Monday, September 28, 2015

The Tesla Subsidy

Tesla Model S

Behold the Tesla Model S.  It is a very cool car.  It runs on electricity and can travel 250 miles or more before its battery needs recharging.  

The founder of the company that manufactures the Tesla is Elon Musk, who became a billionaire after the sale of PayPal, which he also founded.  Musk's net worth is estimated at more than $10 billion.

Tesla's development was funded at least in part by a 2010 federal loan of $465 million, which the company repaid in 2013, the first year it declared a profit.

Tesla's stock valuation ranges from obscenely high to well into the stratosphere.  The company has ready access to capital and plans to introduce a less expensive Tesla model later this year. 

The current car, the Model S, costs $90,000 or more, but it comes with a sweet deal from the federal government.  If you buy a Tesla, you get a $7,500 income tax credit.  (Not a deduction, an outright reduction of your tax bill by $7,500.)  This is available only to people whose income tax bills are higher than $7,500 in the year they purchase their car.

The Los Angeles Times reported this summer that Tesla buyers had collected $284 million in federal tax credits.  The tax credit will begin to run out after Tesla sells 200,000 electric vehicles.  By that point, Tesla owners will have saved $1.5 billion in federal income tax.

Tesla owners have an average household income of about $320,000, according to Strategic Visions, an auto industry research firm.

If I wanted to buy a really expensive car, I'd definitely consider a Tesla.  But even then, I think I'd consider the tax credit was a bit over the top.  People who can afford $90,000 cars do not need an extra $7,500 from the federal government.   

To be fair, Tesla is not the only one.  Other, less expensive electric cars get $7,500 tax credits.  Here's a list:  BMW i3, BYD e6, Fiat 500e, Ford Focus EV, Chevrolet Spark EV, Mitsubishi I-MiEV, Nissan Leaf and Smart Fortwo.

Plug-in hybrids also are eligible for tax credits. Another list:  BMW i3 REX, ($7,500); Ford C-Max Energi, ($4,007); Ford Fusion Energi, ($4,007); Cadillac ELR, ($7,500); Chevrolet Volt, ($7,500); Honda Accord Plug-In Hybrid, ($3,626); Porsche Panamera S E-Hybrid, ($4,751.80); Porsche 918 Spyder, ($3,667), and Toyota Prius Plug-In Hybrid, ($2,500).


      -- In a perverse way, Tesla also makes non-electric cars more expensive in at least one state. California requires zero-emission vehicles to account for four percent of car manufacturers' sales this year, an amount that will rise to more than 15 percent in 2018. 
     Tesla cars don't have emissions, and the company is allowed to sell credits to manufacturers whose fleets don't meet the four percent standard.  Paying for these credits raises the cost of regular cars.

     -- Cars like Tesla do not reduce carbon emissions to zero.  As of last year, two-thirds of U.S. electrical generation came from burning coal, natural gas and oil.  Some of that carbon-emitting production was used to power electric cars. If we're really serious about reducing carbon emissions, we need to find new energy sources for our electricity.  

     -- Because Teslas do not use gasoline, their owners do not pay gas taxes, which fund much of the country's road maintenance and mass transit.  This is good for Tesla owners, but not so much for other drivers. Over time, government will have to collect the money from other sources.  

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