28 November 2019
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Tesla Tax Troubles

Tesla Is Facing a Crisis

Q: Oh? You know more than Elon Musk and all the financial analysts who are not sounding alarms?
A: I suppose not. The analysts have mentioned this, and I suspect Mr. Musk is aware of the issue, too.
Q: So why pay attention to you?
A: Because I have a solution!

The crisis comes riding in on a two-pronged beast: Competition and Tax Credits. (Yes, it's a bit of a hybrid beast.) Tesla has had the electric car market almost to itself, and has thus far been so incredibly successful that, on occasion, it's actually made some quarterly profits. It's sales volume in number of vehicles has been a mixed curse, however. The government, with some help from USDUC, decreed a tax credit subsidy for electric vehicles with large capacity battery packs thus: $7500 credit through the quarter during which the first 200,000 vehicles are sold and for the following quarter. The credit is reduced to $3750 through the following two quarters, $1875, for the two quarters after that, and no credit thereafter. The current credit on Tesla vehicles is $1875, and it expires on the first day of 2020.

How is USDUC, the United States Department of Unintended Consequences, involved with this tax credit? The goal of the tax credit is to get people to buy electric vehicles. When the credit disappears, the price of the vehicles, in effect, is increased, and the competitors, who haven't sold many EVs yet, have a big advantage. Not to be chauvinistic, but a lot of the competitive vehicles are made in foreign lands. One would think that, if there is a social benefit that is worth $7500, it wouldn't suddenly disappear!* But I'm not USDUC, or even (Hybrid) USDUC whose thinking is less than logical.

Crisis? What Crisis?

At the end of 2019, Tesla's customers will lose the benefit of the tax credit, i.e., the price of their vehicles will effectively increase. At the same time, as seems to be common knowledge, a veritable bevy of electric cars will come on the market from manufacturers sundry. Most of them will have a price $7500 lower than they otherwise would. Tesla, whose finances seem to be less than pellucid and arguably dicey, will lose a lot of custom, possibly a critical loss.

Solution? What Solution?

Turn Tesla models 3, S, or X into Powerwalls and charge them with solar power. Seriously! What is a Powerwall but a big battery and inverter that interfaces it to your household electric system? Add an inverter to your car, and the car becomes a reservoir of electricity, suitable for powering your house during grid failures, reducing your electric bill, and making you feel ever so cozy and green. I did this, albeit with a Toyota Prius and without the solar component, back in 2005

Oh yes. Check the new tax credit for which you should qualify!

Calculating the Tax Credit

Just considering the federal tax credit, one is entitled to subtract 30% of the cost of a solar/battery system from any taxes due to the IRS. For example, a single Tesla Powerwall costs $6700 and stores 14kWh of energy, of which 13.5kWh is "usable." The Tesla model S car, either current version, appears to have a 100kWh battery capacity and costs $79,990. With no guidance from Tesla, but with reasonable justification, one can assign a value to the battery system, the most expensive part of the vehicle by far:

100 kWh / 14kWh = 7.14 (Powerwall equivalents) * $6700 = $48,000.

If one applied the 30% tax credit to just the battery portion of the car, which again seems justifiable, there would be a tax credit of $14,400 on the purchase of the vehicle, with or without the "Ludicrous" option. This far exceeds the old credit of $7500 that, as of this writing, has been reduced to $1875 and is scheduled to expire at the end of 2019. Quite the inducement to purchase, no?

So Where's Tesla's Encouragement?

Above I mentioned that I have a solution for the Tesla crisis. Multiple choice quiz follows:

  • 1: I, the possibly immodest writer of this blog, am smarter than the hundreds of thousands of Tesla purchasers, the thousands of Tesla employees, and Elon Musk himself.
  • 2: Elon and the gang have thought of it and are reluctant or resistant to doing it for reasons of their own, good or bad.

If you selected #1, thank you! Surely somebody in that enormous group must be the smartest, and I suppose I could be that one. If, more logically, you selected #2, I'm with you. They must have thought of it.**

Assuming they thought of it, how does one account for this brief but damning paragraph in the user manual?

  1. Maybe they are concerned about Supercharger abuse. Fanatic Model S owners will charge their cars every few days and then run their homes with stolen electricity.
  2. Maybe they are concerned about premature wear of the battery system.
  3. Maybe they are concerned, somehow, about liability.
  4. Maybe they don't like the concept of charging their cars with solar energy.
  5. Maybe they want to keep their price high and enrich the coffers of the federal government.

Have you found the straw men yet? #5 seems improbable, and #4 preposterous. Tesla sells solar power equipment and this would be a natural for them. So let's look at the first three.

The Three Possibilities:

1: You just purchased a Tesla S for $75-$100k. You pay about $.14 for kWh of electricity, or $14 to fully charge an empty battery. You do this every day, saving $14 and spending an hour or so in the process. Congratulations! You're earning almost minimum wage! Most likely you'll do it less frequently, and who knows how long your drive to and from the Supercharger will be? In other words, it's possible, but why would anyone bother? And after doing it consistently for many years, you will have had the satisfaction of sticking it to the man and watching your almost unused car become ancient, along with your own self. Is this truly Tesla's concern? I have to doubt it!

2: OK, somehow you manage to charge and discharge the battery every day. You're doing it with solar power, as contemplated in this blog, since that's the whole point of the tax credit. Why use the car battery at all? To save money, by charging the battery during (mostly) off-peak hours, and discharging it during peak hours. This mirrors my own situation, albeit with powerwalls. My analysis of this scenario is incomplete, but I'm sure it saves money and provides the whole-house backup that is the purpose of the powerwalls. The point here is that, unlike with Supercharging, or even driving, the battery usage is far more gentle, with a charge rate similar to that of Tesla's own wall charger when the sun is at its peak. And there's less wear on the vehicle: The charge and discharge is similar to commuting, but the car itself is stationary. So, this is a more likely scenario, but no more problematic for the battery or Tesla than is, well, driving the car.

3: Everyone is concerned about liability, but using the car as a stationary power source would seem to be less dangerous than driving it!

The Boon

If Tesla allows you to use the car as a "stationary power source" and, better, facilitates it, everyone benefits:

  • They can sell you a solar power system, which they already offer, and cross-sell the car as a synergy.
  • They get a new profit center—selling the accessory that allows the car to connect to the system—such as a power inverter similar to the one in the Powerwall.
  • They sell more cars since, at least for solar users, the price is reduced by $14k.
  • The candidate-customer part of "everyone" is a very happy tron at tax time.
  • Oh, yes, the customer also saves medium bucks on electricity and has a full-home backup!

* The question of whether there should be a tax credit at all is so fraught that I have to order a second pair of neoprene gloves before I dare blog about it. Hopefully they'll be out of stock.

** I was so tempted to write "they Musk have thought of it," but uncharacteristically I forbore.

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Carole King must have gone on tour in 1976, but I don't think I have ever seen her live, so this must be another traded-T.

I just heard her demo of Pleasant Valley Sunday that she wrote with Gerry Goffin. Better than the Monkees version, in my opinion.

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