When Will The $7,500 US Credit Expire For The Tesla Model 3…And Everyone Else?

2 years ago by Jay Cole 112

Will There Be A Federal Credit Available To Me When I Take Delivery Of My Model 3?

Will There Be A Federal Credit Available To Me When I Take Delivery Of My Model 3?

With the recent Tesla Model 3 debut, and subsequent rush of several hundred thousand deposits for a car that won’t start deliveries until late in 2017, the most discussed ‘after deposit’ topic was:

“When will the $7,500 federal EV tax credit expire, and will I get my Tesla Model 3 in time?”

Will The Base Model 3 Cost 35,000 Or $27,500 Out Of Pocket

Will The Base Model 3 Cost 35,000 Or $27,500 Out Of Pocket

We counted no fewer than 7 separate conversations happening on the subject here in the InsideEVs’ community just after the car’s launch.

So, as there is obvious considerable interest (and also some confusion), we’ll take a moment to explaining the credit, and also put a date on when the $7,500 will most likely expire for the Model 3.

And because this topic is one of concern to buyers of plug-ins from all automakers, at the same time we will lay out the data and expectations for all the major OEMs who will be losing (or at least start to lose) the credit over the next 48 months.

First lets explain how the program works:

Each automaker’s eligible plug-ins receive a $7,500 federal credit, that is until the 200,000th plug-in is sold in the US.

At that time, and so as not to disrupt/confuse those buying the EVs, the full $7,500 continues through the end of the current quarter and to the completion of the next quarter.  After this period ends, the credit is reduced to $3,750 for the next 6 months, then to $1,875 for the next 6 months before expiring completely.

During any part of the phase-out process (between sale #200,000 and the calendar expiry date), the OEM is free to BUILD AND SELL AS MANY EVS as they can/want, receiving the applicable incentive amount.

An example of the system on a graph:

How The $7,500 Phaseout Of The Federal Credit Works

How The $7,500 Phase-Out Of The Federal Credit Works

Initial Model 3 Design Sketch (via @elonmusk)

Initial Model 3 Design Sketch (via @elonmusk)

There we go, now the basics are out of the way.

So the first (and easiest) thing to determine next is how many total qualifying EVs have already been produced for the US by an OEM.

In the case of Tesla todayqualifying EVs are the Model S and X, for General Motors today: Chevy Volt, Chevy Spark EV, Cadillac ELR, etc.

From there, we take the future expectations for sales, and chart out when the $7,500 will phase-out as explained above.

And while some might think this is a difficult task, and thereby making the expected expiry date difficult to peg…it is not.

As the credit wind-down benchmarks are triggerd by quarter/half year posts, these are pretty darn big targets.  Your +/- is factor is 1, at most.  It is almost like shooting fish in a barrel…with one or two exceptions.  And none of those exceptions involve Tesla, as its sales path is well charted.

So without further adieu, here is the expected phase-out chart for all the major OEMs in the United States:

Current Expectations For $7,500 Federal Credit Phase-Out For Major US EV Makers (*aprox). Grey shaded areas are expected future sales in 000s. Colored blocks indicate stage of the Federal credit a particular OEM is at (click to enlarge)

Current Expectations For $7,500 Federal Credit Phase-Out For Major US EV Makers (*aprox). Grey shaded areas are expected cumulative future sales in 000s. Colored blocks indicate stage of the Federal credit a particular OEM is at (click to enlarge)

Obviously as automakers are aware of this credit, those sensitive to the effects of the program (such as Tesla) will make sure that EV #200,000 is moved at the very beginning of a new quarter, thus ensuring the maximum number of unlimited selling days (~6 months) for its “in demand” plug-in products.

For Tesla specifically, we estimate they will hit #200,000 in early Q3 of 2018, which will give the automaker from June 1st to December 31st, 2018 to make as many Model S, X and 3s as they can.

At this point, if Tesla delivers only 1,000 EVs during the first phase of the wind-down in the US, then 1,000 EVs would qualify for the $7,500…if they deliver 1,000,000,000 EVs in the US over that period, then 1,000,000,000 EVs would qualify.  The same is true for the next two 6 month periods and the reduced $3,750 and $1,875 credits respectively.

Take note for those outside the US, you should realize that when Tesla says they will start delivering the Model 3 on the US west coast starting in late 2017, before spreading out further east thereafter, before moving internationally (Canda, Asia/Europe, RHD), if the US federal credit program (as it stands today) is still in place, your odds of receiving a Model 3 delivery in the second half of 2018 is pretty poor.

