Tesla: $702 Million Loss Raises Questions About EV Market & Subsidies

Back in December of 2018, the Trump administration announced that it wanted to end federal subsidies for electric vehicles. This may have been in part in retaliation to General Motors for its planned layoffs, however it would also have implications for the future of the renewable fuel and electric car industry. Under current regulations, the subsidies no longer apply to purchases of vehicles from an individual manufacturer after it sells 200,000 of the model. Tesla, one of the most well known electric car brands in recent years, hit this mark in July of 2018. From then, the tax credit was/will be reduced by fifty percent every six months.

Perhaps not surprisingly, Tesla suffered a major loss in the last quarter- $702 million, to be specific. Company officials claimed it was due to a number of complications that arose during the three-month period, and that they foresee increased larger shipments to foreign markets this year. However, this decrease in enthusiasm from the domestic side of things could potentially be the result of two factors combining to have such a drastic impact on the path of the company.

First, Tesla has been struggling to produce electric vehicles that are on the more affordable end of the spectrum, with the Model 3 coming in at $35,000. The availability of this car was a major issue, as it was relegated to special order status just after it was initially released on the website. The majority of consumers are not looking to buy, or able to buy, any of the main line of vehicles that Tesla is producing, and thus with a smaller potential market (especially after selling its initial 200,000 vehicles) it is no surprise that the market is cooling off in the United States.

Second, it is possible that with the tapering of the electric vehicle subsidies the incentive to purchase such a pricey vehicle has dropped significantly, to the point of causing a steep drop in company revenues. Without the potential to get a $7,500 tax break, it is likely that the population that would have considered purchasing even the lower end Model 3 sees the price as being too high without that discount of sorts to purchase the car on their own. This, in turn, does not necessarily create any additional negative externalities, however, electric cars are often seen as a viable alternative to using fossil fuel powered vehicles and thus the tapering of subsidization of electric vehicles may eliminate any foreseeable reduction in negative externalities caused by additional (or continued) use of gas powered vehicles.

This same idea may not apply to other car manufacturers that produce electric vehicles because they have not reached the 200,000 cap on sales (yet). However, they are likely going to get there within a few years, at which point it may be time to reevaluate more seriously the impacts of EV subsidies and determine the implications of such policies on consumer incentives and the climate.

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