Tesla’s all-electric car is beautiful, but it isn’t cheap. Consumers will pay a lot for a Tesla—but so do taxpayers and even those consumers who don’t buy one.
Tesla currently makes only one car, the Model S, which starts north of $70,000. But Tesla qualifies for a $7,500 tax credit. That’s not $7,500 off the price of the car; that’s up to $7,500 taken directly from the buyer’s income tax obligation. Depending on a person’s income and tax bracket, that break could mean, say, $20,000 or $30,000 of tax-free earnings.
In addition, Tesla has made millions selling zero-emission vehicle credits. As John Lippert of Bloomberg Business pointed out in March:
“Since its founding in 2003, the company, which went public in 2010, has earned a profit in just one three-month period. In 2014, it lost $294 million on $3.2 billion in revenue. … Some $217 million of that revenue came from the sale to its competitors of zero-emission-vehicle, or ZEV, credits and other pollution allowances.”
How does the ZEV credit program work? Ten states, led by California, require “major manufacturers of passenger cars and light trucks (up to 8,500 pounds) to attain a certain number of ZEV credits depending on the number of vehicles produced and delivered for sale in the state. The program includes mechanisms to make compliance easier, such as tradable credits and different credit levels depending on the vehicle technology and capability.”
Tesla only makes an electric car so it has ZEV credits to sell to other car manufacturers that build gas-powered cars and trucks that most people want and can afford.
Arguably, Tesla is simply taking advantage of government tax breaks and subsidies that are widely available to anyone who qualifies.. But it’s another thing to use the power of government to make it harder for your competitors.
Not content with these indirect and direct government subsides—Tesla got a $465 million loan from the Energy Department, which it repaid early—Tesla now supports even stronger renewable fuel standards (RFS), the requirement that most gasoline contain a certain amount of biofuel such as ethanol.
Tesla cars don’t use gasoline, so why does Tesla care about RFS? Because stricter standards force more costs onto other mainstream car manufacturers, which drives up the price of those cars, and arguably makes gasoline more costly, making Tesla’s all-electric car look better by comparison.
So when you see a Tesla on the road feel free to embrace that sense of pride in ownership, because even if you don’t own the title, you helped pay for it.