Musk's Math on Model 3 Affordability Muddled by GOP Tax BillBy , , and
U.S. House proposes repeal amid cheaper Model 3’s rocky debut
Carmaker has delayed production goals on gigafactory glitches
Tesla Inc.’s bungled launch of its cheapest model yet could prove even more costly now that U.S. Republicans are seeking to cut electric-vehicle tax credits crucial to driving demand for cleaner cars.
The tax bill introduced Thursday by the House Ways and Means Committee would end the credits of as much as $7,500 given to buyers of electric vehicles. The proposed repeal poses risk to the more mainstream consumers Chief Executive Officer Elon Musk’s is pursuing with the Model 3 sedan, which starts at $35,000.
The base version of the car that’s falling behind production schedules costs roughly half as much as Tesla’s cheapest Model S sedan, which along with the Model X crossover can reach price tags of more than $100,000. Even before the repeal attempt, the risk was rising that more Model 3 reservation holders would miss out on the full tax credit because of the manufacturing challenges Musk described Wednesday while reporting a record quarterly loss.
Tesla shares extended declines after details of the tax bill emerged, plunging as much as 8.9 percent. The stock finished down 6.8 percent to $299.26, the lowest close since May 4.
The less-expensive Model 3 -- and the credits that make it even more affordable to more households -- are pivotal to Musk’s mission for electric cars to be accepted by the masses. The U.S. caps the credits for each car manufacturer at 200,000 units, a limit no automaker has reached thus far. Tesla sold about 127,000 Model S sedans and Model X sport utility vehicles through August, according to researcher IHS Markit.
Musk said Wednesday that Tesla wouldn’t reach his target to produce 5,000 units per week of its Model 3 sedan until sometime in March, three months later than planned. He also shied away from reaffirming a forecast made in August that the company would build 10,000 Model 3 cars per week sometime in 2018.
It’ll be “interesting to see churn on the deposit base of Model 3 holders, especially as the timing to receive the car is elongated,” Jeffrey Osborne, a Cowen & Co. analyst, wrote in a note to clients. “What does time and the lack of a tax credit do to demand elasticity?”
— With assistance by David Welch