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Will Tesla's sales plummet in 2019 with loss of tax credit and backlog?



Cars

published in December 23, 2018 |
by Michael Barnard

December 23, 2018 per Michael Barnard


There are two things that provided some wind under the wings of Tesla in 2018 that are changing in 2019: tax credits and pre-orders. Will reducing the US federal tax credit in 2019 reduce Tesla's sales? Will the pre-order backlog be filled and demand will dry up? That is not what the evidence suggests.

In the US, the Tesla Model 3 may decline from the 5th or 6th best-selling cars in total to only be in the top 10, but there is little evidence that there is a significant global demand shortage. And backlog and other factors indicate a very strong 2019 in the US and elsewhere.

Pre-orders

Let's talk about the backlog for a minute. Per Bloomberg, Tesla will reach total production of about 150,000 3 models by 2018. However, pre-orders were about 455,000 after cancellations and confirmed by more than 400,000 earlier this year by Tesla.

Tesla will have pre-orders for about 305,000 models 3 globally to meet in 2019.

About 50% of pre-orders were probably in the US. Most deliveries in 2018 occurred in the US. Assuming 227,000 pre-orders in the US and 120,000 deliveries in the US, this leaves 107,000 US pre-orders and 198,000 pre-orders outside the US.

Global demand

About 200,000 pre-orders are still in progress compared to the rest of the world, which does not receive the US federal tax credit. That's almost twice as much as US pre-orders. The Tesla Model 3 will still be widely sold globally, where there is much pent-up demand and few changes in the tax credit to inhibit sales.

Word-of-mouth demand

One thing that many Tesla critics do not understand or dislike or that they are underestimating is that people who run Teslas talk a lot about them, go through a lot of other people's tests, and put a lot of videos and testimonials on social networks. The number of senior people in the automotive industry who are converted after taking a test is great, and with so many Tesla Model 3 on the road, many more people are testing and raving about their cars to friends and acquaintances personally and on social media.

Tesla spends a small fraction of what other companies do on advertising. Most cars equivalent to the Tesla Model 3 have an advertising cost of $ 2,500 to $ 3,500 as part of their basic expense. In 2016, Tesla spent $ 6 per car. All Tesla that appeared on a TV show or movie were not a product placement, but a direction decision to display the vehicle for free. This is not true for BMW, Audi and the like, who spend a lot of money on advertising and product placement.

Part of the reason Tesla does not need to run ads is that it sold many cars early on to people with great talent, equipment, and skills who do it for free. Some Teslas fan ads are better than 90% of professionally made car ads.

Selling more Teslas not only caters to demand – it creates demand. That's true since the Tesla Model S and now it's truer now. There are still people who do not know what a Tesla is, but soon.

And all Tesla has to do is create a traditional ad and social media, and the press will explode to spread it globally. This will cost much less than $ 2,500 per car. Tesla could increase its advertising budget by an order of magnitude to create demand and still be spending far less than its competitors.

Tax Credit Court

The tax credit cut is just a US thing and only federal credit. And it's a reduction from $ 7,500 to $ 3,750 in the first six months of 2019, and then to $ 1,875 in the last six months of 2019.

Tesla has slowly introduced the lowest price of the Tesla Model 3s. The average price point for sales set up at the beginning was over $ 50,000. The current base price is $ 45,000. The target base price for 2019 is $ 35,000 and is expected to be available in the first six months of 2019.

This means that many people with pre-orders will still receive a tax credit in the Tesla Model 3 until 2019, and they will end up being able to spend the same amount of money or less than the people they bought in 2018.

And this does not count jurisdictions like California, which is considering doubling its tax credit.

Do Tax Credit Changes Impact Sales? Yes, the initial purchase price is still a tag shock problem, despite the lower operating costs. But the cuts are cabled and balanced by price cuts. There will probably be a few more pre-orders, but many people on the list are also people who pay close attention to tax credit status and have decided in one way or another.

Risks for all US federal tax credits

While Tesla is the first across the board to the milestone of 200,000 electric cars sold in the US. GM is right behind it and could take six months, leaving Tesla with fewer credit reductions for Bolt and other electrified models. Others are backward, so they would expect to have the benefit for years.

But Trump and his government have clearly signaled that they are meeting the fossil fuel industry's desire to deactivate all electric vehicle tax credits. This may happen as early as 2020.

Meanwhile, GM, Tesla and Nissan are making great efforts to raise 200,000 barrels as well as some members of Congress.

Who will win? It's hard to say but the odds of Trump and crew picking all over the EVs are greater than the alternative, especially now that GM has shut down US factories and made Trump seem even more of an idiot than Harley-Davidson did.

All US citizens who want a Tesla and a tax credit are likely to be buying in 2019. The 107,000 orders are just a little less than Tesla shipped in the US in 2018. They plan to hit 10,000 models 3 a week by 2019. They already are at or above 6,000 per week. Assuming they have an average of 8,000 per week until 2018, that means more than 400,000 cars.

Comparison with other suppliers

Tesla already sells more cars in the world than either Porsche or Jaguar. By 2019, you can overtake Volvo. Tesla has been the No. 4, No. 5 or No. 6 best-selling car (of any class) in the US in the 4th quarter of 2018.

The Tesla Model 3 Performance is already seeing very positive comparisons with the BMW M3 to M5 models, and the BMW M3 can no longer be sold in the EU because BMW has failed to meet the European Union's emissions. The company is trying to migrate to the M4 but has a lower price at a higher price.

People continue to make the mistake of thinking that Tesla is competing only with electric bids from other suppliers. No, it is supercompetent to internal combustion cars from other suppliers in every category it is in.

Next model creates buzz and demand

The Tesla Model Y small crossover SUV, based on the Tesla Model 3 platform, has a launch date scheduled for March 2019. Tesla will also open the pre-sale book at that point with a 2020 production target.

Sedan sales were falling in the US, except for Tesla. Crossover and SUV sales are skyrocketing. Tesla has been counter-trend with its form factor and in 2019 will be in trend. Demand will be higher for Model Y than for Model 3, so all preorder buzz will occur again.

Tesla is the only car company that consistently gets big pre-sales cash for its future models. You have to go back to Mercedes in the 1980s to find any vehicle with more than a fraction of the pre-built demand.

And then there's the Tesla Pickup, another category the US loves and the rest of the world scratches its head. Musk recently suggested an accelerated timeline for this, working with existing Daimler components.

Net-net

No, Tesla will not see its sales plummet in 2019. On the contrary. It is very easy to see that demand will only increase in the US and globally by 2019.


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Tag: California, Chevy Bolt, Elon Musk, EV, GM, Nissan, Tax Credits, Tesla, Tesla Model 3, Tesla Model 3 reserves, Tesla Model 3 sales, Tesla Model Y, Tesla Pickup, Tesla tax credit, US tax credit , USA


About the author

Michael Barnard is chief strategist at TFIE Strategy Inc. He works with startups, existing companies and investors to identify opportunities for significant growth in financial results and costs in our rapidly changing world. He is the editor of The Future is Electric, a publication of Medium. He regularly publishes low-carbon technology and policy reviews at sites like Newsweek, Slate, Forbes, Huffington Post, Quartz, CleanTechnica and RenewEconomy, and his work is regularly included in textbooks. Third-party articles on their reviews and interviews have been posted on dozens of news sites around the world and have reached number one on Reddit Science. Much of his work stems from Quora.com, where Mike is the Top Writer annually since 2012. He is available for advice, lectures, and positions on the Board.




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