Subsidies Power the Electric Vehicle Market
One electric car company, Tesla Motors, has benefited from billions in subsidies for making vehicles only the rich can afford. Each Tesla costs at least $75,000 before government subsidies.[i] Those purchasing these expensive Tesla sedans receive a $7,500 federal government subsidy, and some states, such as Louisiana, provide up to $11,200 in additional incentives from other taxpayers. Tesla is about a quarter of the way to the Federal government limit of 200,000 vehicles per manufacturer for the $7,500 credit. It is estimated that Tesla buyers have qualified for $284 million in Federal tax incentives and over $38 million in California rebates.
But Tesla benefits not only from Federal subsidies and state rebates; it receives zero emission vehicle credits in California that has enabled it to pay back Federal loans. These credit payments to Tesla come from other automakers who have not sold enough zero emissions vehicles and must purchase credits from Tesla to meet California regulations that require at least one percent of each automaker’s California sales be made up of vehicles with no tailpipe emissions. If an automaker fails to earn enough credits from its sales of zero emission vehicles and does not purchase credits from other automakers that exceed the 1 percent criteria, it faces a $5,000 fine per credit shortfall.
Tesla sold 31,655 vehicles in 2014–just a tiny fraction of the auto industry’s global volume of 71.15 million—and lost money on its vehicle sales, due in part to the high cost of lithium-ion batteries. But, Tesla is the only automaker with an all-electric fleet and a permanent credit surplus. According to Bloomberg, Tesla earns between $14,000 and $17,500 worth of credits for each Model S it sells in the ten states that have a zero vehicle emissions program. According to Morgan Stanley’s chief auto analyst, Tesla earns as much as half a billion dollars each year from these credits.[ii]
Sales of electric vehicles are low because of their limited range (about 200 or so miles on a charge) and long recharging times. Charging infrastructure requires at least 30 minutes to deliver a meaningful amount of power and facilities are far less available than gas stations. The only other way to provide rapid refueling of zero-emissions vehicles is to swap batteries rather than recharging them–a strategy attempted by pilot projects and a company now bankrupt (Project Better Place.)Though those endeavors failed, Tesla tweeted in December 2014 that its pack swap was operating in limited beta mode for the San Francisco to Los Angeles route. A week later, Tesla indicated that a “pilot” swap program would open for “invited Model S owners” by appointment and will cost slightly less than a full tank of gasoline for a premium sedan, taking approximately three minutes. Based on California’s zero emission vehicle program, Tesla can earn additional credits from its battery swap program, which is the reason it is pursuing it, but few have used it so far. A recent news story showed the irony of a Tesla refueling station in Harris Ranch, California that used a diesel generator to produce electricity for recharging batteries.[iii]
LA Times estimated that Elon Musk has obtained $4.9 billion in government subsidies from his companies (Tesla Motors Inc., SolarCity Corp. and Space Exploration Technologies Corp., known as SpaceX) through grants, tax breaks, factory construction, discounted loans, environmental credits, tax credits and rebates to buyers of solar panels and electric cars.[iv] Musk and his companies’ investors enjoy most of the financial benefits of the government incentives, while taxpayers shoulder the cost. According to the LA Times, “the full scope of the public assistance hasn’t been tallied because it has been granted over time from different levels of government.”
Most recently, Nevada agreed to provide Tesla with $1.3 billion in incentives to build a mega battery factory near Reno. This battery factory will not only build electric vehicle batteries, but storage batteries for electricity that could someday make the electric grid obsolete, according to Tesla owner Musk. Tesla has already secured a commitment of $126 million from California to develop energy storage technology.
Subsidies to TESLA MOTORS: $2.391 billion[v]
$1.29 billion — Nevada tax incentives for Gigafactory
$45 million — Value of discounted Department of Energy loan
$90 million — California Alternative Energy and Advanced Transportation Financing Authority
$517.2 million — Sale of California and other regulatory credits
$284 million — Estimated value of federal income tax credits for eligible U.S. buyers of Model S sedans
$38 million — Value of California rebate for California buyers of Model S sedans
$126 million — California Self-Generation Incentive Program
$647,626 — California job training reimbursement
Low Cost Electric Vehicles Unlikely Soon
Several major automobile makers are planning to manufacture electric cars that can travel 200 miles or more on a charge and cost $30,000 to $40,000. But a new report doubts that they will make money, especially at first. GM and Tesla have announced plans for a 2017 or so delivery, and Nissan, BMW, and Volkswagen also have plans. A technology research firm, Lux Research, however, does not believe that GM’s planned $37,500 Bolt will be profitable before 2020 and Tesla’s $35,000 Model 3 until 2025.[vi]
Lux’s calculations are mostly based on a forecast for a steady, year-by-year drop in the price of lithium-ion batteries. Greater manufacturing efficiency can also drive the price decline such as Tesla’s mega battery factory in Nevada, which is expected to double the global supply of lithium-ion batteries. According to Lux, batteries need to drop below $200 per kilowatt hour for a car priced below $40,000 to pay off for the manufacturer.
A number of industry analysts have cast doubt on Tesla’s ability to deliver electric cars at a price in the $30,000 to $40,000 range and as early as 2017. One energy expert believes that Tesla needs at least $50,000, and may have to charge $80,000 to make a profit.[vii]
The electric vehicle market is driven by subsidies. This is especially galling because the average American is subsidizing the purchase of expensive luxury cars, both through their taxes as well as through higher prices on regular cars because of the added costs of electric vehicle credits. Electric vehicles might make sense for some people, but the average American should not foot a good chunk of the bill. Elon Musk shows the easiest way to make money during the Obama years—get the government to pay you.
According to an auto industry research firm, Strategic Visions, Tesla owners have an average annual household income of about $320,000. California legislators recently passed a law that calls for income limits on electric car buyers requesting the state’s $2,500 subsidy, but it is not yet in effect.
 Musk is the chief executive of both Tesla and SpaceX and the chairman of SolarCity, and holds large stakes in all three companies, including 27 percent of Tesla and 23 percent of SolarCity, according to regulatory filings.
[ii] Daily Kanban, Understanding Tesla’s Potemkin Swap Station, May 27, 2015, http://dailykanban.com/2015/05/analysis-understanding-teslas-potemkin-swap-station/
[iii] Daily Caller, Tesla ‘Supercharger’ Station Powered by Diesel Generators, May 28, 2015, http://dailycaller.com/2015/05/28/tesla-supercharger-station-powered-by-diesel-generators-video/
[iv] LA Times, Elon Musk’s growing empire is fueled by $4.9 billion in government subsidies, May 30, 2015, http://www.latimes.com/business/la-fi-hy-musk-subsidies-20150531-story.html#page=1
[v] LA Times, How It Adds Up Three Companies, $4,9 billion in government support, May 30, 2015, http://www.latimes.com/local/la-fi-hy-musk-subsidies-box-20150530-story.html
[vi]QZ, Mass-market electric vehicles will go 200 miles, but are still a long way from being profitable, May 25, 2015, http://qz.com/411066/mass-market-electric-cars-will-go-200-miles-but-are-still-a-long-way-from-being-profitable/
[vii] Green Car Reports, Tesla Battery Cost: New Report Suggests Model 3 To Cost $50K or More, September 17, 2014, http://www.greencarreports.com/news/1094442_tesla-battery-cost-new-report-suggests-model-3-to-cost-50k-or-more