Tesla D Buyers Shouldn’t Get Tax Credit

Tesla D and Elon MuskEnvironmentally conscientious, wealthy car enthusiasts are in luck! The much-hyped “D” unveiling came last week as Tesla CEO, Elon Musk, presented what appears to be a very impressive version of its plug-in Model S electric car called the P85D. Boasting 691 horsepower, 687 ft/lb of torque, AWD and a blazing 3.2 second zero to sixty time, the new rich peoples’ toy is expected to cost in the neighborhood of $120,000. In fact, the car is so darn impressive that the only obvious question is why in the world do we need to give the affluent purchasers of cars like this a federal tax credit of $7,500 each?

I can see why General Motors would need subsidies to sell such cars as the Cadillac ELR (which lumbers through a zero to sixty time in a laborious 9.4 seconds) at a price of about $75,000. The car is essentially a gussied-up Chevy Volt and has been another embarrassment for GM. Tesla, on the other hand, has proven that it can muster demand for its vehicles.

Tesla and Elon Musk have done a more impressive job of bringing the politically-popular but thus far economically non-viable technology of electric vehicles to the masses. Tesla’s recipe for success to date has been to make vehicles that can be afforded by only the wealthiest Americans while the rest of the population is expected to foot the bill for a portion of the cost in the form of tax credits.

The next test for the viability of electric cars will come when Tesla unveils its lower-priced versions of plug-in vehicles, something that is in the works. It will be a credit to Musk and his company if he is successful, but the challenges remain. Tesla does not have a dealer network, so getting service on the cars requires traveling to one of the few existing service sites in the country. Charging stations are still not widely available and have also required taxpayers to foot the bill for most of the installations. Finally, the long-term performance and possible issues for lithium-ion based battery technology are unknown. Add to these the question of Tesla’s corporate profitability outlook. Can the company actually make enough money to thrive?

If electric vehicles are truly a viable alternative to traditional gas-powered cars, the technology should be able to grow in the free markets without billions of dollars of taxpayer money. Whatever the future holds for the electric car market and Tesla I think it is hard to argue against, at the least, stopping subsidies for buyers of any cars that cost over $50,000. The purchasers of such cars are people who want and can afford the vehicles. The newest Tesla that was just unveiled is sure to have a bunch of rich folks lined up to purchase the latest green wonder-car. There is no need for the rest of us to have to help them pay for it.

Mark Modica is an NLPC Associate Fellow.