The $7,500 EV Incentive Was Built With GM In Mind, In Our Opinion No National Credit Will Exist Without The Company's Inclusion...regardless of the number of plug-ins GM sells

The $7,500 EV Incentive Was Built With GM In Mind, In Our Opinion No National Credit Will Exist Without The Company’s Inclusion…regardless of the number of plug-ins GM sells

With all  that said, we don’t believe for one moment that the credit will be permitted to phase-out as outlined today, especially not for a US automaker(s) first;  and we do not believe that it will be Tesla who will gets to 200,000 first.

Our belief is that if the $7,500 credit has not already been reconfigured with a hard sunset/with benchmarks for all OEMs as a cumulative group, or has not just been renewed/extended outright by the US administration just after the coming election, the pending arrival of General Motors to the credit limit will see government action taken to make one of these changes at that point. (After all, the original credit was written with the Chevy Volt, and its 16 kWh battery, in mind)

To leave the credit program as is, while the pioneers of the plug-in segment (GM, Tesla and Nissan) are punished for taking up a leadership role, while the laggards are rewarded with a huge competitive market advantage is…well, un-American.

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112 responses to "When Will The $7,500 US Credit Expire For The Tesla Model 3…And Everyone Else?"

  1. AP says:

    Does anyone know the technicalities of when a “sale” takes place? If we’re in those grace or wind-down quarters, would people on the wait list be able to “buy” cars that won’t be delivered for a few months?

    1. Kdawg says:

      When the title is transferred?

      1. Jay Cole says:

        AP,

        When sale #200,000 is reached, the number is reported by Tesla to the IRS, then the government announces the begin of the phase-out.

        From there, the completed/dated transaction, or more specifically “the vehicle was placed in service” date is the factor that determines the appropriate amount of credit the vehicle is eligible for.

        1. AP says:

          Thanks!

          1. Miggy says:

            Cut out the credit as soon as possible and add a TAX to Petrol / Gas as this will benefit the country.

            1. ClarksonCote says:

              They really do need to increase the gas tax, especially now that it’s so low. They could add a 50 cent tax and have gas still be over $1 cheaper than it was a couple years ago.

              Too bad it’s so politically unpopular.

              1. Crissa says:

                It’s so low that the EV registration tack-on fee in several states is higher than the gas tax on driving a 31mpg car 10K miles in the highest gas tax state.

            2. VFanRJ says:

              We need to raise tax on petrol for several reasons, one of which is to repair our failing road infrastructure.

    2. evcarnut says:

      Elon, You gotta slant the nose a little more & put A BIG…..T…..Smack in the middle .Get rid of that SLIT @ the Bottom of the grill & place a thin Chrome strip in its place..That will make it look sharp & not so plain..Just Right..

      1. Nix says:

        Sounds like an aftermarket vendor opportunity if Tesla doesn’t do it themselves.

      2. Clive says:

        Chrome is out.

        Has been for a very long time.

        I will take the Euro look without the Chrome.

        1. evcarnut says:

          I like a little chrome..A little chrome in good taste is ok…It’s matter of preference…I don’t like black outs…

      3. Proton says:

        That Tesla 3 flat front is a sure bug-catcher–especially in Florida love-bug season and up North at night when all the critters are flying about! A good slant might direct the bugs up and over with the tight air flow pattern.

  2. Kdawg says:

    I think the more tax credit remaining when I buy my plug-in, means the more options I’ll buy. 🙂

    After the election cycle(s), we may have a better understanding which way the tax credits will go.

    1. Brian says:

      My plan was to option-up my model 3 to get it sooner and qualify for the credit to pay for it. 🙂

      Jay great write up. thanks

      1. ffbj says:

        Good plan, though a number of people may have the same idea. For this reason I think the 42k average price Musk has indicated will go up to perhaps 45k when all is said and done.

        Incidentally one of the hits on Tesla is that it won’t be making much of a profit on a 35k car, but it is not a 35k at the end of the day. Point being optioning up will raise the profit margin quite a bit.

        In addition the very fact that the tax break is going to go away will incite some people to raise the quantity and quality of the options they choose.

  3. R.S. says:

    The US-American plug in grant system is, and I can find no better word for it, stupid.

    You punish those who sold EVs when they were still unprofitable and reward those who hold back.

    Imagine a company that will only start selling EVs when they become a big hit, they can sell them $5000 more without even hurting their sales. And if you sell fast enough, you can easily make a few billion extra cash.

    I would have made a cap, for one million cars in total and a phase out after that.

