Tesla Motor’s Government Income

Tesla Motors has been in the foreground of the auto industry in recent years due to its innovative all-electric cars. Many commentators exclaim these cars to be the future of automobiles. Currently, the company offers two models for purchase, but hopes to create more in order to bring Tesla more into the mainstream. Elon Musk, the company’s CEO and founder of other companies such as Paypal and SpaceX, plays an integral role. Recently, he has articulated his plan for Tesla: to grow 50% a year and obtain a valuation in 10 years of $700 billion–the current valuation of Apple, the world’s most valuable company.

Tesla will need to continue to rely on government assistance to reach this level of success.

Currently, Tesla sells their cars at a lower price than it costs to manufacture them. The company then recoups these costs through a wide array of government subsidies and tax credits, both to the company and its final product. For example, though the company lost $61.3 million in 2013 on its actual manufacturing and selling operations, they regained that, and much more, through the government dole and were able to turn a profit.

The company receives “credits” for complying with federal fuel-efficiency standards and state zero-emission (ZEV) mandates. These mandates require car companies to sell a certain amount of zero-emission automobiles every year. The Model S generates roughly $20,000 worth of ZEV credits per car sold, which then can be sold by Tesla to other car companies not able to comply with the law on their own. In 2013, while the actual sales of the cars lost $61.3 million, these ZEV credits gained the company $130 million.

Additionally, Tesla receives from some great benefits to its manufacturing operations. The state of Nevada, in attempting to lure Tesla’s operations to the state, gave the company one of the best deals ever given by a state to a manufacturing operation. Nevada exempted the company from any property taxes for ten years and sales taxes for twenty years, a value of approximately $1.1 billion. Tesla will also receive $195 million in transferable tax credits, which it can sell to other businesses within the state. Given Nevada’s lack of personal or corporate income tax, Tesla will effectively operate tax free in the state. The Nevada Energy public utility will also provide energy at a 10-30% discount to Tesla over the next eight years. Finally, these manufacturing operations will receive a 30% tax credit for building its own renewable generation. This will also most likely erase any future-federal tax liability. These types of tax credits, along with carry-forward losses, have allowed the company as whole to not pay any federal income tax since 2008.

Additionally, tax credits granted upon the sale its cars also benefit the company. The federal government provides a $7,500 kickback per electric car bought. Additionally, many states also offer benefits such as free parking, special charging rates, and HOV lane access. The company even has a website to search for benefits granted by state governments to electric car owners. Foreign nations also offer tax benefits. For example, Norway excludes electric cars from the plethora of taxes applied to internal combustion automobiles. A Tesla costs around $73,000 in the country. Without the exemptions, it would cost more than $100,000.

In the past, government intervention in the free market has encouraged research into fledgling technologies, allowing their price-point to drop and eventually allow it to be incorporated into the mainstream. Wind energy provides a success story in this respect. Due to heavy government benefits at the beginning of the industry, wind energy is now cheaper than coal power in some parts of the U.S, even without subsidies. State and federal governments obviously want to encourage battery technologies in automobiles. Evidence exists, however, that these electric cars may not even be more environmentally friendly than traditional automobiles when one accounts for their full lifecycle. Specifically, the type of generation feeding a Tesla car seems to have a large impact on the car’s environmental integrity. For example, a Tesla fed by a coal-fired generation plant may be less green than an internal combustion automobile, while a Tesla charged by nuclear generation would be greener. This is not to say the government should stop funding these types of innovations. They may, however, want to focus the criteria for their subsidies and tax credits to be based on actual decreases in emissions, rather than centering on technology-based solutions.