According to estimates, Tesla is poised to receive substantial tax breaks, making it the primary beneficiary of the billions of dollars in federal tax credits provided by the Inflation Reduction Act. The law, passed in August 2022, aims to encourage car and battery manufacturing in North America.
With multiple operational plants in the United States, including Fremont and Austin for vehicles, Nevada for batteries and electric motors, and the recently initiated lithium refinery in Corpus Christi, Texas, Tesla is projected to receive approximately $41 billion in tax credits over the next decade, in conjunction with battery partner Panasonic. This year alone, Tesla and Panasonic are expected to secure around $1.8 billion in production tax credits under the Inflation Reduction Act, surpassing the $480 million earmarked for General Motors and LG Energy Solution, as estimated by researcher Benchmark Mineral Intelligence.
Earlier this year, Tesla's CFO Zach Kirkhorn publicly disclosed the company's estimations, revealing an anticipation of manufacturing tax credits ranging from $150 million to $250 million per quarter in 2023, potentially reaching up to $1 billion for the entire year. Ford, on the other hand, will not be eligible for incentives until at least 2025.
Tesla's extensive investment in manufacturing facilities within the United States positions it favorably to capitalize on the economic incentives provided by the White House's legislative package. The company intends to utilize the funds obtained from these tax credits to continue reducing prices for its customers, aligning with its strategy of prioritizing sales volume growth over short-term profit margins amidst increasing inflation and competition.
Tesla's aggressive pricing strategy in the electric vehicle market exerts pressure on competitors like GM and Ford to lower their prices. However, legacy automakers face significant profitability challenges in transitioning their product lineups to electric vehicles, making this situation problematic for them.
The Inflation Reduction Act incentivizes automakers not only to assemble vehicles domestically but also to manufacture battery pack materials within the United States. Tesla's existing automotive and battery factories in the country give it a significant advantage over many other automakers. Furthermore, the legislation rewards companies for scaling their production, meaning that the more batteries and electric vehicles a company manufactures in the US, the greater the financial benefit through tax credits.
This law is intended to boost domestic electric vehicle and battery production, as currently only a small fraction (around 10 percent) of electric vehicles worldwide are assembled in the United States, with an even smaller share in battery manufacturing, according to the Bipartisan Policy Center as cited by Business Insider.