Best Way to Honor the Intent of the Tax Credit?

[S'toon]

Actually, my math?, says they make more profit at $26K.

The factory capitalization gets smeared out over 2 to 3 to 4 times as many vehicles.

I think the car you want isn't the Model 3. It's the lower cost econocar that's coming down the road about 10 years from now, that Musk mentioned.

I think the car you envision now is the Smart ED.

 

[22522]

Hogwash. The *average* transaction price of a new vehicle in the US is $31k. Why would Tesla need to come in $5k below that to sell cars?

The Model 3 is a small car (as small as many would want to buy). The average price for a Honda Accord is $23,800. A lot of what pulls up the vehicle average is trucks and SUVs more capable than the 3.

 

[melindav]

The Model 3 is a small car (as small as many would want to buy). The average price for a Honda Accord is $23,800. A lot of what pulls up the vehicle average trucks and SUVs more capable than the 3.

The model 3 is not a small car. It will be a midsize. And it is not competing, nor should be compared to, a Honda.
"As small as many would want" is your opinion. I would have rather seen the model 3 a bit smaller footprint than it is. Many Europeans have said the same. I will happily make it work for me, but would have been happier if it had been a little smaller. Not everyone thinks they need the largest thing that can roll down the road.

 

[ucmndd]

The average price for a Honda Accord is $23,800.

The MSRP for the lowest-priced version of the Accord (LX) is $23,800. Not a chance that the average transaction price for all Accords sold is $23,800.

An Accord with performance and feature parity (or at least as close as it gets to feature parity) of a base Model 3, a V6 Touring model, retails for... wait for it... $35,500.

 

[22522]

The MSRP for the lowest-priced version of the Accord (LX) is $23,800. Not a chance that the average transaction price for all Accords sold is $23,800.

An Accord with performance and feature parity (or at least as close as it gets to feature parity) of a base Model 3, a V6 Touring model, retails for... wait for it... $35,500.

See what true says in your zip code
Honda Accord Sedan

In summary:
1) Tesla has designed the right car to fill up their factory (compact SUVs have frontal area and Cd problems that drive battery cost for acceptable range).
2) To fill up the factory with that car, the transaction price needs to be ~$26,000.
3) Tesla can do this and still be profitable.

 

[ucmndd]

See what true says in your zip code
Honda Accord Sedan

It tells me the average paid for a "Sport CVT" Accord (one trim level above the base LX) is $23,900. This is an arbitrarily chosen model on the base end of the configuration scale. It doesn't take into account production mix or the average transaction price for any of the higher trim levels.

 

[22522]

It tells me the average paid for a "Sport CVT" Accord (one trim level above the base LX) is $23,900. This is an arbitrarily chosen model on the base end of the configuration scale. It doesn't take into account production mix or the average transaction price for any of the higher trim levels.

I just typed in accord average transaction price and this was returned.

 

[deonb]

I just typed in accord average transaction price and this was returned.

So if you want a Honda Accord, buy a Honda Accord. And if you want it to be an EV, go tell make Honda to go make an Accord EV.

But don't tell Tesla to make a Honda.

 

[Troy916]

I think a Model 3 at $26K is the price.
I also think the Tesla team can do that profitably.

That is counter to what was stated in the 2016 Share holder Meeting where they stated they aim for a 20-25% profit.
Not very far leap to believe the $35k is only a 20% profit, and the options will have at least 25% profit.

Which means the cost of the Model 3 is $28k.

Also don't forgot the delivery charge, and sales tax.

 

[EaglesPDX]

The $7500 EV tax credit is there to create low cost production capacity of EVs, with the goal of competitive pricing after the incentive goes away. The behavior most consistent with that goal is to build a factory that can satisfy the entire demand inside the full rebate window. This maximizes production capability and efficiency, and is the best path to a "when we are all done" price that is as low as the credit incentivized price, say $26,000 dollars.

The goal of the program is a Model 3 that is profitably sold for $26,000 without incentives.
Does this sound right to you?

Nope. $35,000 (the current average new car prices) sounds right, maybe higher. As for the rest, Tesla is exactly what we want from the $7,500 incentive. EV manufacturing in the US with car the public wants.

There are also other reasons for the incentive as oil using vehicles have huge costs in pollution (climate change), imports (trade deficit) and national security (oil wars, $17T oil war debt, terrorism).

 

[22522]

So if you want a Honda Accord, buy a Honda Accord. And if you want it to be an EV, go tell make Honda to go make an Accord EV.

But don't tell Tesla to make a Honda.

All good points. I hope their chassis engineers are better than Honda's (as far as eliminating resonant modes).

There are a lot of good things about Tesla's distribution model. One bad thing is demand elasticity is brittle to price. Dealers can soften a mis-priced product with negotiation, without hurting the brand (short term).

Tesla needs to keep the reference price high and the transaction price low to protect the brand and still fill the factory. One way would be to cover the tax credit - even after it expires. Who could complain?


That probably makes the most sense.

 

[deonb]

That is counter to what was stated in the 2016 Share holder Meeting where they stated they aim for a 20-25% profit.
Not very far leap to believe the $35k is only a 20% profit, and the options will have at least 25% profit.

Which means the cost of the Model 3 is $28k.

Also don't forgot the delivery charge, and sales tax.

I doubt it's even that low. We know Elon is targeting an average price of the Model 3 at $42k. So there are $7k worth of general options. However, those options generally carry much higher margin than the base options. Options carry anywhere from 50% to 500% margin.

So let's say the $42k model carry a 20% profit (either 20% markup or 25% markdown), that would make it $8400 in profit on the $42k model..

However, the options itself carry a 50% profit, which is $3'500 of that, leaving $4900 profit on the base model - about 16%, or a production price of ~$30'100.

Now lets set aside another $1500 for warranty service. (Tesla currently sets aside $3000, Ford sets aside $734 - so I think $1500 is nicely in between). That means the base cost of the vehicle is $31'600. THEN only do you get to start adding amortized design cost on top of that...


So $26k is ludicrous, and not the good kind.

 

[Tiberius]

One way would be to cover the tax credit - even after it expires. Who could complain?

Oh, I don't know..... shareholders maybe?

The Model 3 is a small car (as small as many would want to buy). The average price for a Honda Accord is $23,800. A lot of what pulls up the vehicle average is trucks and SUVs more capable than the 3.

The Model 3 has been compared mostly to the BMW 3 series so why would you even look at the Accord in the first place? Quite trying to fudge the numbers so they work for your budget... outside of your imagination it will never happen.

 

[melindav]

Tesla needs to keep the reference price high and the transaction price low to protect the brand and still fill the factory. One way would be to cover the tax credit - even after it expires. Who could complain?

nobody likes the idea of the MSRP not being the actual price and NEEDING to haggle for the expected price. that is ridiculous. We know what the price is and if you don't like it, find something else.

 

[ModelNforNerd]

Actually, my math?, says they make more profit at $26K.

The factory capitalization gets smeared out over 2 to 3 to 4 times as many vehicles.

well....since it's YOUR math....ummm....


no. still going to be a $35K car.

Mods....can we pull the plug on this one already? it has the potential to escalate quickly.

 

[Tiberius]

well....since it's YOUR math....ummm....


no. still going to be a $35K car.

Mods....can we pull the plug on this one already? it has the potential to escalate quickly.

Is censorship really the answer? We can disagree with his ridiculous premise without it degenerating in to unprofessional behavior.

Actually, my math?, says they make more profit at $26K.

The factory capitalization gets smeared out over 2 to 3 to 4 times as many vehicles.

Wtf... This isn't just wishful thinking. You're seriously out of touch if you feel so strongly that this will happen.

 

[182RG]

Tesla needs to keep the reference price high and the transaction price low to protect the brand and still fill the factory. One way would be to cover the tax credit - even after it expires. Who could complain?

Shareholders would complain via lawsuits.

You keep talking about "filling the factory". It suggests your knowledge of manufacturing capacity, operating leverage, and S & OP planning is weak, as it relates to profitability.

 

[ModelNforNerd]

All good points. I hope their chassis engineers are better than Honda's (as far as eliminating resonant modes).

There are a lot of good things about Tesla's distribution model. One bad thing is demand elasticity is brittle to price. Dealers can soften a mis-priced product with negotiation, without hurting the brand (short term).

Tesla needs to keep the reference price high and the transaction price low to protect the brand and still fill the factory. One way would be to cover the tax credit - even after it expires. Who could complain?


That probably makes the most sense.

I am a shareholder as well as a reservation holder, and BOTH sides of me are perfectly fine with a $35,000 base price.

but as a shareholder, I am fairly certain Tesla would be at, or close to a loss on every car sold at $26,000, especially considering all the capital needed to get the production ramped up, and that cost has not yet been recouped. That's why "highly optioned" ie higher profit margin cars are rolling out first.

we're in a capitalist, free market society.

there are opportunities to negotiate pricing with a manufacturer/vendor, but thanks to supply and demand i can guarantee you Tesla won't be giving you a ~25% discount on the most eagerly anticipated vehicle in 50 years...because YOU think $26K is a fair price. That's not really how it works.

 

[cpa]

Sometimes incentives are abused, or gamed, which does not seem right. Is manufacturing and delivering as many cars as possible inside the credit window abusive?

The $7,500 federal income tax credit that phases out after 200,000 vehicles are delivered to US residents (as was stated earlier) was to place PHEVs and BEVs on a more even status with the indirect incentives that ICE cars receive. To me, this incentive is to jump start the mass adoption of BEVs. The putative "gamed" amount of the credit will be immaterial to the annual budget of the federal government. And this so-called gaming of the system could have other effects, viz., the taxpayers who benefit from it will likely reintroduce that money into society and not pay down debt or sock it away into a savings/retirement account. So, perhaps, the federal government will get some of that $7,500 back from increased taxes from other business through additional products and services purchased.

Finally, if I may introduce a straw man to your question: Congress has gamed the system since at least 1939. The alternative minimum tax hits ordinary middle-class taxpayers because they happen to live in a high-tax state like California or New York. Itemized deductions for taxpayers with AGI over certain thresholds are subject to a 3% haircut. The medical deduction floor recently increased from 7 1/2% of AGI to 10%. "Miscellaneous Itemized Deductions" are subject not only to AMT but also a 2% of AGI floor. Phaseouts abound for deductions like student loan interest paid and credits for educational expenses. Three years ago the dread Net Investment Income Tax and the Additional Medicare Tax were tacked onto our returns.

So, I would say unequivocally, "no." But that is just my bias.

 

[ucmndd]

I just typed in accord average transaction price and this was returned.

Ok. But if you're using that number to make an argument, you should probably understand it and make sure it's accurate/relevant.