits, the fence sitters can now use it to undercut the forerunner companies on price.

Which is why I'm for extending the credits for everyone, and having it end for everyone at the same time, or ending it now.

 

You're forgetting the benefit of establishing a following and owning patents.