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Tesla Motors Inc (TSLA) Risks Losing Model X Sales as Tax Breaks Falter

Tesla Motors Inc (TSLA) Autopilot

Tesla Motors Inc is still basking in the euphoria of the launch of its Model X SUV. The car has been getting rave reviews and Tesla has raised the bar on what to expect from cars (EVs/ICEs) higher. However, Tesla Motors Model X buyers in Denmark might have to pay three times more to purchase EVs as the Danish government proposes to eliminate tax breaks on EVs. The Danish plan to remove tax breaks raises questions on how well Tesla can thrive without government incentives.

Tesla Motors Inc (TSLA) Model X SUV

The move to remove tax breaks in Denmark is borne out of the need to tighten government spending at a time that budget deficit is increasing. Denmark’s Finance Minister Claus Hjort Frederiksen notes that “The former government may have promised to keep electric cars exempt from car taxes, but they just forgot one thing: finding the money to do so”. Going forward, the Danish government is faced with tough choices and Frederiksen says, “things have to be done with reason”.

Tesla won’t give you a final price for the Model X yet

The price of EVs in Denmark could triple without the tax breaks and this could cause a reduction in Tesla Motors sales in the country going forward. The tripling of the cost of buying a Tesla raises concerns about how much the Model X will ultimately cost with or without incentives.

For one, Tesla Motors doesn’t provide a final cost for the Model X when buyers configure their cars on its website. Elon Musk has said that the base Model X would cost about $5000 more than the base Model S. However, the firm doesn’t provide would-be buyers with a final price even after they have paid the $5000 deposit and even after they have configured their car.

Howard Ganz, who is Model X customer No. 2084 was quoted by the L.A. Times saying, “It would be nice to have more information about the car…. Especially before I commit whatever amount I’m going to be committing — because it’s going to be a lot.”

The end of Tesla Motors Welfare-fest?

In June, the L.A. Times reported that the trio of Elon Musk’s firms Tesla Motors Inc, SolarCity Corp, and SpaceX has received more than $4.9B in different state and Federal incentives. Tesla Motors alone has taken about $2.39B in government subsidies and it has collected more than $517M from other carmakers on the credits it sells to them.

Tesla Motors buyers in the US get a $7,500 tax credit when they shell out for a new Model S or Model X. If all goes well that tax credit is likely to expire before the Model 3 comes out, making it more and more difficult for Tesla Motors to keep the shelf price low.

Musk has clarified his position on the said subsidies; he says, “the article makes it seem as though my company is getting some huge check, which is fundamentally false”. Nonetheless, there’s no denying the fact that those breaks put more money into Tesla Motor’s coffers directly and indirectly.

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Victor Alagbe is a seasoned business and finance writer with a specialty in writing about how to invest for the long-term in healthcare, pharmacology, energy and tech stocks. His long-term focus is on stocks that provide a nice mix of growth and income. For the short term, he passionately writes about trading stock options for the excitement and leverage that stock options offer.