The first and most important thing in all economics is that incentives matter. If you can grasp that and also get to grips with the second, that there are always opportunity costs, then you’re going to be doing better than 90% of the economics profession itself. But do remember that incentives matter, incentives really, really, matter. Changes in tax law have stopped people from dying for example.
No, really, there was one of those natural experiments, when inheritance tax laws changed at the end of the year. There was a definite blip downwards in the death rate of people rich enough to pay inheritance tax at the end of the year, a corresponding one upwards again as the new, lower, rates came into effect in January. Incentives really, really, matter.
So, we’ve got an interesting little ripple in the incentives being faced by Tesla here.
You see, Tesla is quickly approaching the sale of its 200,000th car in the U.S., an event that will begin the unwinding of the $7,500 federal income tax credit for U.S. Tesla buyers. The way the federal tax credit rules are written makes this a somewhat tricky maneuver that can have large impact on Tesla’s business model if they get it even a little bit “wrong”. It’s almost rocket science…
Or as Coyote Blog explains it:
The Federal government provides a $7500 tax incentive for the buyers of electric cars. This is an attractive discount on a $100,000 Tesla Model S, but is a huge incentive for a $40,000-ish Tesla Model 3. However, there is a sunset for this incentive. It turns out it begins to phase out for a given company in the first quarter after that company sells its 200,000th eligible electric car (two quarters at $3750, two quarters at $1875, then zero).
By the end of the second quarter, Tesla will be approaching its 200,000th car. The numbers will likely be close enough that Tesla could likely easily manage to move the date for this event either just before or just after the end of the quarter. The obvious incentive for Tesla, if it is going to be this close, is to build inventory at the end of the quarter, but keep actual deliveries under 200,000, then go full speed ahead with deliveries in the third quarter to maximize the last of the full tax credit.
Again, incentives really, really, matter. And this one could be as much as half a billion (that’s $500,000,000) dollars. Note that’s half a billion dollars of your, taxpayers’, money too. I think it’s really pretty certain that the 200,000th car from Tesla is going to be delivered on, ooh, around and about 1 July this year and most certainly not before midnight on 30 June. But then that’s just me.
It won’t be into the fourth quarter because if it is they’ll be bust by then.
Am I a cynic or just aware of how really, really, important incentives are?