Thread by @ReflexFunds

Could UK be Tesla’s demand black swan in Q1?

If you wondered why Tesla is on track for >30k 2019 Holland sales (~7% of the market), I explain BIK taxes below.
And also what this could mean for the ~5.5x larger UK market & the significantly more favourable BIK taxes from Apr-20.

1) Holland car sales were 440k in 2018 & it has the second most favourable EV policies globally (behind Norway), mostly due to lower BIK taxes on company owned EVs (relative to rates on ICE cars). Given the company car market is huge in the Netherlands this has had a huge impact.

2) BIK tax rates are paid on company cars because the car is a "benefit in kind" which is essentially a supplement to salary. The BIK tax rate is multiplied by car value and the employee's marginal tax rate.

3) The UK had 5.4x more car sales than Holland in 2018 at 2,367k. Starting in April 2020 it will introduce BIK EV policies even more favourable than Holland. The company car market is also huge in the UK - I estimate 350k-500k per year.

4) ~20% of UK car sales are made in March of each year. I guess this is mostly due to company car sales to fleets ahead of the beginning of the new tax year in April.

5) In UK the BIK tax rate will be 0% on EVs from 6-Apr-2020 (vs 16% in 2019), 1% in 2021 & 2% in 2022.
This compares to 28% BIK tax rate for the 124.5g/km CO2 for 2018 UK new car average. BIK rates vary from 0% to 37% (tied to CO2), but most are above 100g/km and above 23% tax.

6) UK income tax rates: 20% £12.5k-50k salary, 40% £50k-150k or 45% >£150k. I guess most company cars are on 40% tax.
For example a car with CO2 at 100-104g/km pays 23%, marginal 40% tax bracket & £43k car price (SR+ 3), pays 23%*40%*£43 = £4.0k/year & £11.9k in 3 years ($15.4k).

7) So this compares to paying 0 tax on a £43k Model 3 on a 3 year lease. The employee has effectively been allowed to buy a Model 3 lease using their gross rather than their net salary and this has saved them $15.4k over 3 years vs an ICE.

8) But the UK also has a £3.5k ($4.6k) EV grant which i assume will also apply to the company cars taking the total 3 year incentive to $20k. And this is only vs the lowest emissions ICE cars, the saving vs an average ICE car is significantly higher.

9) Its also worth noting that UK is also moving from NEDC to WLTP for their CO2 emissions ratings from Apr-20, which likely adds ~20g/km to most cars, or increasing BIK taxes ~4% for most ICEs.

10) Other EV policies: No BIK tax on electricity charging costs at your employer. A 75% grant on home chargepoints. Now requires new homes to have EV chargepoints & non-residential buildings under major renovation must introduce chargers to 20% of spaces.

11) It seems hard to justify purchasing a ICE car via the BIK system now there are EVs such as Model 3 available. Considering UK petrol prices are over double the US average, the 2.4 million annual UK car demand is starting to look very well positioned to transition to EVs.

12) The size of the UK company car market is likely to increase as it will now make much more sense for employees to take a company EV car rather than buy a car themselves (an untaxed EV is now much better value than a pay rise or bonus).

13) Now, lets look back at Holland:
In Holland BIK tax rates for EVs are:
2018: 4%.
2019: 4% up to max €50k (22% for amount above)
2020: 8%, max €45k (22% above).
Relative to 22% for ICEs.

14) The Holland income tax rates are 36.65% (€0-20k), 38.10% (€20k-34k), 38.10% (€34-68.5k) and 51.75% (>€68.5k).
So the BIK benefit vs an ICE in Holland in 2019 for a €50k SR+ was 38%*€50 * (22% - 4%) = €3.4k
or 52%*€50 * (22% - 4%) = €4.7k.

15) This is $11.4k to $15.6k BIK benefit in Holland over 3 years for cars bought in 2019.

So significantly less than the at least $20k new UK incentive.

16) Of course we can't know how the UK market will respond. Maybe EV awareness & acceptance is lower. Maybe the company car market is a smaller % & it will be hard to expand it.
But Tesla looks very well positioned to grow sales significantly in the UK starting in Mar-2020.

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