The CEO of Tesla, Elon Musk, is prepared to reduce the prices of electric cars once again in order to boost sales, particularly if there is a downturn in the economy. This decision is partly motivated by the significant benefits derived from tax credits provided by the Biden administration.
In a July 19 statement, Musk highlighted the importance of prioritizing increased vehicle production over profit margins. Consequently, concerns about the automaker’s declining margins have caused Tesla’s stock to drop by almost 20%.
Even without considering potential additional discounts, Tesla’s advantage over competitors primarily lies in the tax credits it receives for battery manufacturing. An analysis of Tesla’s second-quarter results conducted by Reuters reveals that the company’s price reductions, combined with subsidies, have positioned the Model Y as the top-selling vehicle worldwide.
In the United States, the price of a Model Y has decreased by 20% since late 2022. With the $7,500 Biden tax credit, the price is now down by 35%. As a result, Tesla witnessed a 35% increase in US sales during the second quarter, as reported by Cox Automotive data.
The battery tax credits provided by the Inflation Reduction Act have resulted in a subsidy of approximately $900 to $1,400 for each Tesla vehicle sold in the United States during the second quarter. These credits, coupled with the $600 per vehicle generated from the sale of regulatory offsets, have effectively compensated for most of the $2,500 reduction in price for the long-range version of the Model Y.
Morningstar analyst Seth Goldstein noted that Tesla’s manufacturing tax credits should partially mitigate the impact of price reductions on demand. Furthermore, under the Inflation Reduction Act, Tesla is the primary beneficiary of battery production credits, outranking other US manufacturers.
Tesla collaborates with Panasonic in Nevada for battery production. Consultancy Benchmark Mineral Intelligence predicts that Tesla and Panasonic will receive approximately $1.8 billion in production credits this year, a significantly higher amount compared to the estimated $480 million for General Motors and its battery supplier (LG Energy Solution).
The irony of the situation is that Musk has himself been a vocal critic of EV subsidies for years. In 2021, Musk criticized the EV subsidies included in President Biden’s Build Back Better plan. The Build Back Better plan failed to become law, although a modified set of EV incentives were later incorporated into the Inflation Reduction Act.
At the time, Musk claimed that since the federal government doesn’t give financial aid to gas stations, it has no business giving financial aid to EV charging stations either.
Tesla skeptics speculated that the real reason for Musk’s opposition was that Biden’s proposed EV tax credit only applied to EVs built in the United States by unionized workers. Tesla’s workforce is not unionized. (The union requirement was later dropped in the Inflation Reduction Act.)
We must sadly conclude that until Tesla’s EV subsidies are returned, Elon Musk is a hypocrite.