Since 2009, the California Alternative Energy And Advanced Transportation Financing Authority (CAEATFA) has handed out more than $100 million in sales tax exemption (STE) tax relief to Tesla Motors, the main beneficiary of the state government program. Tesla’s latest application, which requested about $100 million in STE on the purchase of more than a billion dollars worth of equipment that the automaker will use to develop and build its Model 3 sedan [previous coverage here], was by far the biggest application in the program’s history and comes as the program faces record demand for tax relief. As a result of this high demand and Tesla’s historical domination of the program, CAEATFA approved just 48% of Tesla’s massive Model 3 request at its December 13 meeting, leaving more than half of its latest request unfunded.
CAEATFA’s STE awards, which eliminate sales and use tax on advanced vehicle and gree energy manufacturing equipment, is statutorily limited to $100 million worth of awards each year. Last year, after Tesla applied for nearly that full amount of STE for over a billion dollars worth of Model 3-related equipment, CAEATFA introduced a $20 million STE award cap for each application. However that cap did not apply to Tesla’s Model 3 application, which was filed before the rule change (and arguably inspired it). Still, CAEATFA’s concerns about Tesla’s domination of the program were sufficient to motivate the authority’s staff to recommend [PDF of their recommendation here] an award of just 48% of Tesla’s request. CAEATFA followed its staff’s recommendation at the December 13 meeting and awarded STE of just $47,229,218 on Tesla’s purchase of $560,917,080 worth of equipment. This amount used up all of the remaining STE for 2016, taking CAEATFA up to its $100 million per year cap.
In order to receive STE for the remaining 52% worth of equipment that Tesla needs for its Model 3, the remainder of Tesla’s request has been rolled over into 2017. CAEATFA’s next meeting is scheduled for January 17, and Tesla’s rolled-over request [PDF] is already on the agenda [PDF]. But because this is technically a re-application, the request is now subject to CAEATFA’s new $20 million per award cap, meaning Tesla can only apply for $2o million worth of STE on some $237,529,691. In order to receive the final ~$20 million or so in STE from its original request, Tesla would have to wait until 2018 to apply. That’s probably not an option for Tesla, which plans on putting the Model 3 into production this year despite an already-tough ramp up schedule. Tesla can purchase equipment before receiving STE on it, but it can not receive STE on equipment once it is put into use. Thus Tesla is forced to make a tough choice: either delay full production of the Model 3 until it can receive its full STE in 2018 or walk away from some $20 million in STE relief.
This decision appears to have been a long time coming. Tesla received more than $26 million worth of STE in 2009, more than $24 million in 2011, nearly $35 million in 2013, over $33 million in in 2015 and more than $47 million in last year’s award, bringing their cumulative benefit to nearly $120 million worth of tax relief. Elon Musk’s other companies have also received STE through the program, with SpaceX receiving more than $30 million worth of STE in 2015 [PDF] and Solar City receiving nearly $9 million in STE last year [PDF] through its purchase of Silevo, Inc. These extraordinary benefits to Musk’s companies seems to be ending, however, as CAEATFA has a backlog of applications amounting to nearly $400 million worth of potential STE, or four years worth of the program’s annual $100 million cap. This new pressure on a program that was once relatively unknown seems to be reflected in the explanation for Tesla’s partial award that CAEATFA staff provided to Daily Kanban in an email:
“By recommending approval for up to $560,917,080 in Qualified Property ($47,229,218 in STE), as opposed to the $567 million in Qualified Property ($48 million in STE) remaining available for the 2016 calendar year, CAEATFA could fully award the other applicants up for consideration in 2016, while providing Tesla a significant STE award with the ability to submit additional applications for the Project’s remaining amount of Qualified Property. This allows CAEATFA to assist as many qualified projects as possible, thereby better effectuating purpose of the program and the public interest.”