Tesla, Inc.—Subsidizing Tesla Automobiles Globally ‘Tesla Inc. (tesla.com) is an American automobile manu facturer, energy storage producer, and solar pane! manu facturer headquartered in Palo Alto, California. It specializes in electric cars, lithium-ion batteries, and resi dential solar panels via its subsidiary SolarCity. Most People, however, know the company as the maker of electric cars, often sil referring tothe old name of Testa Motors. Tesla Inc. was founded as Tesla Motors in 2003 by Martin Eberhard and Mare Tarpenning. However, both the company and the general public also consider Elon Musk, J. B. Straubel, and Ian Wright as its co- founders. Today, the company has sales of over $7 bil lion, assets of some $25 billion, and more than 30,000 employees. ‘Tesla became a wellknown entity following its pro- duction of the Tesla Roadster in 2008, the world’s first electric sports car. The second vehicle, an electric lux: tury sedan labeled Model S, hit the market in 2012. More than 150,000 cars of Model $ type have been sold. This ranks Model S as the world’s second best-selling plug-in after the Nissan Leaf. After Model S, Tesla went to mar- ket with Model X in 2015, a crossover SUV, and Model 3 in 2017 (code name “Tesla BlueStar” in the original business plan), Model 3 was unveiled in 2016, but was introduced into the market in the latter part of 2017 at a base price of $35,000 before any government incentives. ‘Government incentives are really the subject of this ‘Tesla case. Normally, our focus in a case related to Chapter 20 would be on the financing of a company or accounting practices globally (as in the scenarios played Out in the opening case on the Kraft Heinz Company and the closing case on Shoprite). However, financing and ac- ‘counting practices worldwide come in many forms, and ‘companies lke Tesla have taken advantage of tremendous overnments subsidies in various countries (0 sell their YD Auoaotie/Aany Ste Pho products in the global marketplace and be competitive jonal car manufacturers such as Volkswagen, s, to mention just a Few of uch, the Tesla with tradi ‘Toyota, and General Motors the top automobile makers in 2017. As st scenario is a perfect integrated case for this book: It relates to Chapter 20 on finance and accounting, but also serves multiple purposes in understanding the economics of the global marketplace. For example, according to recent data from the European Automobile Manufacturers Association (ACEA), sales of electric cars (including plugin hybrids) in 2017 were brisk across much of Europe. Sales of these Kinds of ears rose by 80 percent compared with last year in ecofriendly Sweden, 78 percent in Germany, and 40 percent in Belgium. Across all European Union coun tries, electrical carsales grew by roughly 30 percent. How- ver, the major exception was in Denmark, where sales ‘went down by more than 60 percent. There was one sim- pile reason for this drop: The Danish government phased ‘ul taxpayer subsidies to buy electric cars. Basically, the take on it from the Danish experience is that cleanrenerey ‘vehicles are not attractive enough to (at least) the Danish ‘customers to compete with more established traditional ccar brands without some form of taxpayerbacked subsidy. "This may set the tone for how to market electric cars in the future. If it can’t be done in Denmark, can these cars really be marketed globally? Denmark is one of the more progressive countries in the world when it comes to clean i, clean energy, and clean everything! Add to that, Denmark's infatuation with “green” electrical automo- biles is globally well known. The country's bicycleoving, population bought more than 5,000 of these electrical ars last year, more than double the number sold in Italy, i Italy is about 10 times the size of Denmark. Perhaps these amazing sales were more due to the customers being spared the hefty 180 percent that the Danish gov- ‘ernment applies on vehicles fueled by a traditional com- bustion engine than the electrical vehicles actually being ‘a preference of customers. So, losing the government sub- sidy also meant a loss of electric car sales in the country in favor of more traditional cars. Sources Iylee Durden, “I's Confirmed: Without Government Subsidies, ‘Tesla Sales Implode,” Zero Hedge, une 12, 2017; “Overview of ‘Tax Incentives for Electric Vehicles in the EU.” European ‘Automobile Manufacturers Association, accessed June 20, 2017; Peter Levring, “Denmark Is Killing Tesla (and Other Bleetrie Cars)” Bloomberg Markets, June 2, 2017; “Tesla Increases Deliveries of Electric Cars,” The Economist, April 6 2017, “Electr Cars Are Set to Arrive Far More Speedy Than ‘Anticipated The Economist, February 18,2017Case Discussion Questions Should compan lis Tes rey on oven subsidies in ein thi cars because ae beuer forthe envionment thin aden ne aca on th ol technolo otto conten engines? Basically, shuld the envionment aus be bl int the competitiveness ofthe ars oft as, or hold apply ander the der ofthe ctl ear pce? 2. Some governments are mor lt sbi kets cars and mary other pd) hater forernment. Denna no sand ont sde (Grn) eleccar Should such steep teach cont oreo ina county (eg Calioa inthe United Sats) o shad thee be orl cases 55 standard enforced perhaps via the World Trade ‘Organization, United Nations, or a similar ‘organization? Tesla had remarkable sales growth: from a startup (albeit with great financing) to $7 billion in sales with some $25 billion in assets. Does this mean thatthe Tesla business model was good, and the ‘market reacted positively, government subsidies were generous, and the market favored the car brand because of it, or was ita combination of these factors, and if the latter, which factors? Ifall government subsidies to electric cars went away worldwide, do you think Tesla would be as successful five years from now ast is today? (Given this idea, do you think Tesla would even exist in 10 years?)