The American company Tesla, together with GM and Nissan, is arguing for the extension of the federal EV (electric vehicle) tax credits, which are set to expire at the end of the year.
Depending on the state in which the car is bought, and withholding the individual tax situation of the buyer, some people can save up to $10,000 on a new Tesla thanks to this tax incentive.
This policy introduced under the Obama administration had the intention of promoting electric vehicles in order to reduce carbon emissions and led to the birth of Tesla. You could of course claim that the extravagant personality of Elon Musk (even though it has been proven to be a liability as well in the more recent past), as well as the media hype, have contributed to the sales, and that’s certainly true. However, if we take a look at the countries that have eliminated tax credits, we begin to understand what Tesla is afraid of.
When Denmark got rid of its tax credits for electric vehicles, Tesla’s sales dropped by 94 percent. In Hong Kong, the company saw a decline of 95 percent as the city got rid of comparable tax advantages for those buying electric cars. Tesla asked officials to “rethink last year’s decision to slash tax break” and said it would reduce their operations in Hong Kong. For a company nearing $10 billion in debt, abolishing tax credits can be devastating. Reuters reported last month that its 5-year credit default swap has reached its highest price ever.
Tesla is indeed not the only aspect in which Elon Musk’s creations are suffering from serious profitability and performance issues. Earlier this month, Bloomberg reported that SpaceX might have concealed the true nature of its profitability to lenders, hiding its negative earnings for the period by including pre-paid customer orders and excluding costs related to non-core research and development.
While some NASA and Air Force officials might not have yet caught on to SpaceX’s tricks, the private sector certainly appears to be doing so. According to The Wall Street Journal, Musk was forced to cut the size of his requested high-yield loan sale to raise money for SpaceX in half “after the company encountered a mixed reception from investors and worsening credit-market conditions.” For a company with a long history of very expensive technical failures that subsists due to big government contracts, nothing seems to be too far to keep going for yet another year.
With the start of a new NASA safety review being prompted from Musk’s behaviour, as well as upstart companies like RocketLab coming into the mix, the free market should solve SpaceX’s problems by itself. The government should allow the same to occur with cars.
At least on the question of EV credits, Tesla should be held to the standards of consumers choosing products for themselves. While there is nothing wrong with reducing taxes on cars, all types should be given an equal playing field.
In October, Sen. John Barrasso (R-WY) introduced the Fairness for Every Driver Act, which would end federal EV credits all together. The Senator said in a statement:
“The electric vehicle tax credit largely benefits the wealthiest Americans and costs taxpayers billions of dollars. My legislation levels the playing field for all drivers across America. Gas, electric, and alternative fuel vehicles use the same roads. All should contribute to maintain them. My bill supports the Highway Trust Fund by making sure all drivers pay into the account that improves America’s roads.”
The initiative should be applauded for creating a level-playing field on the market. While believers in genuine free markets should of course make the case for a level-playing field that sets everyone on an equal footing when it comes to tax burdens, Senator Barrasso’s approach definitely goes in the right direction by making sure the government doesn’t attribute advantages to companies that have lobbied for them intensely.
This article was first published by Newsmax.
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