The Secrets Behind Tesla’s Success
Entrepreneur Elon Musk has built a multi-billion-dollar fortune running companies that make electric cars, sell solar panels and launch rockets into space.
And he’s built those companies with the help of billions in government subsidies.
If you’re not clear about the definition of subsidies, Investopedia defines them as: “Government subsidies can help an industry on both the supplier side and the consumer side. To implement subsidies, governments need to raise taxes or reallocate taxes from existing budgets.”
It was reported in October that Tesla has received $189.4 million in ZEV (zero-emissions vehicle) and non-ZEV credits after Tesla famously reported a $312 million profit in third quarter 2018.
The company isn’t the only one benefiting from the electric vehicle craze; consumers are also receiving a tax credit for purchasing an EV. Consumers are eligible to receive a $7500 tax credit for qualifying automobiles.
In Q3 2018, Tesla sold 69,925 cars in the U.S. who qualified for the federal income tax credit of $7500, or $524 million in subsidies.
The government is phasing out the electric vehicle tax credits as sales volume increases. The theory is that the high initial cost of adding new technology to a vehicle will come down as economies of scale improve with increased sales.
That’s supposed to eliminate the need for subsidies. The expiration date is separate for each manufacturer and only comes after an automaker sells 200,000 qualified vehicles. Tesla hit the milestone first in July 2018.
As a result, Tesla vehicles delivered from January 1 to June 30, 2019, are only eligible for a federal credit of $3,750.
Tesla vehicles delivered from July 1 to December 31, 2019, are eligible for a federal credit of $1,875.
There are no federal tax credits for Tesla after that. But a bipartisan group in Congress introduced legislation last week to expand the tax credit by 400,000 vehicles per manufacturer on top of the existing 200,000 vehicles initially included in the credit.
“At a time when climate change is having a real effect on Michigan, today’s legislation is something we can do now to reduce emissions and combat carbon pollution,” Sen. Debbie Stabenow, D-Mich., one of the sponsors of the legislation, said in a statement. “Our bill will help create American jobs and cement Michigan’s status as an advanced manufacturing hub.”
This move would give a boost to Tesla Inc and General Motors Co before the existing credit comes to an end for them.
Don’t Blame Tesla
If you refer to the CASHFLOW® Quadrant (which divides people into four types of income earners: Employees, Self-employed, Business Owner and Investors), you’ll realize that our government purposely rewards people for being on the left side of the quadrant—owning a big business or being an investor.
These two quadrants pay the least amount in taxes, between 0% and 20% compared to employees and those who own small businesses—who pay between 40% and 60% taxes.
Musk and his companies’ investors enjoy most of the financial upside of the government support. And as a real estate investor, I also receive such credits that the government uses to encourage economic growth.
One thing needs to be clear: The tax law was not written for the rich; it was written for anyone who is financially educated. But using the tax law as it’s written can help you get richer.
Working hard to earn more money and then giving it away in higher taxes isn’t financially intelligent. Even if you do put some of it into a retirement account.
On the other hand, making your money work hard for you means your earnings are taxed less, if at all.
Chipping Away at Taxes
Perhaps one of the most important things to understand is that taxes can either make you poor or they can make you rich. I prefer to use taxes to make myself rich and doing that tax a different type of mindset.
Clearly, one of the reasons the rich get richer is because they earn a lot of money without paying much, if anything, in taxes. They know how to use banks’ tax-free money to become richer.
Anyone can do the same. For instance, instead of paying capital gains tax on the sale of our condo units, real estate laws allowed us to defer paying these taxes and invest them into another property instead.
The cash that does come from this property goes into our pockets at a lower tax rate because there’s no Social Security or self-employment tax to pay, and the tax rate is further reduced by the depreciation of the property.
On the flip side, the poor and middle-class toil away for their money, pay more in taxes the more they earn, and then park their earnings in savings and/or retirement accounts. In the meantime, they receive little or no cash flow on which to live while waiting for retirement — when they’ll live on their meager savings.
Knowledge Is Power. Knowledge Is the New Money.
When I was a young boy, my rich dad told me, “You can make a lot of money and still not be rich.”
By this, he meant that you could have high income but also low financial intelligence. Many high earners lose their money to two things, expensive liabilities—like fancy cars, long vacations, and McMansions—and taxes.
When I wrote The Conspiracy of the Rich, I made the assertion that knowledge was the new money. Why would I say something like that? Because in the information age—where most people have access to the same kinds of tools—knowledge is the competitive advantage.
Many people may find reason to complain about this tax code. But I have a different suggestion: rather than get mad, get smart.
Figure out how you can be someone who either grows the economy or creates jobs…or both. By doing so you will benefit from the very behaviors the tax code is designed to reward. The economy and your wallet will be better off for it.
Editor, Rich Dad Poor Dad Daily