    1. Daniel says:

      That’s why the Government should not be involved in the first place. For them it is a no win scenario and they’ll be wrong no matter how any kind of tax credit is structured.

      Most likely don’t have enough tax liability to claim the full credit anyway unless the manufacturer puts it on the hood of the car at the time of sale, and those that could did not really need it when buying an $80-120K Model S or X etc.

      1. Assaf says:

        @Daniel, if no Government were involved in pushing EVs one way or another –

        – then there wouldn’t be a modern EV renaissance to speak of, nor an emerging global EV market –

        – and you would likely not have an insideevs.com website, to share your infinite wisdom with us 🙂

      2. kubel says:

        I agree. No government intervention required. Let EVs succeed or fail on their own merits, at their own pace, as naturally as possible.

        1. TomArt says:

          *sigh*

          FAIL.

          It would not happen, particularly since the petroleum industry is so well propped-up by gov’t policies.

        2. Unplugged says:

          This “free market” mumbo jumbo is absurd. So you want EVs to succeed or fail based on no incentives? Yet we have untold and incredibile tax and pollution support for gas mobiles. This “free market” the tea party types like to support has no basis in fact. The fact is that all types of industries are provided government subsidies. Take these away first, and then we will discuss removing EV incentives.

        3. Scott says:

          Agreed…HOWEVER… also no government incentives in terms of protection and tax breaks for the production of oil. The cost of oil needs to reflect what it is doing to our planet as well as treatment of related health costs too. Once the price at the pump reflects the true cost of oil, the balance will quickly tip towards EVs!

        4. VFanRJ says:

          Let’s kill government subsidies to oil.

      3. evnow says:

        As soon as the govt stops shoring up ICE by spending Trillion dollars on “energy security” related wars – I agree we won’t need any tax credits.

        BTW, lets also do away with special taxes for capital gains, credits for buying homes, raising kids etc etc

    2. Nix says:

      R.S. — The Automotive industry isn’t equal going into the EV revolution.

      The cost of a successful EV research and development project is roughly the same whether you are the number 1 global car manufacturer, or if you are number 20.

      Smaller car makers will need that extra $5K just to desperately keep up with the top car makers, who would otherwise be able to bury the smaller makers.

      So do you want a couple of major car makers completely dominating the EV/PHEV market, driving everybody else out? The way there became a dominant few hybrids? Or do you want EV’s to dominate all car maker’s lines of vehicles?

      1. evcarnut says:

        YES ! THE BIG CAR MAKERS ALWAYS WANTED TO BURY THE ELECTRIC CAR MORE THAN ANYONE ON THE PLANET.

  4. SparkEV says:

    For Bolt, tax credit matters a whole lot more; it’s just not compelling when compared to gas cars of comparable price. At $37.5K, much better cars can be found such as WRX STi, BMW 3, etc.

    With Model 3, tax credit is not as much an issue. Even at $35K pre subsidy, Model 3 is a damn fine car. With options, even $45K would be a great buy.

    As for the extension of the tax credit or something better to give back our overtaxed money, I’m all for it, but I’m not counting on that to happen. If it does, I hope they have it rolling to following years instead of all in single year so that even the poor people can use the tax credit. For now, tax credit is only for the “rich” people (half the US population doesn’t pay fed income tax mean no EV subsidy for them)

    1. R.S. says:

      I completely agree with the Bolt and Model 3 statement, thats why I think GM will reduce the price of the Bolt to 30k after the credit runs out. I would be surprised if GM couldn’t do a lot better than $37,500.

      That way they can make a few hundred million extra, off the tax payers back, isn’t that just nice?

      1. Driverguy01 says:

        As long as the Big Oil gets tax breaks worth Kazilions of dollars, i don’t mind a bit funding the revolution.
        Right now, in front of my house,a company is building a new house and the owner of that company travels in a huge Hummer with his company name on it and chances are, he deducts his gaz bills on the companys tax returns. All of us end up paying to allow him to ride in a huge always empty gas guzzler, How is that fair?
        Now, until big oil operates without tax breaks, i think we, the electric revolution enablers, shoud play the game with the same rules as big oil. Isn’t that nicer and fair???

        1. G2 says:

          +1
          Defund Big Oil/ Coal/Gas

        2. Foo says:

          Plus they get free wars to clear the way for oil exploitation. Er, I mean exploration.

          And BONUS, wars use up a lot of oil!

        3. R.S says:

          I would say stop all funding, especially big oil!
          But we aren’t funding a revolution, we are funding a company that makes billions on big gas guzzler SUVs and pick-ups. Tesla is revolutionizing the car market and as we are seeing with the Model 3, it could be done with no incentives at all.

