Tesla sold 200,000 cars in the US, so the $7,500 tax credit is going away
- Thread starter JournalBot
- Start date
I'm rooting for Tesla, but if they don't get the Model 3 production volumes higher & costs significantly lower in the next year, they're going to have a really hard time (after a barn-burner of a fourth quarter, which'll make year-on-year comparisons all the rougher). Most other automakers have a natural hedge with combustion-powered vehicles, Tesla has no such safety blanket.
Edit:
To put some numbers to it: gross profit margin on Tesla's automotive sales was ~18% last quarter (in the ballpark of other luxury car manufacturers). Using the base Model S price of ~$75K, that works out to ~$14K/car ... less $3.75K->$7.5K and their margins get pretty abysmal. Lots of simplifying assumptions in terms of mix/upgrades/etc., but given they're still burning cash most quarters, this is going to hurt.
Double edit:
To clarify, Tesla isn't getting the rebate, but unless they decrease the price on the car accordingly, sales are going to go down significantly. Depends on the price elasticity of demand and all of that jazz, but luxury items tend to be >1... [Which is interesting to try and square with the follow-on comments mention that "rich people don't care about the extra 7.5K".]
Edit:
To put some numbers to it: gross profit margin on Tesla's automotive sales was ~18% last quarter (in the ballpark of other luxury car manufacturers). Using the base Model S price of ~$75K, that works out to ~$14K/car ... less $3.75K->$7.5K and their margins get pretty abysmal. Lots of simplifying assumptions in terms of mix/upgrades/etc., but given they're still burning cash most quarters, this is going to hurt.
Double edit:
To clarify, Tesla isn't getting the rebate, but unless they decrease the price on the car accordingly, sales are going to go down significantly. Depends on the price elasticity of demand and all of that jazz, but luxury items tend to be >1... [Which is interesting to try and square with the follow-on comments mention that "rich people don't care about the extra 7.5K".]
Upvote
21
(47
/
-26)
Tesla has an Apple-like diehard fanbase, so they should be ok. But for someone who is a little more ambivalent about EVs, that initial overhead cost makes the Model 3 a tougher buy.
Upvote
22
(37
/
-15)
Why are we placing limits on the tax credits for electric vehicles? Can't we just cut defense spending instead?
I mean, isn't that the point of electric vehicles? Less demand for oil and gas, thereby allowing us to stop going to war over oil fields and gas pockets?
I mean, isn't that the point of electric vehicles? Less demand for oil and gas, thereby allowing us to stop going to war over oil fields and gas pockets?
Upvote
65
(119
/
-54)
... why do you hate Freedom?
I bet you pluck bald eagles and violate apple pies, too.
Upvote
132
(152
/
-20)
The notion behind limiting tax credits is that in the beginning, companies need help to sell experimental tech. As you get more sold, the tech gets less experimental. Eventually, the tech stops being experimental, and at that point, it should compete on its merits and not by being subsidized by the government.
Be careful about wishing for subsidization. Oil got so entrenched because the subsidies didn't go away when it became mainstream.
Upvote
150
(153
/
-3)
Upvote
107
(123
/
-16)
That seems unlikely. New cars typically lose about 1/4 to 1/3rd of their value when driven off the dealer lot. $7500 vs $3750 is only a little more than 1/10th of the base price of a Model 3.
Upvote
58
(64
/
-6)
Probably the EV tax credit benefits Tesla's competitors more than Tesla. They did all the heavy lifting of turning EVs into desirable objects and everyone that comes later doesn't have to spend as much, but gets the full credit.
Upvote
42
(53
/
-11)
And really the electric car subsidies indirectly subsidize urban sprawl, increased highway construction, expanded commutes, etc.
If the goal is to reduce emissions the subsidies should be for decreasing commutes, staggering traffic, promoting mass transit/biking.walking, etc. Cutting the elites a check to buy fancy electric sports cars is disgusting.
Upvote
-13
(61
/
-74)
Statistical
Ars Legatus Legionis
No they won't pay up to $7,500 more. No early US preorder is going to be delivered post 2020. So early customers may depending on how unlucky they are (location and model configuration) pay $3,750 or $5,625 more than they were planning.
Upvote
26
(37
/
-11)
Statistical
Ars Legatus Legionis
If you put a deposit down for a Model 3 today you aren't taking deliver before the end of 2018. You might get delivery before the end of 2019 but even that is questionable (performance trim would be more likely, base model a lot less likely).
Now if you want you could try it with a Model S but I doubt the credit would cover the depreciation.
Upvote
-3
(15
/
-18)
The significant difference between Tesla and other large auto manufacturers is Vertical Integration. Which implies Tesla margins are internally controlled as they have less reliance on other vendors to supply components and less cost for logistics and shipping components between factories (sometimes in different countries) before General Assembly.
Tesla's guidance has been to reach 25% margins on the Model 3 as they near 10K/week production rate.
Upvote
22
(29
/
-7)
As long as you are an American or Canadian, and you don't want the $35k trim, then you'll get the car in 2018 if you order now (probably).
Upvote
29
(32
/
-3)
Meanwhile, for those who don't make enough that a $7500 non-refundable tax credit you can't carry over from year to year is of great value...
I guess this might drive used prices up a bit? Electric car depreciation curves are properly insane right now, partly because of that tax credit.
I guess this might drive used prices up a bit? Electric car depreciation curves are properly insane right now, partly because of that tax credit.
Upvote
20
(20
/
0)
Don't worry about Tesla. It'll do just fine. Remember Tesla's goal was to sell the Model 3 at the base price of $35000 WITHOUT INCENTIVES.Granted, some buyers might go away. That can't be helped. But Tesla hasn't got much market penetration outside the US. Tesla still is a small player in automating and has a lot of room to grow. Cheers!
