Can Tesla Survive The Loss Of Subsidies?


Three years ago, The Los Angeles Times posted “Elon Musk’s growing empire is fueled by $4.9 billion in government subsidies”. I have not seen a summary of the current total of Musk’s subsidies but it is certainly more than $4.9 billion now. When The LA Times speaks about an “empire” it included Tesla, Space X and Solar City—all Musk controlled businesses.

This discussion will focus on the Tesla electric vehicle (EV) business.

Subsidies start with the Federal Tax Credit of $7,500 given to each buyer of a Tesla EV.  (Every EV maker gets the same treatment.).  California also provides a $2500 subsidy per car.

The following is from the LA Times posting:

“Tesla has also collected more than $517 million from competing automakers by selling environmental credits.  The regulation was developed in California and has been adopted by nine other states.”

These regulations require that companies selling automobiles must also sell a certain percentage of EVs.  Sales of an EV gives the seller environmental credits.   Manufacturers are penalized for not selling enough EVs and must buy credits to offset their failure. Because Tesla sells only EVs it gets a lot of credits which they sell to the other car makers.

The following 2016 video discusses what the Wall Street Journal thinks subsidies mean to the Tesla’s bottom line: (Please excuse the 15 second commercial.  When video ends click back to this page.)

https://video-api.wsj.com/api-video/player/v3/iframe.html?guid=00E58A9F-9315-47FE-BFED-7C79B2C3A98B&shareDomain=null

The $7,500 Federal tax credit expires after a company has sold 200,000 EVs.  Tesla has sold over 100,000 EVs. I have seen an estimate that the number is about 120,000.  That means that after the next 80,000 are sold, the tax credit disappears.  Most of the Tesla EVs sold to date have been to households having an annual income of $320,000.  For them the tax credit is meaningful but not a make or break decision.  But for most people, the $7,500 could be the difference between buying the Model 3 or not buying it

There is evidence that the subsidies are important to the buyers worldwide. 

Tesla cars registered in Hong Kong plummeted from nearly 3,000 in the month of March to zero in April after the government cut a tax break for electric cars April 1, The Wall Street Journal reports.

Denmark, a country known as a forerunner in renewable energy, has seen a staggering drop in the sale of electric vehicles in the past 18 months.  Sales of Electrically Chargeable Vehicles (ECV) plummeted 60.5 percent in the first quarter of 2017, compared with the first three months of the previous year.

Sales of electric cars have fallen sharply after the UK government cut a grant scheme that encouraged drivers to switch from petrol.  According to Department for Transport statistics, between April and June 4,200 plug-in cars were sold – the lowest for two years.

Italy has seen a drop off as it is scaling back the subsidy program.

After three in the fast lane, China’s electric car market hit a speed bump this year as reduced government subsidies dent drivers’ buying interest.  According to USB, sales growth of new-energy vehicles including pure electric cars and plug-in hybrid automobiles are expected to slow to 20 percent for the whole year in 2017 compared to the 63 percent year-on-year increase recorded in 2016.

While not everyone is cutting subsidies for EVs, it looks like a trend is beginning.

In Washington DC, expect a big battle over extending the $ 7,500 tax credit.  So far, the conservatives in Congress have not been very successful eliminating or even scaling back any kind of subsidy.   However, President Trump is likely to veto any Congressional attempt to reinstate the tax credit.

 

Never fear, subsidy lovers. California has no intention of removing subsidies. Although, California alone might not make a big impact.

The California state Assembly passed a $3-billion subsidy program for electric vehicles, dwarfing the existing program. The bill is now in the state Senate. If passed, it will head to Governor Jerry Brown, who has not yet indicated if he’d sign what is ostensibly an effort to put EV sales into high gear, but below the surface appears to be a Tesla bailout.

The bill has not been submitted to Governor Brown as yet but could be in his hands sometime next month.

So far California is the where most of the Tesla’s have been sold.  Yet, if most of the other States do no enact a similar bill, Tesla will have some problems meeting their sales goals I would guess.

There is another movement that may transcend the subsidy issue and that of eliminating fossil fuel vehicles.  

The UK plans to ban all petrol and diesel vehicles from Britain’s road by 2040. . Germany has a resolution to only allow emissions free vehicles on the road after 2030.  France has a range of initiatives intended to get rid of gasoline and diesel-powered cars by 2040. 

In the UK, there are 9 million cars registered and that includes the 90,000 that are EV’s or hybrids.  So, in 22 years the fleet of EVs (no hybrids allowed) will be increased by 8,910,000.

This will necessitate vastly better batteries to keep long haul trucks on the road.  France at least seems to be limiting their plan to cars.  

China says they plan to have 5 million EV and hybrids on the road by 2020. 

Of course, there currently are no zero emission vehicles as the clear majority of these EV’s are powered by electricity produced by fossil fuel based power plants. And our planet powered by wind and solar is currently not technically feasible.

How far and how realistic will this trend will go, is somewhat problematic.  All these pledges seem like those in the Paris Agreement.  Lot of “good” intentions but not a lot of follow through.  

cbdakota

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