It's Confirmed: Without Government Subsidies, Tesla Sales Implode

According to the latest data from the European Automobile Manufacturers Association (ACEA), sales of Electrically Chargeable Vehicles (which include plug-in hybrids) in Q1 of 2017 were brisk across much of Europe: they rose by 80% Y/Y in eco-friendly Sweden, 78% in Germany, just over 40% in Belgium and grew by roughly 30% across the European Union... but not in Denmark: here sales cratered by over 60% for one simple reason: the government phased out taxpayer subsidies.

As Bloomberg writes, and as Elon Musk knows all too well, the results confirm that "clean-energy vehicles aren’t attractive enough to compete without some form of taxpayer-backed subsidy."

The Denmark case study is emblematic of where the tech/cost curve for clean energy vehicles currently stands, and why for "green" pioneers the continued generosity of governments around the globe is of absolutely critical importance, and also why Trump's recent withdrawal from the Paris Climate Treaty is nothing short of a business model death threat.

To be sure, Denmark's infatuation with green cars is well-known: the country's bicycle-loving people bought 5,298 of them in 2015, more than double the amount sold that year in Italy, which has a population more than 10 times the size of Denmark's. However, those phenomenal sales figures had as much to do with price and convenience as with environmental concerns: electric car dealers were for a long time spared the jaw-dropping import tax of 180 percent that Denmark applies on vehicles fueled by a traditional combustion engine.

Then, in the fall of 2015, everything changed: that's when the government of Prime Minister Lars Lokke Rasmussen announced the progressive phasing out of tax breaks on electric cars, citing budget constraints and the desire to level the playing field. In retrospect the "leveling" effectively nuked the market: the chart below shows the total collapse in sales following the elimination of subsidies.

Nobody was hurt more than Tesla: the company, whose sales were skyrocketing at the time, lobbied against the move, with CEO Musk warning during a visit to Copenhagen that sales would be hit. It wasn't clear if the warning was targeting the government, the people of Denmark, or his own bank account and shareholders, but he was absolutely correct: in 2015 Tesla sold a total of 2,738 cars in Denmark. In 2016 the number dropped by 94% to just 176 units.

The new tax regime "completely killed the market," Laerke Flader, head of the Danish Electric Car Alliance, told Bloomberg.

The punchline: "price really matters." And, by extension, taxpayer subsidies.

What happened next is probably obvious. As Bloomberg explains, while the government’s original plans anticipated to phase out tax breaks from 2016 to 2020, when they would be treated in the same way as fossil fuel-powered cars, on April 18, having taken note of the drop in sales, the government decided to change the rules.

"It’s no secret electrical vehicle sales have been below what we expected a year and a half ago," Tax Minister Karsten Lauritzen said in a statement. "The agreed phase-in has turned out to be hard and that likely halted sales."

 

The new rules mean the transition to a post-subsidy era has been postponed until at least 5,000 new electric cars are sold over the 2016-2018 period. Tax breaks will in any case be progressively eliminated as of 2019, regardless of sales numbers. The plan envisages a 40 percent registration tax minus a 10,000 kroner ($1,500) deduction in 2019, with the tax rising to 65 percent in 2021, 90 percent in 2021 and 100 percent in 2022.

It was unclear if Musk lobbying was behind the parial U-turn, however any hopes for a prompt rebound in sales appear to have been chilled by the Danish government's decision which has "caused confusion, prompting many potential customers to either postpone or desist from their purchases." Meanwhile in generous next door neighbor, Sweden, sales of low or zero emission cars continue to boom thanks to a wide range of subsidies, including a five-year tax break and a 40,000 kronor ($4,600) purchase premium.

According to Flader of the Danish Electric Car Alliance, the Danish electric car industry "doesn't want to invest in a market that may not be there next year. They'd rather invest where conditions are better and predictable long-term." And that means lots and lots of guaranteed taxpayer subsidies. While Flader anticipates a rebound in sales as soon as dealerships are allowed to advertise tax-free prices again, this time the country's raging enthusiasm for all things "green" may be far more muted.

As for Tesla, and its all time high price, what the Danish case study showed just how much of that market cap, which on Friday surpassed BMW, is thanks to government generosity. Take the subsidies away, and sales crash by over 90%.

Should the rest of the world follow in Denmark's example, the same thing would happen to Tesla's market cap, which at last check amount to just over $800,000 per car sold.

Comments

greenskeeper carl Life of Illusion Sun, 06/11/2017 - 18:15 Permalink

Yep, Mr. Market will decide on its own when these things are economically viable. That day will probably com, but it isn't here yet. I'd love to have a roof full of solar panels, but even with massive govt subsidies, the time where a lack of power bills could pay for the initial cost is longer than I anticipate living in my current house, so I don't. And this is yet another place trump is disappointing me. He could end this nonsense quickly if he wanted to. I, for one, am sick to death of having our tax dollars used to help buy rich people expensive and trendy toys, which is all Tesla's cars amount to.

In reply to by Life of Illusion

booboo greenskeeper carl Sun, 06/11/2017 - 20:07 Permalink

"love to have a roof full of solar panels, but even with massive govt subsidies, the time where a lack of power bills could pay for the initial cost is longer than I anticipate living in my current house, so I don't."
The very reason that it's not feasible is because of government subsidies, get the government out of propping up up prices and normal folks could afford them.