          The best solution to more EVs would be a federal ZEV mandate and it would be a lot cheaper, too.

          And if we really need to spend money, why not on a sufficient long distance charging infrastructure?

          1. ffbj says:

            Oh I think I know what we should do with the big oil companies. Allow them to rig the bidding on federal lands opened for exploration and development.

            Then allow them to pump unknown chemicals into the substrate of the ground, fracking. So we can have more earthquakes and degrade and pollute groundwater.

            Build pipelines all over the place, that constantly rupture and leak. Flare off millions of cubic feet of gas that they don’t want, contributing to global warming, to recover a fuel that spews noxious fumes into the air, degrading the environment and contributing to lung diseases.
            Oh wait, we are already doing that.
            Never Mind.

        4. deborah crazy train flower power says:

          Yep…Corruption…They will stop at nothing to keep their stupid fossil fuel companies going..

          1. evcarnut says:

            MONEY $$$$ IS THEIR HOLY GRAIL….They are the slave servants of the almighty dollar…

      2. evcarnut says:

        IF GM SOLD THE BOLT DIRECT , THEY COULD SELL IT FOR LESS MONEY AS THEY MAKE MORE PROFIT . AT THE SAME TIME ..Instead they pay out to the self important dealer principles…The staff & workers would keep their Jobs under the GM banner..0nly the “PROFIT TAKING” Heads would be gone!

    2. Jerome says:

      Dan fine car? It won’t even hit the road for two years. If it’s anything like the model S the reliability will be garbage and since it will be built on a much larger scale poor reliability and quality control issues are certain. The average person will be much less tolerant of these issues than your average model S owner who are mostly rich Tesla fanbois with multiple cars. At an average selling price of $42,000+ the model x is anything but affordable. I’m not a hater I’m just calling it like it is. I can buy a beautiful luxury fossil fuel powered car for that much money. I just don’t see the alure of the model x.

  5. mrenergyczar says:

    If it gets renewed, they should raise the battery size to 18 KwH’s from the current 16….

    1. Aaron says:

      Why not 24kWh? That only excludes the i-MiEV and Smart ED.

      1. alohart says:

        … and BMW i3 (21.8 kWh).

    2. Paul Stoller says:

      They should raise the floor for the credit from 4kW to 16kW.

  6. Benz says:

    One question Jay:

    Did US buyers of the Tesla Roadster also get the $7,500?

    1. Jay Cole says:

      Yes they did/it was eligible*

      *-asterisk being that the credit applied just to Roadsters placed into service beginning in the 2010 calendar year… and that the car was ineligible for US sale after 2011 due to the special exemption expiry on the airbags (remainder of inventory was sold off in Europe for the most part)

      1. Pushmi-Pullyu says:

        Ah, that explains why there were some remaining unsold Tesla Roadsters in Hong Kong for some time after they were no longer sold in the USA.

        Thanks for yet another informative comment, Jay! 🙂

  7. georges says:

    what production rates did you assume for Tesla?? The chart doesn’t make sense.

    FY 17-50K cars (12.5K/quarter)

    Q1 18-16K cars
    Q2 18-27k cars

    Looks low. They just made 16K and their goal was 20K cars/ qtr

    1. R.S. says:

      Just imagine a world were there are other countries than the US, I know it sounds strange, but who knows…

      1. Jay Cole says:

        Yes, this chart only applies to US deliveries

        1. georges says:

          They shipped almost 6K cars in the US in March. yes?

          That’s 18K cars/qtr in the US at that production rate.

          1. buu says:

            they always push last month to US the only exception will be before 200k 😀

      2. Dragon says:

        What other countries? Isn’t everyone covered by the United States of Earthmerica?

        1. ffbj says:

          No, we still need other countries in order to set up dummy companies to dodge taxes.

          1. Aaron says:

            +1000

          2. TomArt says:

            Well, to be fair, we need them to make our shirts and iPhones, as well.

            /snark

  8. David Murray says:

    It is definitely unfair that those who dragged their feet to the market will have the competitive advantage.

    1. Daniel says:

      Life is not fair. The program at some point will end and there is no way out without either those who came to market in the beginning getting to enjoy the credit for a longer period of time / number of vehicles sold, OR the laggards entering the market late after EV’s and their sales approach critical mass due to lower manufacturing costs. Someone will lose.

      1. Speculawyer says:

        Life is not fair. But government policies are something that we can control and adjust to try to make things more fair. That’s the whole point of having a democracy.

