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> Tax credits seem to make sense for an EV company?

That's one of the things that I've found odd. A lot of people that very strongly support things like tax credits for EV cars, in order to fight climate change, will then turn around and talk about how terrible they are when they're actually used, such as in the article here. A lot of times people don't seem to have a consistent view of what they actually want, and will be outraged by the results of policies they themselves supported.

One can only imagine the headlines if these environmental credits were cancelled ("anti-environmental actions are going to bring about climate change and doom us all").

I may be the only one, but I was under the impression this whole time that all EV tax credits were for consumers who buy EVs, not companies who sell them.

It amounts to the same thing, no?

Definitely not, no. Credits on profits incentivize short term profit taking, while credits in products incentivize number of units shipped. The second is much better for society. Think about it from the perspective of a company deciding between selling low margin cheap EVs in the short term before process efficiencies kick in, or selling expensive EVs now.

The idea is to stimulate both supply and demand. Credits for consumer only stimulate demand which may not be enough to compel literally hundreds of billions of dollars worth of CapEx, not to mention opportunity cost.

Consumer credits stimulate demand by increasing the cost consumers are willing to pay for a vehicle, shifting the demand curve, and greatly increasing the profitability in selling cars, provided it is done at scale. It can most definitely compell hundreds of billions of dollars of CapEx, and in many ways it's more effective than a tax break, because it will reduce losses if the venture never ends up being profitable (unlike a tax break which will only be worth it if the venture is eventually profitable, so there is less risk), and if it provides future market share through investments in the low end, especially in international competition, it can end up spurning more CapEx as it makes the more capital-intensive strategy more viable.

It isn't a tax credit for making profits. It's a tax credit for making EVs. The reason there are credits for both consumers and manufacturers is that the manufacturer credits provide an incentive to build EV factories in the US, even if some of the cars are for export.

But we don't care about more profits, we care about more EVs. If you want to create an incentive to make EVs that are exported then you can make one, for example by subsidizing production equipment or by providing a per-unit sold refundable tax credit.

> But we don't care about more profits, we care about more EVs.

Which is why the tax credit is for making EVs.

you're just circling back to the GP's last comment, without refuting that comment.

>Credits on profits incentivize short term profit taking, while credits in products incentivize number of units shipped. The second is much better for society.

There aren't credits on profits. There are credits for making EVs (which the manufacturers get) and for buying EVs (which the customers get).

They are, by definition, credits on profits made from selling EVs, and not from selling EVs. If Tesla made EVs without making a profit they wouldn't have received a penny.

They're credits against taxes. Since corporate income taxes are on profits, that implies that there would have to be some profits in order for there to be taxes to take the credit against, but that doesn't make them credits on profits. If they had made more profits without making more EVs, they wouldn't have gotten more credits. If they had made more profits but offset the taxes with some other credits then they might not have been able to use these, not because they didn't make enough profits but because they didn't pay enough taxes.

And this works the same for the consumer EV credits; you can't get them unless you were paying that much in taxes.

If your point is that non-refundable credits are stupid, yes. All credits should be refundable. But that doesn't have anything to do with whether they're credits for the manufacturer or the consumer.

Making the consumer credits non-refundable is actually worse, especially for the credits on used EVs. Because then you can't get the credit if you're unemployed or a student or otherwise don't make enough money to be paying the value of the EV credit in taxes, so it becomes a tax credit for the affluent that the poor aren't eligible for.

There were vehicle sourcing credits in the Inflation Reduction Act, which are granted per kWh of battery with sufficient domestic mineral content. Was $4,000/vehicle if I recall.

lol! No no, this America! Automakers are actually buying and selling EV credits to eachother. Tesla often would have been in a loss position and possibly bankrupt if the big 3 auto makers weren’t buying credits from Tesla so they could get their fleet averages down and keep making trucks and SUVs.

They are, but typically what automakers will do is assume the tax credit on your behalf and just give you $7,500 off the price of your car up front. They will then collect $7,500 come tax day.

That's a win-win all around, the consumer saves $7,500 off the list price up front, they have to finance less etc, and Tesla gets a tax credit.

Those are different credits. There are (if they didn't expire yet, don't remember) federal tax credits for buyers, but separate system is for manufacturers where if you make cars, you need to make some of them EV, or buy credits from somebody who does (e.g. Tesla).

In reality, what is more damaging for the environment?

Replacing a 2019 Toyota Rav4 with a 2025 Tesla in North America, or.....

Replacing a 1985 VW Jetta with a 2019 Toyota Rav4 in India?

I see YouTube videos all the time where people in third world countries are using turn of the century hit-and-miss engines to power things like water pumps or machine tools. These countries are leaking countless gallons of oil and fuel into the ground using engines and equipment that are over 100 years old when Habor Freight sells brand new engines for $150.