In reply to by greenskeeper carl

not dead yet booboo Mon, 06/12/2017 - 02:11 Permalink

The government isn't propping up prices, it's propping up a market that would be dead if not for the taxpayers. If the government is propping up prices that would mean solar companies would be making money hand over fist and more companies entering the market every day to get in on the gravy train. The opposite is happening. It's the rare solar company that makes money, if any of them do, and they are going out of business all over the world due to the Chinese selling panels well below cost. If the Chinese are losing their shirts selling below cost using your logic if governments stopped tax breaks and subsidies the Chinese could sell their stuff for even cheaper and make a profit. Even the installers installing those cheap panels are dropping like flies with more on the way out the door.The State of New York built a free factory for Solar City to enter the panel making business. Even Musk woke up to the fact that the plant could not compete with the Chinese so now Tesla and Panasonic are going to make batteries there. Until Tesla bought Solar City the big money bet was that Solar City and their money losing by the bucketfull operation would be in bankruptcy by now.

In reply to by booboo

MEFOBILLS greenskeeper carl Sun, 06/11/2017 - 20:54 Permalink

Yep, Mr. Market will decide on its ownMarkets are not God.There are three kinds of markets, and each has different rules and laws.  Furthermore, Capitalism sucks at pricing in externalities. Example: third world countries tolerate pollution, therefore that external cost is pushed off onto the environment.  Whereas in more heavily regulated countries, clean up costs of pollution are captured in price of goods.In the absence of civilizational planning, it is banks and finance sector that plan instead.However, I don't recall being asked if it was OK for tax subsidies that Tesla takes, in what effectively is welfare for the rich.  The constitution requires taxes to be apportioned (not income taxes).Article I, Section 2 of the Constitution requires that direct taxes be apportioned among the states by population. The Founders defined “direct tax” broadly, usually using the term as a synonym for “internal tax” and encompassing all taxes except for customs duties. The Founders expected Congress to use direct taxes

In reply to by greenskeeper carl

not dead yet Peak Finance Mon, 06/12/2017 - 02:28 Permalink

How did the government kill bio diesel. Enlighten us. More like there isn't enough used french fry oil to make a market. One problem that killed the bio diesel market is that the engines would eventually just stop running. To get around this the trucking companies would have a tank of fossil diesel which they would power the engine with shortly before shutdown to clean out the system. There are other ways of making bio diesel and bio jet fuel and they aren't cheap. The biggest buyer of bio jet fuel is the US military with some claiming they are paying upwards of a hundred bucks a gallon for bio jet fuel. If anything by it's purchases at outrageaous prices the government is keeping the market alive that would otherwise be dead.Kinda like the bullshit claim GM killed the electric car. Lots of media hand wringing selling fiction. GM killed their electric car not anyone elses or the market for them, which their wasn't except for a few kooks. There was no market for electrics at the time and the EV1 had nothing in common with other models so the car would be hugely expensive to build. The car was also chock full of heavy lead acid batteries which was the only choice at the time.

In reply to by Peak Finance

Muddy1 Life of Illusion Sun, 06/11/2017 - 20:19 Permalink

Coal, oil, and natural gas pay a TAX which is used to subsidize the wind and solar industry.  Of course, taxpayers pay taxes to provide subsidies as well.  Subsidies are a great form oof wealth redistribution from one industry, or individual to another industry or individual.  The user that receives the subsidy thanks the ever benevolent government not realizing that someone else was screwed so they can receive theor subsidy.  Talk about a shell game.  What a farce.  BTW, you who adore wind farms, they wouldn't exist woithout coke coal to manufacture the steel, and crude oil to manufacture the towers, and copper mines for the wiring......

In reply to by Life of Illusion

Lumberjack Life of Illusion Sun, 06/11/2017 - 21:27 Permalink

This weeks edition of Burning Turbines:

http://www.ktxs.com/news/wind-turbine-catches-fire-in-texas-panhandle/5…

http://www.desmoinesregister.com/story/money/agriculture/2017/06/08/win…

http://nawindpower.com/nextera-investigates-fire-iowa-wind-project

----

http://www.cbc.ca/beta/news/canada/nova-scotia/forgotten-washer-heard-i…

http://m.republicanherald.com/news/professor-conducts-brush-fire-survey…

On May 18, a brush fire burned 284 acres of woodland in Mahanoy Township near Locust Ridge Wind Farm, Novitsky said. That week, Saladyga was in the county researching fires.

“It was a big 280-acre fire on Locust Ridge right under the wind turbines in the exact spot where I sampled the day previous. That would have been just to the west of Brandonville Road near 339,” Saladyga said Tuesday.

In reply to by Life of Illusion

Offthebeach Jubal Early Sun, 06/11/2017 - 18:33 Permalink

How'd you come up with 8 hour charge?   In at 9:15, out at 2:45 is only 6.5 hours?I think the gov employees will have to union contract some sort of compensation for the hardship of being forced to drive, let alone physically recharge a Tesla.  Not to mention another $500/mo for home charging, which is mandated work,  and here in the People's Republik a work detail is a minimum 4 hours.  So on top of the 8 hours of public servitude our government heroes do, God bless them, then there is the daily 4 hours of overtime.  Unless they get hurt plugging in the Tesla, and now we are talking full disability, for life, at age 28.  Sad, but industrial accidents happen.   

In reply to by Jubal Early