      2. Larry says:

        I don’t see anything unfair about those who entered the market early getting a larger reward. Having the phase-out begin at a certain date seems to me to be the most equitable method.

    2. pjwood1 says:

      A lot is being squandered by makers, like VW and Toyota, whose 200,000 mark will be made up of many cars that did not have the 16kwh minimum needed, to claim the full $7,500 credit.

      The unfairness will be short-lived, and cost other OEMs lots, in terms of market share becausse they waited.

    3. TomArt says:

      It worked OK for hybrids. The hybrid tax credits worked the same way. Toyota’s ended Oct.1st of 2007; Honda’s on Jan.1st, 2009; Ford’s on April 1st, 2010.

      Toyota and Ford are still the leaders in hybrid technology, and it hasn’t stopped other automakers from joining the game (though that is partially due to CAFE and emissions standards).

      I do not see a problem, here. The point is that the automakers in the beginning have worked out the kinks well enough that they can be competitive without the credit by the time it phases out for that particular automaker.

      I see no inherent, fundamental flaw. It seems to work precisely as planned.

  9. Boris says:

    No need for further incentives. 300,000 and counting is the proof, if others won’t join, Tesla will gladly steal their customers…

    1. ffbj says:

      Yes, just as they have been doing with the luxury segment with the Model S and X.
      So now they will acquire sales, stealing seems a bit unfair, from companies who make inferior products. Such as all the other car companies.

  10. Tech01x says:

    Excellent article.

    I think the tax credit program should be altered to a 1,000,000 EV threshold across all makes. Then that quarter and the subsequent quarter would be a full credit. Then a year at 50% credit. And another year at 25% credit.

    I suspect a means based alteration would also be applied at that point… $300,000 AGI would cut the credit in half, $500,000 AGI would cut it off.

    After all, there is more of an impact swapping lux sedans with 20 mpg and 500-700 g/mile CO2 for EVs than Dodge Darts.

    1. Get Real says:

      Totally agree Tech01x.

      Incentives should incentivize this transition. Open the pool up with a sunset to make them first-come, first-served to hopefully get the laggard OEMs to start getting serious.

      You could counter the laggards argument that the rules changed by increasing the size of the pool and at the same time require ever increasingly sized battery packs to get them to move away from minimal compliance vehicles.

      Some income requirements are probably necessary to fend off the right-wing idiot’s criticism that EV incentives only benefit the rich and lastly I would make the credit a point of sale to further increase uptake.

  11. Cavaron says:

    So, you are saying that six automakers alone will have 1 million EVs together on US roads in mid 2018. If that isn’t great news 🙂

  12. Delta says:

    What about the huge $14,000 CAD credit from Ontario. It seems custom built for Bolt and Model 3 because to get it, the EV has to cost over 45K but less than a Model S and have 5 seats!

    Is this going to be around for the next 3 years while I wait.

    1. ffbj says:

      Probably with Justin Trudeau at the helm.

  13. buu says:

    so you are predicting quite crappy Bolt sales? :D, funny thing I tried my predictions few days ago.
    GM even 2017Q4 possible. 120-130k this year (120k – volts flat about 2k/month, few k bolts) ,190-205 end of 2017 if sale are really good, but that way more likely deliveries of Ampera.e to push beginning expiration into 2018Q1 with 199 in the end of 2017.
    Tesla most likely 110k this year, 2017 end 165k with 5k Ees),2018Q1 190k, 2018Q2 pushing except highly optioned X/S into EU/last month of Q to Canada end ending with 199 🙂
    BTW

    1. leafowner says:

      You are talking GLOBAL numbers — the credit is for US sales only…

      1. buu says:

        cumulative as is this article

  14. Mike (evbww) says:

    If anyone is interested, I created a spreadsheet so that you can enter your own guesses as far as production. It is available here:
    https://evbww.wordpress.com/2016/04/02/tesla-model-3-tax-credit-guesstimator/

  15. Stephen D says:

    I would like to see GM and Tesla rewarded by having the program modified with a Linear phase out over 5-10 years.

  16. Speculawyer says:

    I was bracing myself for not getting the tax-credit. But since I lined up at a store and I live in California, I think there is actually a good chance I still qualify. 😀

    And to ensure it, I guess I need to load up on options. 😀 🙂

    AWD, Bigger battery, performance package.

