SEOUL — Tesla CEO Elon Musk ready to cut tram raise prices again to boost sales if the economy falters, and that’s partly thanks to the Biden administration’s tax credit.
“It makes sense to sacrifice profits to produce more vehicles,” Musk said Wednesday, noting that Tesla is facing “turbulent times.”
Tesla shares fell nearly 10% on Thursday as investors worried that the automaker’s profit margins, which have fallen steadily over the past year, would face further headwinds.
But whether or not Tesla offers additional discounts, the tax credits for battery manufacturing gives it a competitive edge over rivals that produce fewer batteries, Reuters‘ analysis of the company’s second-quarter results showed.
Tesla has slashed prices in the US, China and other markets since the end of last year. ONE Model Ynow in the world best selling carin the United States costs 20% less than they were Christmas 2022. Including the $7,500 Biden tax credit, the price is down 35%.
Cox Automotive data shows that Tesla’s aggressive pricing strategy, combined with subsidies, helped boost second-quarter sales in the US by 35 percent year-over-year.
According to a Reuters analysis of Tesla forecasts and US sales, the battery tax credits in the Inflation Reduction Act, effective this year, amount to an allowance of about $900 to $1,400 per Tesla sold in the United States.
Combined with the $600 per vehicle Tesla gains from selling regulatory offsets to other manufacturers to meet emission standardsUS government subsidies largely offset the $2,500 price cut for the quarter on the long-range version of the Model Y.
“Tesla’s production tax credits will at least help offset some of the price cuts Tesla has had to make to boost demand,” Morningstar analyst Seth Goldstein said in an interview.
BONANZA OF TESLA
Tesla is the biggest beneficiary of battery manufacturing credits under the IRA, which offers incentives to US manufacturers. It makes batteries with supplier Panasonic in Nevada and is increasing production at its own plant in Texas.
Consulting firm Benchmark Mineral Intelligence estimates Tesla and Panasonic will collect about $1.8 billion in manufacturing credits this year, far more than the $480 million they expected. common engine and its battery supplier, LG Energy Solution.
Despite benefiting from tax credits, Musk criticized the US President Joe Biden and many of its policies and calls for subsidies to be eliminated.
Chief Financial Officer Zach Kirkhorn said Tesla expects to record a battery credit of between $150 million and $250 million per quarter this year, after accounting for the subsidy split with Panasonic. That could increase as Tesla ramps up battery production.
“The value of the credits this year isn’t going to be huge, but I think it could be huge. We think it’s likely to be very important going forward,” Musk said on Tesla’s earnings conference call in January.
Under the IRA, manufacturers are eligible for tax credits based on the capacity of U.S.-made batteries. For the Model Y, the full payment will be up to $3,375 per vehicle prior to payment to Panasonic.
Many analysts exclude regulatory credits that Tesla obtains from other automakers, but include Biden’s manufacturing credits, when calculate its basic rate of return.
Tesla’s quarterly auto gross margin, excluding regulatory credits, fell to 18.1% in the second quarter from 26% a year earlier.
Related videos:
