Tesla: Incentives Matter, And So Does Trust

Jul. 11, 2017 11:48 AM ETTesla, Inc. (TSLA)485 Comments
Montana Skeptic profile picture
Montana Skeptic


  • Tesla’s California deliveries just dipped. Are California's restrictions on subsidies the reason?
  • Toni Sacconaghi has some second thoughts about his former favorite firm.
  • Production glitches, plummeting cars in transit number, weak demand, alarming inventory build. But the biggest problem: an erosion of trust.
  • We’ll update our TFQ and PBNS graphs, take a look at plunging EPS forecasts, reflect on the first Model 3, and remember Kimbal.
  • We'll close by opening debate on this proposition: Resolved, Tesla would be better off if Elon Musk stepped aside.

The Curious Case Of California Income Caps

In a recent article, I challenged Elon Musk’s claim that Tesla (NASDAQ:NASDAQ:TSLA) has succeeded despite subsidies. I contended Tesla is addicted to subsidies, and showed how demand for Tesla cars all but evaporated when subsidies disappeared in the State of George, and then Denmark, and now Hong Kong.

Elon Musk has it exactly backwards. Tesla continues to exist only because of subsidies, which take many forms: federal income tax credits, state tax credits, transferable tax credits, tax abatements, free land, discount electrical rates, ZEV and other regulatory credits, HOV lane stickers, tax laws that penalize Tesla competitors, etc.

We may now have another example of how crucial subsidies are to Tesla, and it’s in Tesla’s most important market: the State of California. Here’s a Reuters report based on data from the information and analytics firm, IHS Markit.

IHS reported April Tesla registrations fell to 2,177 from 2,867 in California. Nationally they dropped nearly 10 percent to 3,911 from 4,334. For the first four months, California registrations rose to 6,926 from 5,804 and U.S. registrations rose to 15,288 from 10,937.

Before Tesla longs take heart in the four-month comparisons, they should consider that almost no Model X cars were delivered in the first four months of 2016.

How to explain the drop-off in April registrations? No doubt there is some Model 3 cannibalization going on. But take a look at this chart from Hedgeye Risk Management (using data from the California Air Resources Board, and reprinted here with permission):

What we see, obviously, are dropping California registrations which are coincident with two successive income caps on California’s $2,500 EV rebate.

Is this mere coincidence? Possibly. It’s worth watching what happens in Q3 to see whether the trend continues. (I’m assuming that the number of Model 3 cars

This article was written by

Montana Skeptic profile picture
I have a J.D. degree from Yale Law School, practiced for 30 years as a trial lawyer in commercial cases, and in the decade that followed managed a $1B+ portfolio for a family office. I have recently retired and am free to write about whatever I want. And so I will.The fellow in my icon is Galileo Galilei, who famously said: Eppur si muove.I say, less famously: Time is the only reliable solvent of folly.

Disclosure: I am/we are short TSLA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I use long-dated options to short Tesla

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