    Here’s a potentially thread worthy discussion: Can the Tesla Model 3 become the first full convertible EV? The way the design is with a major roof support between the front seat and rear seat and another support just behind the rear seat, it is perfectly designed to create a convertible like the VW Rabbit-convertible/Cabriolet/Cabrio that has the picnic-basket-handle/Rollbar between the two sets of seats.

    https://media.ed.edmunds-media.com/volkswagen/cabriolet/1993/oem/1993_volkswagen_cabriolet_convertible_base_fq_oem_1_300.jpg

    That is an option that they can add a few years down the road.

    1. georges says:

      @spec
      That’s a very rational rationalization. I agree 100% 🙂

      I’m sold—- Awd it is.

  17. Alan says:

    An irony is that the $7500 will have more impact on Model 3 sales than Model S sales. The $7500 is largely wasted on those who can afford the Model S. Also, $7500 is less likely to impact the buying decision of a true believer (e.g., someone who already put down a deposit), versus some sitting on the fence (the people who would buy 2 or 3 years after the car had proven itself. If the goal of the incentive is to change buying decisions, it’s not working the best.

    1. pjwood1 says:

      FYI, When Tesla offered a trade value on our Model S, “$7,500” was line-item deducted from it. No kidding. They weren’t even hiding how they monetized the tax-credit back to themselves (2014). The offer (S85) was still very good. The P85 folks took “huge” baths.

  18. Nelson says:

    Only one thing is sure. The InsideEV Monthly Plug-In Sales Scorecard will be the most viewed link in the comming months.
    🙂

    NPNS! SBF!
    Volt#671

    1. Jay Cole says:

      Hehe, funny…certainly will be in late 2017 if the credit hasn’t been altered, (=

  19. G2 says:

    Who cares if there is a govt kickback? That is one of the last reasons to go EV.

    1. LEAF_n_PiP says:

      Obviously anyone who wants to buy one of the cars with a possibility of receiving the $7500 tax credit cares… That’s a pretty large chunk of change.

  20. Jonathan B says:

    My first assessment of the end of the tax credit was that it would ultimately harm Tesla and at some point it will, but if they play this right, they can get a lot of people to benefit from it. What they need to do is time three things in the next 2.5 years.

    1. The sale of their 200,000th car in the US
    2. Their production capability of the Model 3
    3. Their ability to manufacture in China/Europe

    The idea situation for the US market is them to time the 200,000th car at the beginning of a quarter, and make sure that when hitting that number, they are able to deliver as many Model 3s as possible to the US market. Elon said that the Fremont plant should be able to product 500K cars a year. Let’s assume that’s true, and they can get it to that point by the time they hit #200,000, if they release that car at the beginning of a quarter, and can deliver 250K cars in a 6 month period, they will be able to maximize their $7500 tax credits, effectively producing a total of 450K cars that qualify. If they keep up this rate of production, they can also deliver 250K cars at 50% of the tax credit and another 250k cars at 25% of the tax credit.

    A few things to keep in mind. (1) Any car shipped overseas out of this production will effectively eliminate the ability for a US buyer to get the credit, unless they are able to ramp up production in Europe/China. So in the next 2-3 years, they better get moving on overseas production. (2) Leasing the cars does not make them immune to the benefit of the tax credit. The leasing company (in many cases Tesla themselves or a subsidiary of them) is able to take the tax credit in the event that they lease the cars. A lot of this savings is passed on to the consumer in the way of cheaper leases, so these will go up accordingly. (3) The existing sales of Model S and X will eat away at the 200K number as well, so from a marketing perspective, they should attempt to market these products to a greater degree overseas in the next few years as to minimize the negative impact upon the US sales market.

    Lastly, Tesla should come up with a way to address the large amounts of customers in the US who may miss out on this credit. At some points in the next few months, they will probably need to start telling US customers reserving the Model 3, that they may not get the full tax credit when their car is delivered. This should just be done to alert them accordingly but in the event that they are slow to produce cars, thus leaving some customers paying $3750 more than they expected, they should come up with a way to discount certain aspect of the car in this scenario. My advice would be to offer these customers a discount on options (other than battery pack, dual motors, or autopilot) So you tell a customer, “we’re sorry that you’ll be unable to claim the full credit, but we’d like to make it up to you buy offering you 50% off of wheels, leather, and paint upgrades” The profit margin on these options is large and Tesla could absorb it.

    All in all, if they play their cards right, they can really maximize this credit, but there are a lot of variables in play. The best way to make sure as many people get it as possible is to be able to produce as many cars as possible once you hit 200,000. If you trickle cars out after hitting 200,000 you are only hurting your customers and your product.

    I got in line at 4AM and live in the Bay Area, so I think I’m probably good to go on the credit, but for those ordering today, the future is less certain.

