Tesla’s long strange taxpayer-subsidized trip could end in bankruptcy

Tesla is abandoning its dealerships and slashing prices to survive after its monthly sales tanked by 77 percent since the December 31 cut in federal all-electric car subsidies.

A review of public records show that Tesla’s $1 million investment in Washington D.C. lobbyists last year produced over $280 million in U.S. taxpayer-funded electric vehicle subsidies, including a $7,500 tax credit on every car it sold. But with Tesla reaching 200,000-unit limit, the federal tax credit fell to $3,750 as of January 1, will drop to $1,875 on July 1, and then be phased out as of December 31, 2019.

Tesla has received $1.3 billion of tax incentives from the State of Nevada for its battery Giga-Factory and $750 million in grants from the State of New York for its solar factory. Forty-two states also offer cash incentives including a high of $5,000 in Colorado and $2,500 in California. But subsidies in 10 states are set to expire on April 1, 2019.

It appeared that Tesla might be able to sustain it growth without corporate welfare when the company announced on January 30 that after 15 years of persistent losses, Tesla was profitable and cash flow positive due to sales doubling during the second half of 2018. With $718 million operating cash flow after capital spending in its 3rd quarter and $910 million in the 4th quarter, Tesla reported $3.8 billion in cash at yearend.

But the stock failed to rise, because the last paragraph of its earnings release warned that Tesla’s future growth “Risk Factor” was the “unavailability, reduction or elimination of government and economic incentives for electric vehicles and energy products.”

CEO Elon Musk on a February 28 investor call revealed that Tesla was forced to pay $920 million in cash to redeem a convertible bond. But Musk stated that with 82 percent of Tesla sales being completed online, the company could save $1 billion a year by dumping its 150 U.S. franchise showrooms and galleries. Musk trumpeted that the move would be used to slash prices and launch a bargain-priced $35,000 Tesla Model 3.

When an analyst argued that 23 U.S. states mandate state-licensed car dealers and Tesla was already being sued in Michigan for noncompliance, Musk replied:

“I'm sure the franchise dealers will try to franchise, or dealers will try to oppose us in some way but this would be a fundamental restraint of interstate commerce and violate constitution. So good luck with that.”

Musk explained that salespeople and test drives are now inappropriate, because Tesla customers buy a car online, can get a full-refunds for up to seven days or 1,000 miles of use.

With Yahoo Finance reporting that eight of the 31 Wall Street analysts following Tesla had drop coverage, the Tesla stock fell by 8 percent on March 1.

But the bad news got worse after the close of stock trading, when the authoritative InsideEV blog reported that Tesla sales had plunged from 32,600 in December to 7,650 in February, about a 77 percent decline.

President Ronald Reagan famously said, “Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” But with White House Economic Adviser Larry Kudlow recently declaring that the Trump administration is determined to end federal subsidies for electric vehicles and renewable energy, Tesla must now prove it can make a profit selling all-electric cars at prices customers are willing to pay for with their own money, or fail and file for bankruptcy.