Tesla Motors Inc relies heavily on subsidies to increase demand for its cars, but the firm may have stepped over the line in Europe. Denmark’s Minister for Taxation Karsten Lauritzen says that more than 2,000 luxury EVs have applied to be registered ahead of the expiry of a tax break in the country. It seems that the Minister suspects that Tesla Motors is trying to defraud the Danish government.
Mr. Lauritzen said “Bulk buying cars with intent of selling them is illegal.” He continued, “It’s not possible to think that there are 2500 Danes, who have had this idea over a matter of a few weeks, but I think it’s fair to say this was done to partially circumvent the rules.” The news was sourced from a Danish outlet, and a translation posted on reddit.
Tesla Motors dodges Danish tax
The suspicion that Tesla Motors is dodging taxes comes ahead of a major change in the way that Denmark’s authorities add taxes to the car. The country announced on September 29 that Tesla Motors would be subject to the same tax regime as other luxury car makers. That means a massive 100 percent registration tax will be levied on each sale of a new Model S from 2020.
Previously the Tesla Motors Model S had avoided that tax altogether. The new tax policy means that the price of the car in the country is set to rise from its current low of 650,000 kroner, or $93,468, gradually over the coming years. The registration tax will hit 20 percent in 2016, and see a yearly increase to 40 percent, 65 percent, 90 percent and finally 100 percent in 2020.
Tesla Motors, in dramatic fashion, said that the increase in the tax rate was “not a phasing-in of levies on electric cars but rather a phasing out of electric cars in Denmark.” The firm’s spokesperson in the country, Esben Pedersen said that “the electric car agreement is anti-competitive and singles out Tesla. The deal will hit the entire electric car model and will eliminate it instead of developing it.”
Wednesday’s news casts Tesla Motors as a possible villain attempting to dodge direct taxes levied by the Danish government in order to sell more cars on at a lower price. That is, in the view of the country’s minister, an illegal act, but there doesn’t seem to be much proof that Tesla Motors has indeed engaged in such a protest.
Tesla Motors looks for sales
Tesla Motors says that it will sell ship between 17,000 and 19,000 cars in the three months through December, though plans to roll back EV subsidy are sure to hurt the firm. Whether one agrees with state support for Tesla Motors or not, it’s almost certain that the lower price for the Model S ensure by that support is a boost to demand for the EV.
The fall in sales in Denmark almost guaranteed by the massive increase in the price of the Model S could be seen as a long term problem for Tesla Motors , though the firm may have found its own way around the issue.
The minister reckons that if, and it’s a big if, Tesla Motors is buying its own cars it is acting in both moral and legal wrong. “When the cars get taxed from 1st January 2016, they will increase in value. If you buy under the old rules, you can sell them at great profit. This would prove to be a very profitable investment by the Danish people, but that is a bill that is left to the Danish society, and I cannot accept that,” he said.
How does Tesla Motors secure subsidies?
If Tesla Motors is seen as purely a luxury car maker, which some seem to think is the right way to look at Elon Musk’s project, then that is a distortion in the market. Denmark is trying to get rid of that distortion in order to level the playing field between Tesla Motors and firms like BMW and Mercedes.
In many regions, however, it’s clear that state bodies are more willing to view Tesla Motors as part of a wider car market, rather than a small subsection that simply includes luxury cars. That means the state support that the firm receives is more in line with the goals of many countries to lower CO2 output.
Market definition is an important, and difficult, concept inside of competition policy, and Tesla Motors has secured subsidies by having the market definition applied favorably to it. Now that the firm seems to be eating the sales of firms like Mercedes and BMW in some jurisdictions it’s not surprising that some are angry about the treatment that Tesla Motors is getting.
Europe has pretty strict rules about state aid being given to certain companies to ensure their success. Apple is in the midst of an investigation because of the way Ireland handles its tax rates, while earlier this week Estonian Air filed for bankruptcy on Wednesday after the aid it received was ruled illegal. The same could, feasibly, happen to Tesla Motors, though there is no know investigation into the firm’s state support right now.
Tesla Motors Denmark troubles brew
Mr. Lauritzen may believe that it’s impossible for ordinary Danish people to buy cars in bulk in order to lock in lower prices and perhaps re-sell them at a profit in the next year. It’s not clear what the laws that would apply in that situation are, nor is it clear that the Danish authorities have any sort of evidence that points to Tesla Motors itself is buying the cars.
He said “I’ve received message from the tax department, that 2500 luxury cars have been registered, likely from Tesla, and something indicates, this is a circumvention of the law of tax deduction of electric cars.”
In fact it’s clear that the Danish Minister isn’t even sure the 2,500 cars registered ahead of the tax change were actually sold by Tesla Motors. The firm said that most seem to be luxury EVs, but doesn’t positively identify Tesla Motors as the brand the cars were sold under.
That doesn’t quite matter, however. What’s clear is that Tesla Motors is facing some backlash in Denmark because of its position in the luxury car market. While Tesla Motors says it will release a mass market car, that will sell for $35,000 in the US, in the coming years, for the time being the firm only sells one, or being generous two cars.
The Model S and the Model X fit clearly into the luxury car market, and if some governments want to treat them as that, rather than as EVs, then that is their prerogative. Denmark has decided that it doesn’t think EVs should enjoy lower tax rates. Tesla Motors’ response to the decision, especially if it does include mass buying of its own cars, will be interesting indeed.
A firm that builds its sales on subsidies or special tax rates, Tesla Motors being far from the only one, will always be at the mercy of the state. Whether or not Elon Musk can get around those problems and change the world remains to be seen, but all of those who think that EVs are the future seem certain that his is the plan that can save the world.