In a rapidly deteriorating macroeconomic environment, the demand for Tesla EVs no longer exceeds their supply, as evidenced by yesterday’s rare delivery target miss by the electric vehicle manufacturer. In this evolving scenario, every morsel of incentive is about to become a critical battleground as an increasingly crowded EV sphere competes for dwindling demand. On the 01st of January 2023, the US Internal Revenue Service (IRS) published a comprehensive list of EVs that qualify for the clean vehicle federal tax credit of up to $7,500. While some Tesla EVs have again become eligible for this tax credit under the Biden administration’s Inflation Reduction Act, the criterion used by the IRS to distinguish between electric sedans and SUVs is quite vague. For instance, the IRS considers the 7-seat Tesla Model Y an SUV, but the 5-seat variant is considered a sedan. This distinction is important as the tax credit carries a maximum price ceiling of $55,000 for electric sedans and $80,000 for electric SUVs. Since the 5-seat version of the Model Y starts retailing at just under $66,000, it will not be able to enjoy the $7,500 federal tax credit, given the price ceiling of $55,000 for the qualifying models. Interestingly, Volkswagen’s ID.4 AWD model is classified as an SUV by the IRS, while its RWD variant is classified as a sedan. This seemingly haphazard and subjective criterion used by the IRS is giving rise to a lot of confusion in the EV sphere.
— Elon Musk (@elonmusk) January 3, 2023 This brings us to the crux of the matter. The Twitter account @DrKnowItAll16 recently tweeted that the Tesla Model Y was apparently too light to qualify as an SUV under the US tax code. To this, Elon Musk responded by stating that the Model Y was being punished for being “too mass-efficient.” Meanwhile, Wall Street analysts continue to publish their take on Tesla’s latest quarterly deliveries. As a refresher, the EV giant disclosed yesterday that it delivered 405,278 units in Q4 2022, missing pared-down consensus expectations of 418,000 units. Tesla has continued to assert that it will grow its annual deliveries by just under 50 percent for the foreseeable future. However, the Q4 consensus estimate miss means that Tesla was only able to grow its deliveries by around 40 percent in 2022. For a stock that used to trade at an astronomical premium based on its stellar growth story, the ongoing demand shock is leading to a brutal de-rating. Bernstein analyst Toni Sacconaghi noted with concern the growth of 34,000 units in Tesla’s inventory, which currently computes at around 78,000 units. According to the analyst, this inventory growth indicates demand softness: Do you think the 70 percent decline in Tesla shares in 2022 has been sufficient to relegate the stock to the bargain territory or is further downside ahead? Let us know your thoughts in the comments section below.