    1. Rich says:

      +1
      Tesla’s strategy needs to revolve around maximizing the tax credits. This will directly affect the reservation conversion rate and affect the amount of options purchased on converted reservations.
      Tesla has a team of very smart people. I’m sure they realize this and will take the appropriate steps.

      1. pjwood1 says:

        Too funny, but if Tesla gets too close to 200k during Q4 ’17, the $$ math is strong enough to deliver foreign only, build only P90D Luda X’s, pile inventory, or do whatever it takes not to deliver in the U.S.

        1. Rich says:

          Agreed. I think Tesla will release very small batches of Model 3 into the west coast for the purpose of obtaining fast feedback / tuning the manufacturing line(s). Once the tweaks are made based on initial feedback, they could go into full on manufacturing and stockpile inventory for a large to massive release.
          There’s a lot of different ways to make this work.

          1. Pushmi-Pullyu says:

            Doesn’t seem to be any good reason for Tesla to stockpile inventory. They can just ship most or all Model ≡ production overseas until the timing is right to sell to U.S. buyers.

            Tesla always tries to minimize inventory as the end of a financial quarter approaches, by (so far as is practical) making only those cars which will be paid for by the end of the quarter, and maximizing the delivery of those cars.

    2. KM says:

      Well, in Europe and in China incentives will be slowly phased out as well so if Tesla choose to prioritise Americans too much they will piss off a lot of potential customers across the pond. What Tesla could do with so much interest and so many reservations is to:
      raise the deposit to $2000 or maybe even $3000
      use the cash to build a “tera” factory for batteries 🙂 and get one of the closed car factories in Europe for a symbolic dollar.

      1. Unplugged says:

        Are there any incentives in the rest of the world based upon production numbers? Given that most, if not all, incentives outside the U.S. are based upon a date certain, there is no particular harm to concentrating on U.S. production for two or three quarters and then focus on worldwide sales.

  21. Matthew Nelson says:

    Here’s a link to a proposal to expand the tax credit beyond 200k cars per manufacturer.

    https://petitions.whitehouse.gov/petition/increase-ev-tax-credit-cap-manufacturer

  22. Mister G says:

    If Republicans control Congress and White House say goodbye to federal tax credit.

    1. Driverguy01 says:

      Oups! just saw your comment, and i’m happy that i’m not alone thinking that way.
      Cheers to you Mister G !

    2. Aaron says:

      Ironic that Republican President George W. Bush signed the EV tax credits into law in the first place.

      My how the Republicans have lost their way…

  23. leafowner says:

    So I pre-ordered @ 7:30 Eastern on the 31st (10:30 Pacific) — I’m on the East coast — so I’m somwhere in the first 100k of orders….will I get my M3 before the end of 2018 when the credits possibly expire???

    1. Jay Cole says:

      It is our thinking that if you have your order in now (~first 300k), and Tesla starts volume production in Q1 (not token like the X), all US first wave orders will be filled – California first through the east coast. And by first wave we mean the higher capacity/optioned dual motor cars.

      Where it could get dicey is the base/lesser models, as these would come later – after the premiums have been batched through worldwide…so at the very back end.

      One should note that Tesla has previously made higher trim/options available to open orders ahead/concurrent to base versions from reservations.

      ie) if you were are looking for a base $35,000 car and you were the very first person in line on March 31st, 2016, and I wanted the “bells and whistles” jackass version of the 3 and ordered in the Spring of 2018…I’d wager I get mine first

      Tesla would certainly make every effort to deliver as many US cars as possible in a phase-out scenario, but if they have a deep order book still containing premium cars when a phase-out is occurring, they are very, very unlikely to stop/risk the high dollar/high margin orders to sell someone else a $35,000 lost leader.

  24. ericonline says:

    Jay – I hate to say it, but your Model S/X sales estimates are awfully light. Only 50k sold in the U.S. in 2017? Everyone focuses on the pent up demand for the M3, but there should be plenty of interest in the MS. And in fact all the hysteria over the M3 will spur plenty of interest in the S/X from those who don’t want to wait 3 years (or more) for a car.

    Keep in mind – moving forward anyone who is interested in a Tesla can wait for the M3 and not get any credit, or simply order an S or X and get the credit. Ironically, it makes the S/X a compelling value proposition for those who can afford it. And this may be hard for most IEV readers to comprehend, but there are way more than 50k of these people out there who can afford an 80k car.

