Tesla Price Reductions Partly Offset By Government Tax Credits: Report

Tesla’s somewhat chaotic pricing strategy that played out this year in the United States and other parts of the world has helped it achieve record production and sales figures in the previous quarter. But in the US at least, it looks like a part of the price cuts is supported by the government, according to Reuters.

As per the source’s analysis based on the Austin-based company’s forecast and US sales, Tesla is taking full advantage of the battery tax credits instituted by the Inflation Reduction Act that kicked in this year, cashing in subsidies between $900 and $1,400 for every EV sold here in the second quarter. This is possible because Tesla is a domestic manufacturer of EV batteries.

Furthermore, the Elon Musk-led firm collects $600 per vehicle from selling regulatory offsets to other car manufacturers to meet emissions standards.

"Tesla's manufacturing tax credits should help to at least partially offset some of the price cuts Tesla had to implement to spur demand," Morningstar analyst Seth Goldstein said in an interview.

Analysts estimate that Tesla and its battery-making partner Panasonic will collect about $1.8 billion in production credits this year, while General Motors together with LG Energy Solution is expected to receive $480 million.

Chief Financial Officer Zach Kirkhorn said Tesla expects to book $150 million to $250 million in battery credits each quarter this year, after splitting the money with Panasonic.

"The value of credits this year will not be gigantic, but I think it could be gigantic,” said Elon Musk during the company’s earnings call in January. “We think it probably will be very significant in the future."

Reuters writes that Tesla is the biggest beneficiary of battery production credits under the IRA.

Currently, the brand’s most affordable vehicle – the rear-wheel drive Model 3 with an EPA-estimated range of 272 miles – has a starting price of $40,240 in the United States. The $7,500 IRA tax credit is also available for customers who buy a new Model 3 or Model Y, further reducing the lifetime cost of their purchase.

As always, we’d like to know what you think about this, so head over to the comments section below to give us your thoughts.

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