Tesla Inc (NASDAQ:TSLA) CEO Elon Musk made waves back in June when he quit the president’s advisory board. That move, came as his firms spend hundreds of thousands of dollars buying influence in Washington. As Tesla’s greatest policy advantage comes to an end, this could have a big impact on the firm going forward.
The electric vehicle tax credit is only available for a limited time. Once Tesla hits a total of 200,000 in sales, the firm is going to start seeing the credit get phased out. At the end of the quarter in which it hits that limit, buyers will have about 15 months to take advantage of the subsidy until it disappears forever.
Tesla is working hard to get the Model 3 affordable electric car out the door. The firm revealed the first pictures of the consumer version of the EV this week, and is building up to mass production toward the end of the year. Mass production is going to be a big challenge for the firm, but tax lobbying is likely a much tougher challenge.
Tesla keeps getting political
The Paris Climate Accord incident was a key moment for Elon Musk. In terms of the Tesla Inc (NASDAQ:TSLA) brand his position on the White House council was downright dangerous for EV demand. For a firm that relies so heavily on the government to boost demand for its cars however, alienating the president was not a positive move.
At the end of the day Mr. Musk couldn’t avoid taking some damage given the position he had been put in.
It’s possible, and perhaps likely, that Tesla never had much of a chance of convincing the Trump administration to support its efforts. President Trump and his advisors have, after all, been clear on climate change denial and a disdain for non-fossil energies.
The Trump budget and tax reform bill seem to be pretty clear on this point. What America’s executive wants is to lower taxes and cut spending. Tesla wants to see demand shored up by a government tax cut.
Though those ideas seem very compatible, it’ll take a lot of political legwork to convince the Republican Party that an EV-maker is worth investing in. That’s what the firm is spending money lobbying for, though so far its results seem poor.
Counting the Tesla Inc tax benefit
The tax credit currently stands at $7,500 per buyer. That means that the maximum price subsidy that Tesla Inc (NASDAQ:TSLA) will have been able to avail of over the last seven or so years is about $1.5 billion. That number has surely done a pretty large amount to boost demand at the firm.
Some, including House Speaker Paul Ryan, reckon that these sorts of subsidies are the worst thing about American policy. Others reckon that they are the best way to guide industry toward delivering the technological solutions that we’re going to need to survive the coming century.
Whichever side of that debate you come down on, one thing is not controversial. Almost all energy companied in the US from coal mines to oil pumpers to power plants, rely to some extent on government subsidies. Tesla may not be right in your opinion, but the firm, in paying for lobbyists, isn’t doing anything weird or incompatible with American society.
Right now Tesla Inc qm q=TSLA m=NASDAQ c=Tesla Inc] is expected to hit the 200,000 unit limit for the tax credit in the first quarter of 2018. There’s quite a bit of fuzzy math involved in that number, but it works as a guide.
Under current rules that would mean that those who buy their Model 3 in the first and second quarters of 2018 will get the full tax credit. Those who buy a car in the second half of the year will only get half of the tax credit. The first half of 2019 will allow buyers to use a quarter of the tax credit. Once July of 2019 arrives there will no longer be price subsidies under this scenario.
Tesla Inc demand could suffer
The tax credit issue may seem like a very abstract way to talk about Tesla, but it could have a real impact going forward. We have evidence from other countries that demand for the Model S isn’t magically inelastic. When the price goes up, people tend to stop buying the car.
That may hold even more true for the Model 3. Tesla Inc (NASDAQ:TSLA) promised that it would sell the car for $35,000 before subsidies were applied, but a lot of the people looking to buy the car may have priced those subsidies in. When they hear that they’ve fallen the may be forced to shell out for a cheaper car.
Those that tell you that changing the price of the Tesla Model 3 up or down by $7,500 won’t change demand are probably not right. At the same time, however, those predicting doom and gloom because of the coming price shift are probably exaggerating.
We know that there seems to be huge demand for the Model 3 at a circa-$27,500 price point. If that number jumps up directly to $35,000 demand will likely be lower. Elon Musk’s car could still, price change taken, become the first truly mass-market EV in world history.
Tesla stock stays in dangerous area
The horrible idea that the Tesla Model 3 may hit a demand wall is shaking investors. Having bet that the Palo Alto firm can completely transform the auto world, some pull back was always going to be expected.
Tesla Inc (NASDAQ:TSLA) stock was caught in a storm last week as a result of this and other stories. As a result Tesla stock is down by more than 8 percent over the last month.
Tesla is likely to continue to pay for lobbyists to carry its mission to Washington. Though things may seem dire right now, Elon Musk and his team need to focus on the long term. They’ll be hoping that a regime more amenable to renewable energy and EVs comes into power sooner rather than later.
Until that occurs, Wall Street is likely to assume there won’t be much help coming from Washington. Though Tesla isn’t as wholly reliant on political help as it once was, the firm still gains from taxpayer subsidies.
Tesla, like all other large firms in America, is going to keep lobbying the government to try and push policy in its direction. That’s a normal part of the way politics works in the United States. Don’t be too hopeful of the Trump team changing its policy, however.