To me, the ease with which you can sell a new car to a yuppy in the USA (who doesn't even need a new car) is baffling. Dollar for dollar, there is so much low hanging fruit. Don't get me wrong, I want to see first world countries lead the charge, but yuppys need to be more realistic in their "environmental" decision making. There is nothing frugal or environmental about having a 20" touch screen in the dash, or replacing your >5 year old car.

The American Rav4 is probably doing a lot more miles/year than the Indian Jetta. So it'll emit a lot more CO2.

Every car that is sold retires an old one. And the one it retires will be the least valuable.

This happens becauase the person who buys a new car sells their old one to someone else, who sells their old one to someone else, and so on down the chain.

The oldest cars from America go to other cheaper markets replacing the cars in use there.

I don't think anyone in India is buying old American cars

Especially since India drives on the left, and hence uses right-hand drive vehicles. American vehicles are almost all left-hand drive, which are illegal to drive in India – you'd either have to pay for an expensive conversion, or manage to get a rare legal exemption (reserved for historical vehicles, foreign diplomats and official visitors, and other such special cases) [0]

You can import used cars into India, but you'd generally be bringing them in from a left-hand drive market such as Japan, Australia or the UK. Plus, Indian law says import used cars have to be less than three years old, because India doesn't want to become a dumping ground for other countries old vehicles (which also undermines their local car manufacturing sector) [1]

[0] https://auto.hindustantimes.com/auto/cars/g20-summit-can-one...

[1] https://www.acko.com/car-guide/how-to-import-foreign-cars-to...

Does this actually happen?

With some exceptions, there’s going to be a point where a used car is not worth the trouble to ship it somewhere.

And Americans love their huge ass cars. I can’t see many cheaper markets wanting to use an American car, just for the fuel cost alone.

I bet the cars get trashed for scrap or parts.

> Does this actually happen?

Absolutely it does. If you live near the Mexican border of the US, it’s extremely common to see older cars being towed headed south, presumably to Mexico. It’s not particularly expensive to drive them down to the border.

> I bet the cars get trashed for scrap or parts.

Only the least valuable and oldest ones that other countries don’t work. That means you’re overall moving up the modernness of the fleet. Presumably with better fuel economy, lower emissions, and fewer problems.

> presumably to Mexico.

Also to Belize and other parts of Central and South America. They don't all stop in Mexico.

True enough. I suspect many aren’t going to South America since you can’t drive them there… but you can certainly drive all the way to Panama. If you want to head past Panama seems like it’d be easier to ship them directly from the US to their final destination.

>Every car that is sold retires an old one.

I'm about to purchase my first car, a Tesla! Whose vehicle will be retired by my purchase?

Someone who has already bought their last car and it ends up sitting in a garage forever.

> The oldest cars from America go to other cheaper markets replacing the cars in use there.

Why are you assuming other cars are being replaced? Those other markets are not at saturation. What is being replaced could very well be a bicycle.

The efficiency improvements are generally going to start in the more developed countries and eventually reach elsewhere. But this is less certain with EVs.

> These countries are leaking countless gallons of oil and fuel into the ground using engines and equipment that are over 100 years old

Pre-1925 engines must be a minuscule fraction of all engines in active use, even in poor countries.

"India is on track to become the largest EV market by 2030, with rise in investment over the next 8-10 years."

https://www.ibef.org/industry/electric-vehicle

I'd imagine that they are different people. Arguing with crowds can be a bit frustrating because the crowd will argue strongly in favour of something, then the winds shift and the crowd argues strongly against it without anyone really changing their minds. Ditto strongly believing contradictory things.

If we want to talk specifically about social media sites like HN, the conversation is really steered by the up/down votes rather than the people in the threads. Every possible perspective tends to get a comment then the gestalt decides which ones they like. The upvoters anonymous and the downvoters are often ... a weird crew with motives that are often hard to divine.

>I'd imagine that they are different people. Arguing with crowds can be a bit frustrating because the crowd will argue strongly in favour of something, then the winds shift and the crowd argues strongly against it without anyone really changing their minds. Ditto strongly believing contradictory things.

This is a good point. It took me a while to realize this. It is like "winds" are magnified and out shout the prior wind.

A similair concept politically is when some people want to punnish you for some other people holding it wrong or something.

I think the point of the accelerated depreciation is roughly equivalent to taking a loan with 0% interest. It's allegedly zero-sum with respect to net income. They get to claim this income later, with various benefits, e.g. more cash on hand in the intervening period, inflation makes that "debt" less valuable later, and it's possible that the corporate tax rate will be lower in the future, so the tax rate on "this year's" income is lower.

That makes sense, thanks. Inflation makes debt cheaper to pay off in the future and transitioning into a right-leaning government hints at corporate tax rates being more favorable in the future.

I guess the caveat here is that it can be adversarial to short-term investors since the businesses assets are becoming worth less more quickly which gives less time for income to offset those expenses. That makes the company's expense:value ratio look worse.

