Tesla Plans to Expand Onshore Manufacturing to Capitalize on IRA Energy Tax Credits

In a major move to simultaneously capitalize on tax credits for both itself and the consumer while also inadvertently improving customer adoption, Tesla announced it has plans to expand its manufacturing operations onshore in the U.S. for the upcoming year.

This particular action provides a lot of context to Tesla’s recent decision to spend $3.6b more on battery and truck manufacturing in Nevada and looks to serve as a key element in its business strategy for the upcoming year.

Tesla has been in the battery manufacturing business for years now, building lithium-ion batteries and components for its electric vehicles at their Gigafactory in Nevada with the help of longtime partner Panasonic.

Following an investor question related to advanced manufacturing production credits and their prospective earnings, CEO and Product Architect Elon Musk stated on the company’s Q4 2022 earnings call that he expects the financial kickback brought by “these credits to be very significant” for Tesla in the long term. The company looks to leverage major tax credits offered under the Inflation Reduction Act (IRA), which provides tax incentives to manufacturers investing in clean energy.

Based on findings by Halter Ferguson Financial, “Tesla stands to gain $350 million per year from work it is already doing at Giga Nevada,” thanks to the $10/kWh in credits the company gets for their current level of battery production.

As noted by Musk during the call, these credits are contingent on domestic manufacturing, however, since Tesla holds a manufacturing partnership with Panasonic, the companies must split the value of the credits. Thus, the expansion of in-house cell production operations across the United States becomes a logical conclusion for Tesla as it looks ahead.

And while the Tesla CEO does not expect the value of these credits to be particularly remarkable this year, at least for now, he expresses confidence in their long-term worth for the company, stating they “probably will be very significant in the future.”

Chief Financial Officer Zach Kirkhorn had a lot to say about the state of the company’s in-house battery operations, touting impressive production rates and plans to increase the overall capacity of their batteries over the next year. Kirkhorn also further explored the company's plans to expand domestic manufacturing operations and overall strategy to earn, as well as keep, new customers.

“Part of the work we're doing here, which is part of what this incentive package is trying to incentivize, is, as Elon mentioned, to move more manufacturing onshore in the United States, which is Tesla's plans anyways. I think we're pretty well positioned over the coming years to take advantage of this. But then also part of what the goal of this incentive package is, is to improve adoption from our customers.”

Even in the midst of a significant economic downturn, Musk believes Tesla had a successful 2022, reporting record-high vehicle sales and profits to match.

“It was a fantastic year for Tesla. It was our best year ever on every level.”

In the past year, Tesla pushed over 1.3 million cars out the door, coming out on top with $12.5 billion in net income and another $7.5 billion in free cash flow – all while attaining a “17% operating margin, the highest among any volume carmaker.”

With a refined focus on furthering the company’s growth in the energy business through domestic expansion, Tesla’s response to a steadily-shifting economical landscape is to take full advantage of advanced manufacturing production credits in order to set itself up to be one the biggest names in clean energy manufacturing for years to come.