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Does Tesla really need this $34.7 million tax break ?

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According to an article published by DailyTech (Dec 19,2013) Tesla Motors, based out of Palo Alto. Calif. will be the recipient $34.7 million worth of tax breaks on the purchase of new manufacturing equipment to expand the production and sales of its electric cars (most notable the Tesla Model S). With this tax break, Tesla can purchase up to $415 million worth of new equipment to give the Silicon Valley green car company a helping hand in what has become California's greatest industries this year.

California is one of the few states that taxes ruthlessly (4.19 percent to be exact) on the purchase of new factory equipment and retrofits. But in the middle of the summer this year, Governor Jerry Brown enacted a sales tax exemption as part of his Economic Development Initiative for manufacturing and research and development (R&D) activities in California. Although officially effective next year, many green tech companies like Tesla have been granted special tax exemption already.

Seemingly there are two sides to every situation. On one hand Tesla will benefit from the added jobs that this expansion will afford. More jobs and more equipment means more car production and higher tax revenues for the state. Tesla is a state of the art manufacturer making a vehicle that is a leader in green vehicles the world over. By giving Tesla a tax break, California is ensuring that Tesla can continue to outproduce some companies who've had a competitive advantage of literally close to a hundred years head start (Ford, GM etc.) This keeps quality jobs in California which should result in higher tax revenues at the end of the day.

On the other hand, this tax exemption seems to benefit only a handful of wealthy individuals who can afford a Tesla and may hinder Tesla in the long run. For each Tesla Model S sold, buyers (specifically Californians) receive close to $7500 in tax credits off the original MSRP. This ties the market very closely to this credit, which without it, wouldn’t survive given the current demand at given prices. And the $35 million in breaks they are receiving are for literally doing what they’ve been doing all along, just manufacturing electric vehicles. Taken seperatly, these tax breaks may seem like a good idea, but taken as a whole, Tesla and it's market value is wholly dependent on these subsidies in conjunction with one another.

Theoretically, all the tax revenue from the sales of Tesla's should outweigh the amount given as breaks.Tesla and the rest of California will just have to let time tell the tale of how effective these tax exemptions are.

The big irony, to me, is that Tesla is producing cars in the NUMMI plant which was originally a GM-Toyota co-owned plant.

Source: Daily Tech



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