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In a rapidly deteriorating macroeconomic environment, demand for Tesla electric cars no longer exceeds supply, as evidenced by yesterday’s rare delivery target that the electric car maker failed. In this evolving scenario, every morsel of incentive is about to become a crucial battlefield as the increasingly crowded field of electric vehicles competes for dwindling demand.
in 01street In January 2023, the U.S. Internal Revenue Service (IRS) published a comprehensive list of electric vehicles that qualify for a federal clean vehicle tax credit of up to $7,500. While some Tesla electric cars are once again eligible for this tax credit under the Biden administration’s inflation-cutting law, the criterion used by the IRS to differentiate electric sedans from SUVs is quite vague. For example, the IRS considers the 7-seater Tesla Model Y to be an SUV, but the 5-seater variant is a sedan. This distinction is important because the tax credit carries a price cap of $55,000 for electric sedans and $80,000 for electric SUVs. Since the 5-seat version of the Model Y starts retailing at just under $66,000, it won’t be able to enjoy a $7,500 federal tax credit, due to the $55,000 price cap for eligible models.
Interestingly, Volkswagen’s ID.4 AWD model is classified as an SUV by the IRS, while its RWD model is classified as a sedan. This seemingly random and subjective standard used by the IRS creates a lot of confusion in the electric vehicle field.
Punished for making our SUVs too efficient? It’s weird.
– Elon Musk (@elonmusk) January 3, 2023
This brings us to the crux of the matter. Twitter account @employee He recently tweeted that the Tesla Model Y appeared to be too light to be considered an SUV under US tax law. To this, Elon Musk responded by saying that Model Y is penalized for being “highly collectively efficient”.
Meanwhile, Wall Street analysts continue to publish their take on Tesla’s latest quarterly deliveries. As a refresher, the electric vehicle giant revealed yesterday that it had delivered 405,278 units in the fourth quarter of 2022, missing the consensus expectation of a diluted 418,000 units. Tesla continued to assert that it will increase annual deliveries by just under 50 percent for the foreseeable future. However, consensus estimates in the fourth quarter mean that Tesla was only able to increase deliveries by 40 percent in 2022. For a stock that used to trade at an astronomical premium based on its stellar growth story, the ongoing demand shock leads to brutal downgrades.
Bernstein analyst Tony Sacconaghi noted with concern the 34,000-unit growth in Tesla’s stock, which currently calculates about 78,000 units. According to the analyst, this inventory growth indicates softer demand:
“We believe Tesla will need to either reduce growth targets (and operate factories below capacity) or maintain and possibly increase price cuts globally, putting pressure on margins.”
Do you think the 70 percent drop in Tesla shares in 2022 was enough to drive the stock into bargain territory, or is there more downside to come? Let us know your thoughts in the comments section below.