Tesla Gets a Big Tax Break on New Manufacturing Equipment

In California, companies are often required to pay sales and use taxes on new manufacturing equipment. The state is only one of a few with a tax policy like this. But spending on clean-tech manufacturing in the state often qualifies for an exemption -- and Tesla's (NASDAQ: TSLA  ) plan for a massive $417 million purchase on new manufacturing equipment to dramatically boost production in the state qualifies, according to SFGate.com.

Fremont factory. Source: Tesla Motors.

Big savings on big plans
On Tesla's $415 million purchase of manufacturing equipment, Tesla will save $34.7 million. The tax break was authorized by the California Alternative Energy and Advanced Transportation Financing Authority. Its no small sum for Tesla; in the company's third quarter, Tesla reported just $431 million in GAAP revenues. At 8% of Tesla's third-quarter revenues, the tax break will certainly be helpful for the company as it projects to report very little free cash flow -- if any -- in the coming quarters. Though Tesla should see operating cash flows increase in 2014, the company's ambitions for expanding production will likely offset these gains with increased spending on capital expenditures.

SFGate's report goes deeper than highlighting Tesla's plan for manufacturing spending and the granted tax break. It actually cites how much production will increase thanks to the new equipment. The spending will enable Tesla to expand its annual production by 35,000 vehicles, according to the SFGate article. That's an enormous addition to a current rate that will help Tesla yield approximately 21,500 vehicles in the calendar year.

A win-win deal
Of course California won't be losing out. First, the state estimates that Tesla will add 112 permanent jobs. And, more importantly, increased production will lead to additional tax revenue. California estimates $24.4 million in net benefit from the additional tax revenue from Tesla vehicle sales.

Unsurprisingly, the state is satisfied.

"I'm pleased we could take this action to encourage Tesla to expand its electric vehicle production in California, which will create green jobs and improve our air quality," said State Treasurer Bill Lockyear, chairman of California Alternative Energy and Advanced Transportation Financing Authority, in a prepared statement to SFGate.

Tesla has exploded onto the scene in California. In 2013, the state has bought up the company's Model S in droves. Of Tesla's 15,550 Model S deliveries so far, 6,554 cars were sold in California according to the California New Car Dealers Association. The Model S is outselling the Lexus GS and the Audi A6 in the state.

A production story
Limited only by supply, and still spending nothing on advertising, shareholders are depending on Tesla to rapidly ramp up production to grow into its valuation. While the company's alleged "giga factory" won't likely be required until Tesla launches its more affordable Model E, improved production at the existing Fremont factory will be necessary in the meantime for Tesla to reach its projected annualized rate of deliveries of 40,000 vehicles per year by the end of 2014.

This glimpse from SFGate offers the first quantifiable data that shows Tesla is likely on schedule with its bullish outlook for 2014.

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  • Report this Comment On December 20, 2013, at 1:08 AM, mythshakr wrote:

    Tesla says it plans on bringing out the Model X late in 2014 and they need equipment to make them. The Model E is still a more than a year from even a concept being displayed.

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