Of Tesla and Tax Breaks!!

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Came across a WSJ article by Holman Jenkins who is not happy that Tesla customers are getting tax rebates. We see articles like this pop up every now and then. I am not an expert, but can’t help thinking “Seriously?”

I don’t know if this is deliberate ignorance or lack of knowledge. The truth is the whole oil supply chain is extremely costly and extremely delicate affair. American taxpayers pay through their nose to keep this supply chain intact and running. It’ just we have never seen a world where oil is not necessary and we are desensitized to all the costs we are paying.

To put it in numbers. The Model S has federal tax rebate of 7500 $ which expires when 200,000 Teslas are sold. After that the rebate goes down to half of that for a few months and then 25% of that and then vanishes entirely in one year.

7500 x 200,000 = 1.5 Billion USD tax break value till phase out begins. Say Tesla sold a hell lot more vehicles during the phase out period and was able to get another 1.5Billion USD incentives to its customers. So that’s total 3 Billion USD for a company in its lifetime.

3 Billion USD. Certainly a good chunk of money. But that’s it. The loan that was given to Tesla was paid back with interest, years ahead of schedule, with prepayment penalty.

And remember, this money does not go to Tesla. It’s just what taxpayers keep.

To put it in perspective, consider the cost of  G W Bush Tax breaks. ‘1.4 Trillion (with a T) reduction in revenue’ is the most conservative estimates. Higher side estimates go as high as 3.3 Trillion dollars.

That sounds too much guesswork and maths? Need some concrete numbers? How about the bailouts? The the first installment to just one company AIG received was 164 billion USD under multi trillion dollar TARP program.

Coming back to industry specific “favors” by the government. Here are the three favors given by taxpayers solely to the oil and gas industry.

1. Seen that deserted gas station around the corner? Such deserted gas stations are scattered all around the towns and cities in USA? Those gas stations are deserted because the underground tanks developed leaks and contaminated the areas around. If someone were to buy it and make it operational, they need to spend money cleaning the underground first. No businessman wants to take that risk because that cleaning could explode in millions of dollars. What happens to such gas stations in long run? Eventually they get cleaned with taxpayer’s money. Every year USA taxpayers incur hundreds of millions of dollars in clean up such gas stations. Here is an article that states the costs to just one state, New York state run into approximately 200 million USD per year.
2. Remember the Strategic Petroleum Reserves? These are petroleum stockpiles permanently maintained perpetually as a safety measure against any major oil supply disruption? The amount of oil at the moment in SPR is close to 700 mil barrels. At present value of approx 50 USD per barrel, that’s 35 billion USD perpetually stuck underground. If we had electric cars, we could free some or all of that money for better use.
3. Have you heard about the USA Military base in Tanzania? No? It’s because there isn’t one. But there is one in Kuwait, and Saudi Arabia, and Qatar. Tanzania does not have oil. Kuwait and Saudi Arabia have. There is a huge cost of operations of these bases, whose sole purpose is to keep oil flowing smoothly. It’s hard to get a good idea of those expenses because everything is secret. But the figure is definitely going to be in Billions of USD.

And we have not talked about cleanup costs of oil spills, or healthcare costs due to pollution, or human costs of wars launched for oils.

I am a taxpayer and I would much rather have my money diverted to a company that might bring a positive disruption than anything else.