Upvote
4
(12
/
-8)
Upvote
-18
(8
/
-26)
Tesla webpage is saying 3-5 months expected delivery on a Model 3, so it is possible (though maybe unlikely given Tesla's optimism) that you could get a Model 3 in 2018 if you order right away.
Upvote
22
(24
/
-2)
They delivered car #200k in June rather than July? Odd. I'd expected they'd send them all to Ontario instead, ahead of Ford wiping out the subsidy there.
I guess the subsidies aren't really a big deal for them. They must figure they'll lose about zero net sales, given they are limited by production for the foreseeable future anyway.
I guess the subsidies aren't really a big deal for them. They must figure they'll lose about zero net sales, given they are limited by production for the foreseeable future anyway.
Upvote
-18
(6
/
-24)
Elites? A Nissan Leaf is under 20k brand new after the tax rebates lol
Upvote
37
(51
/
-14)
My understanding is that it is a tax-credit, not a cash rebate? In which case the amount paid doesn't really change, it only affects your tax liability at the end of financial year, so some people may not have been able to benefit from the full credit anyway (depending on how they manage their tax affairs already).
Upvote
35
(36
/
-1)
Vertical Integration has both positive and negative impacts. You have more control over margin throughout and can get margin on everything from start to finish, but you also have to spread your margin throughout. You have more control and can optimize everything for your particular needs, but you have to be good at everything rather than just one part. You can't always get the highest economies of scale for each element as compared to a supplier who is dedicated to those elements. You are limited in options for some elements when things slow down, and/or must take on and manage risks that you could otherwise offload. Those are just a few of the potential negatives that come to mind.
Batteries (core cells) are becoming commodities and may not end up being a critical differentiator for the more vertically integrated vs the less. Assembly of battery packs, however, would seem to be something good to have under your wing. That seems to be where Tesla is atm.
Upvote
31
(31
/
0)
Also bringing all the tier 1 suppliers in house actually INCREASES the number of suppliers you have to deal with. Now you are working with all the tier 2 suppliers, which are far more numerous.
Upvote
30
(30
/
0)
On top of the tax credits, because the EV and PHEV drivers don't or barely contribute to the gas tax for roads, many democrat states and areas have instituted a special surcharge on vehicle registrations for EVs every year. It probably makes sense to try to put an end to that, and also put an end to the subsidies, and use the subsidy money to instead pay for the roads that the gas tax otherwise would. As it is, the money is just getting eaten up by administrative costs of handing out the money to encourage people to buy them, then taking the money back as surcharges as penalties for buying them.
This would also remove the huge and valid complaint people have:
The very rich who are buying a Tesla to fit in their garage alongside their Porsche and whatnot would no longer be as heavily subsidized. These people likely don't even drive it as much, they got a lot of luxury cars The subsidy would be in avoidance of gas tax, so it would be completely tied to how much fuel you avoid burning, and thus how much you help the environment.
The gas tax should then be adjusted to cover our road maintenance and will serve as a sin tax for those not buying electric, providing a good incentive for those to switch to EV for where it makes sense, but not throwing any money away.
Upvote
2
(16
/
-14)
Statistical
Ars Legatus Legionis
No they arranged it so the 200,000th US delivery happened in early July. That is why the full credit lasts through the end of 2018. If the 200K vehicle was delivered in June the credit would have been cut in half for Q4 (full credit for Q2 and Q3 only).
Upvote
37
(41
/
-4)
Tesla should start giving a firm commitment to customers when they order whether the car will be delivered in 2018, first or second half of 2019. And fully reimburse the credit difference if they fail to deliver on time. You should not have to rely on "luck" at time of purchase on whether you end up paying $51125 or $49250 or $45500 for something, for example. I can't think of another example where you pay more for something if it's delivered later.
Not everybody has 7500 in federal liabilities but I'd think most people shopping for ~$50k cars are there, or are close.
Also -- not to lose sight of this, 200k electric cars sold in US. That's huge, congrats to Tesla.
Not everybody has 7500 in federal liabilities but I'd think most people shopping for ~$50k cars are there, or are close.
Also -- not to lose sight of this, 200k electric cars sold in US. That's huge, congrats to Tesla.
Upvote
-6
(14
/
-20)
Last year's federal tax cut bill made private jet maintenance less expensive.
In my own state of Minnesota, the GOP-led legislature cut taxes on fancy cigars.
I'm pretty sure your policy concern should have gone out the window around the time of the very first tax bill.
Upvote
53
(61
/
-8)
Leaf is actually really expensive because it's almost always the second, commuter car in a household. It can't replace the main vehicle in the home, so that makes it an expensive proposition.
Upvote
-11
(17
/
-28)
Statistical
Ars Legatus Legionis
Yes it is a tax credit but most people count it as part of what they will pay. If I pay $55K for a car and get a $7,500 tax credit then effectively I have paid $47,500 for the car. Net-net the car is no more expensive than a $47,500 car with no tax credit. Yes you will have to pay the full $55K at delivery and wait for the credit but with financing for most people that is a non-issue.
All that assumes you have at least $7,500 in tax liability. If you don't then you may not get the full value of the credit.
Upvote
23
(27
/
-4)
The 200,000th car was delivered this month, in July. They did infact send a bunch to Canada to avoid hitting the 200,000th car threshold in June, and also stockpiled a ton of vehicles as well to delay deliveries into July.
Upvote
38
(40
/
-2)
Raising prices will both help and hurt their margins. The extra revenue is great, but as you mention their sales volume will go down. Fixed costs are absorbed on a per-unit basis in the COGS line. In a capital-intensive business like car manufacturing, there are a lot - lower sales will mean a higher burden on each unit.
Upvote
10
(11
/
-1)