I don't think the answer is to say that everyone needs to follow a linear depreciation curve. Fancy, new tech depreciates much more quickly in its early years than well-established tech. So the basic concept seems to make sense in some applications and I would assume Tesla has some pretty fancy tech that they're investing in.

On the other hand, this area feels a little fishy to me because a more accelerated curve limits the ability for a government to effectively apply taxation to companies during their administration. If companies were able to instantaneously depreciate their assets for 100%, assuming investors were OK with it, they'd just do that whenever the political winds blew in their favor for maximum savings.

It doesn't seem like there's any perfect, one size fits all solution. Accelerated depreciation seems fine, and can reflect the reality of investing in certain tech, but can also be abused by giving companies the ability to cash in when the time is right.

The way depreciation works is that a company buys something, like a computer, which is a business expense. Then at the end of the year, you're out the $2000 that you paid, but you still have the computer, which is now a used device and is now a year older. So it's no longer worth $2000 but it's not worth nothing. Suppose it loses $500 in value. Then the book value of the asset becomes $1500 and you have depreciation expense of $500. That depreciation is the deduction for this year, they don't let you deduct the whole $2000 the year you bought it. Next year you can deduct some more, until the book value of the asset is scrap or you dispose of it or sell it.

Estimating how much value it lost is subjective so the government specifies what percent of the value you can deduct each year. Straight line deprecation is when the depreciation expense is the same percentage of the original cost every year. Accelerated depreciation is when the early years use a higher percentage than the later years. In both cases the total amount of depreciation is the same but accelerated depreciation is often a better approximation for actual value. The true market value of a piece of equipment will decline more in absolute dollars in the first year than the fourth year. It's also what businesses typically pick when given the choice, because a bigger deduction now is better than a bigger deduction later.

It's not any kind of tax dodge at all, it's just an accounting method in the tax code.

Tesla's a crypto company. 25% of Tesla's earnings last quarter were crypto:

https://cointelegraph.com/news/tesla-600-million-bitcoin-gai...

That's multiple years of increase being accounted for all at once.

So you're saying 25% of Tesla's earnings last quarter wasn't even earned last quarter and wasn't related to anything Tesla as business did?

Yeah, pretty much. The value increase of Tesla's bitcoins since 2021/2022 was being ignored for accounting purposes until just now.

It was due to the change in IRS guidance on how to account for increases in value in cryptocurrency -- in short, treating it closer to a forex exchange (where the value is continually accounted) instead of a securities transaction (where the value is accrued when sold). The value then had to be retroactively accounted for.

When you spend money on manufacturing and equipment, a company does not get to write off the full amount against their taxes when they buy it - they may have to spread it over a period of useful life of that equipment.

Unfortunately, accounting is full of concepts like this.

Ideas which conceptually make accounting “better reflect” the real word, but in reality add a lot of complexity for very little benefit. Getting rid of accrual accounting and simply allowing full expensing of asset purchases with losses to carry over to the next tax period would save everyone a lot of headaches, for a negligible reduction in government tax revenue.

It would also make a lot of accountants redundant, which is probably the main reason they oppose streamlining accounting practices.

> The article doesn't address the other $1.5B

$2.3 billion was the income, not the tax bill.

Presumably $500M accelerated depreciation and $300M of tax credits covered the effective tax bill on $2.3B income.

How would $800M in deductions cover $2.3B income to the tune of a 0% tax rate? Wouldn't they still be on the hook to pay taxes on $1.5B or is it not that simple?

EDIT: Oh, apparently tax credits aren't pre-tax. So if their tax liabilities on $2.3B were $300M then they'd owe $0.

> Oh, apparently tax credits aren't pre-tax.

Yes, tax credits reduce the tax bill, not the taxable income.

>I think the real thing here is the weaponization of EV tax credits as some sort of boogeyman.

It's a hot topic right now since Trump just ended the EV credits. Which you'd think Musk would want to keep.

And beyond this article, Musk has "quiet quit" on Tesla as a car company, based on his earning calls. They said little about cars and instead deflected the hype to "AI robots" in 2027. It's all just so weird.

I think the pivot makes sense. EV credit subsidies are drying up, let's pivot to subsidies for AI developments which the new administration may enable in order to maintain an image of superiority over foreign adversaries.

I don't think he's quiet quit but interest rates are high and he's realized there's way more money in robots and self driving.

The goal of a good CEO is to be forward thinking and that's what he's doing. Tesla continues to grow on many fronts and is still accumulating money in the bank.

Meanwhile most other car companies are in big, big trouble. (Volkswagen, GM, etc)

The potential sales of robots is huge. Everyone I know with kids would easily pony up 10k for a robot just to do their dishes. It’s a massive untapped market.

Simpler alternative to figuring out the accounting tricks and 1-year deferred taxes: Amortizing their earnings and taxes for the past ~5 years.