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tax credit strategy for Tesla.

tax credit strategy for Tesla.

The $7500 tax credit will be reduced to $3750 when Tesla sells 200,000 cars in the us, and it will stay there for the next 6 months!
So, for that 6 month period, Tesla needs to sell as many cars as possible, enabling more buyers to take advantage.
No slow ramp up during that time, but full blown production.

Laryrob | 03. april 2016

Has to DELIVER them by the tax expiration date

jamestily | 03. april 2016

Deliver not sell, you mean?

mntlvr23 | 03. april 2016

As the tax incentive decreases to 50% at the end of the quarter following the quarter that they have sold/delivered the 200,000th vehicle - the best turn out for both Tesla and its customers, would be to hit the 200,000th sale very early in a quarter. With that, nearly 6 months of vehicles after the 200,000th could be sold at 100% incentive - and a full 6 months could be sold at 50% incentive.

Not sure how it would work out - If Tesla was about to hit 200,000 near the very end of a quarter, it might be reasonable to hold back and slow the deliveries and stockpile some vehicles for a few weeks - though I am not sure that they would want to do that for over a month to reach the next quarter.

jamestily | 03. april 2016

I like that idea.

Stevenilg | 03. april 2016

I agree, great idea.

Haggy | 03. april 2016

If they wanted to do what was best for customers, they could stop a quarter short of 200,000. If they want to do what's best for stockholders, they would produce the maximum possible. If they want to do what's cheapest for customers, after reaching 199,999 in a quarter, they could stop deliveries for that quarter, produce the the maximum the next quarter but have no deliveries, and then deliver six months worth the following quarter. Stockholders would hate it, it would screw up cash flow, and those who wanted their cars as soon as possible wouldn't like it. Neither would those whose total federal tax is no more than $3750 in the first place.

One could also argue in the opposite direction. If they expect to hit 200K in a given quarter, instead of stopping short, they could do their best to crank out even more. Then all those people will get the credit, and producing as many as possible would be the most beneficial.

Any way you look at it, it will be best for Tesla to try to produce as many cars as possible. Assuming there's no way at all of knowing ramp up speed or what date they'd hit that number if they go for maximum production, I'll assume that it would be a random number somewhere between one and about 90, and the chances are low it will fall right before the end of a quarter or right after the beginning of one. If it did happen to fall right before the end of a quarter, perhaps being close enough that Tesla would consider delaying some production by a few days, that might be about a 3% chance.

On the other hand, if Tesla has a plant shut down in mind, such as when they need to retool or restructure the production line for more capacity, it might be possible for them to schedule it so the shutdown happens right before the threshold is hit.

But for Tesla, they will have to have a business justification. Unless they think that they will lose a significant number of sales because of the change of the tax credit, and unless they think that the potential loss of revenue would be greater than the loss from losing a few days of production, there would be no benefit to the company. If there's still a tremendous backlog, then they would make more money by not shutting down for a few days.

One could also argue that the loss of tax credit would benefit existing customers since the value of a used car would be higher.

KP in NPT | 03. april 2016

See Elon's latest tweets - it is clear they plan on going to 199,999, then delivering 200K on the first day of a quarter. they intend to maximize the number of customers who get the full credit.

SamO | 03. april 2016

If they get to the end of the quarter US deliveries then they just have to vector additional cars to China, Europe, Australia etc.

OHMY | 03. april 2016

Good Point SamO- had not considered that. Everyone wins.

Red Sage ca us | 03. april 2016

Keep in mind that traditional automobile manufacturers consider their cars 'sold' the instant they leave the factory. That is because their Customers are the 'independent franchised dealerships'. The cars may have been built at a certain time, but may not actually be sold to the end user for months thereafter. This is why the counter is based upon when the cars were built, and their associated VIN. The manufacturer informs the IRS of which cars they built, how many of them, and when. Thus, even if you take possession of a car after the Tax Credit Reduction has begun, it may still qualify for the full amount if it was built before the Reduction started.