The 2021 Tax Credits Will Take Tesla to the Moon
First, here are some Tesla vehicles that will qualify for the Tax Credit.
- Entry level model S (starts at $79,690)
- Model 3 (starts at $39,690)
- Model Y (starts at $51,990)
- The Cyber Truck – single, dual, and tri motor (starts at $39,900, $49,900, and $69,900)
- Tesla’s “Model 2”, the $25,000 vehicle
Unfortunately, the following Tesla vehicles will not qualify:
- Model X (starts at $89,690)
- Model S Plaid (starts at $119,690)
- Model S Plaid + (unknown start price)
- Roadster (starts at $200,000)
Note, these prices are subject to change as Tesla decides.
For the proposed tax credit bill, Tesla will get $10,000 of the tax bill. $7,500 for having electric vehicles, and another $2,500 for being in the U.S. They will not get the $2,500 for being a union company.
How Will Tesla go to the Moon With this Tax Credit?
Going to the moon is a saying for when the stock price of a company, or the value of a commodity goes up in price substantially over a period of time. This will happen to Tesla if this tax credit bill passes.
Tesla currently has more demand than it can meet. As of today, they are sold out for the quarter (Q2, 2021). What happens naturally in a market when there is much more demand than there is supply? You guessed it; the price goes up.
Tesla will HAVE to increase the price of their vehicles, let’s say by $5,000, due to the high demand. With the tax credit, vehicles purchased in the United States will still be $5,000 cheaper due to the tax credit bill (take the $10,000 tax credit and subtract the $5,000 price increase from Tesla).
Now, let’s take a look at some vehicle sale estimates for the next 4 years until 2025. At that point, there is a chance this tax credit bill goes away as more and more vehicles on the road become electric. In 2021, let’s say Tesla will sell 900,000 vehicles. Elon Musk says that Tesla will grow at least 50% a year – sometimes more. I’m going to be conservative here and increase by that 50% each year until 2025. Here’s what we get:
Tesla's Projected Vehicle Sales to 2025
- 2021: 900,000 vehicles
- 2022: 1,350,000 vehicles (900,000 * 1.50)
- 2023: 2,025,000 vehicles (1,350,000 * 1.50)
- 2024: 3,037,500 vehicles (2,025,000 * 1.50)
- 2025: 4,556,250 vehicles (3,037,500 * 1.50)
This is a CONSERVATIVE estimate because it never takes into account the years Tesla will grow more than 50%. But I’m ok with that, because not all vehicle sales will qualify for the tax credit (the more expensive models). But most will. Here’s how Tesla will go to the moon. It’s because they will have to raise their price and I think around $5,000 will be what the price increase is.
Let’s add up all the vehicles sold for 2022 to 2025. When you do that, you get this number:
Now multiply this by the price increase of all vehicles, of $5,000. You then get this number:
That’s $54 BILLION dollars of EXTRA sales. How much of that will be profit? We’ll have to wait and see how the quarterly results turn out, but I predict that Tesla profits from this will dwarf the regulatory credits (many think these are the main contributor to Tesla’s profits now).
UPDATE: We can cut the $54 BILLION in half due to China/Europe car sales, but still end up with an extra $27 Billion.
Of course, Tesla could just build more factories to try and meet the demand, but so far, there’s been no announcement for that.
There is a Hidden Problem If Tesla Increases Prices
If Tesla increases prices by $5,000, there is a chance that certain vehicles will not qualify for the tax credit. These vehicles are:
- Entry level Model S
- Tri-motor Cyber Truck (with full self-driving)
I have a reservation for a Tesla Cyber Truck which should happen in early 2024. But I have full-self driving purchased with a tri-motor. With a $10,000 cost for the full self-driving, that will push the total sticker cost of the Cyber Truck tri-motor to $79,900 – just $100 below the tax credit limit. If Tesla increases the price of its Tri-motor Cyber Truck by $5,000 – or even $100, then it will no longer qualify for the tax credit.
I believe Tesla will not increase the price of the Tri-motor Cyber Truck in order to accommodate this problem that will happen. I’ll even make sure to tweet Elon Musk to tell him not to do it.
What do you think about the electric vehicle tax credit bill? Is this good for the future of the United States and electric vehicles?
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Jeremy Johnson is a Tesla investor and supporter. He first invested in Tesla in 2017 after years of following Elon Musk and admiring his work ethic and intelligence. Since then, he's become a Tesla bull, covering anything about Tesla he can find, while also dabbling in other electric vehicle companies. Jeremy covers Tesla developments at Torque News. You can follow him on Twitter, Facebook, LinkedIn and Instagram to stay in touch and follow his Tesla news coverage on Torque News.