    And let’s not forget about the pent up demand for the X. They finally ramped up production to a decent pace a few weeks ago. How long is the waiting list for this? Not sure if you assumed a 50/50 breakout for U.S. vs International sales, but Americans love there SUVs. That U.S. portion of sales should increase with the X.

    Yes, I read Elon’s tweets. He’ll game the system a little to help out U.S. M3 buyers get the credit. But unless he’s willing to let the domestic MS/MX waiting list grow substantially and intentionally miss production targets for 2 years, then delivering just 50k cars in 2017 is a pipe dream.

    1. What is a bit funny/sad about all this USA Discussion, is – up here in Canada – where Only 3 provinces did any program at all – Ontario was the best – with up to $8,500 for ALL EV’s; but now they raised the Ceiling to up to $14,000, for all EV’s BELOW $75,000 sales price – effectively killing the max rebates for Tesla, Porsche, BMW i8, etc, which now get a token $3,000 only!

      However – to my knowledge – no such shift has occurred in Quebec, which would still offer the same as before – $8,000 Max for All Cars, and BC – which offered a Max of $5,000! So now those are both better provinces to get your Model S or X, etc. in!

      Ultimately – Ontario Penalized Tesla, (and themselves) by attacking the Vehicle Price for the reduce limits, rather than the income/wealth of the higher earners! Example – earning $50,000 a year in Toronto – is survivable, but not like it might be in Buffalo – where such pay would go a lot further (Fuel costs, Housing Costs, etc., much less just 2 hours South of Toronto!)

      In My Opinion – they could have used an income only, or income + Car Price Combo to get their Token $3,000 Offer!

      IE: you want a car that costs over the $75,000 window, but – you earn $500,000 or more per year > No Rebate!
      Earning $300,000 – $499,999, $1,500 rebate !
      Earning $150,000 – $299,999, a $3,000 Rebate!
      Earning $100,000 – $149,999, a $5,000 Rebate!

      Under $100,000, you get the Old Rebate of $8,500 for cars above the $75,000 Price; and up to the full $14,000 Rebates for cars priced at sale up to the $75,000 Price Point!

      Of course – that requires more personal data to be submitted, and some might not like that – even the not so rich – just to prove they were not so rich!

  25. Driverguy01 says:

    If you really want the revolution to happen at a crazy fast pace, just install a Bonus/Malus system where every one who buys a gas car has to pay an extra $1K penalty to fund the system and give a $10K point of sale rebate to (not a tax credit!) to every EV buyer for ANY Model car. That don’t cost nothing to the goverment and tax payers.
    Then let’s see what happens and how fast the transistion is gonna take.
    It would happen so fast it would make our heads spin!
    One thing is for sure, if Cruze or Trump (god forbid) get elected, you can kiss the tax credit goodbye!
    We, in Canada, elected a Liberal Government after 10 years of a Conservative one, and look where that lead us, a $0.75 dollar.
    I trust Americans are wise enough to make the right move…

  26. leafowner says:

    Here is the link to the petition to increase the length (or number) of the $7500 EV tax credit:

    https://petitions.whitehouse.gov/petition/increase-ev-tax-credit-cap-manufacturer

    1. Rich says:

      Thanks for the link / awareness.

  27. Tesla is well aware of the tax credit methodology and will maximize the effectiveness of the credit.
    The rules are based on quarters and phase out over a year. So for instance, if they reach 200k on 1/1/18, they could deliver 300k more in Q1 and they would all receive 100% of the tax incentive. 200k just sets the trigger and they should trigger it at the very beginning of a quarter and have a nice backlog. Then the next 2 quarters (regardless of units delivered) receive 50% of the tax credit. Then drops to 25% credit the next 2 quarters.
    They can deliver a ton of cars that fit within these parameters to maximize tax credit availability.
    There is also the chance of an extension but politically, this may look like it only favors Tesla as others are nowhere near 200k vehicles.

    https://www.irs.gov/Businesses/Plug-In-Electric-Vehicle-Credit-IRC-30-and-IRC-30D

    1. Jonathan B says:

      That’s actually not true. Chevy has more cars produced in the US than Tesla and Nissan isn’t that far behind. With the popularity of the Volt, I bet Chevy hits it first, followed by Tesla and then by Nissan. Also keep in mind that there are a lot of lease returns that will be coming back into dealers over the next year or so, leaving customers with a odd window between a Model 3 release.

    1. Ambulator says:

      The White House can’t do anything without the help of congress, and that won’t happen with this President. It would be better to impose a tax on gas cars, but that’s also unlikely to pass.

  28. przemo_li says:

    Its crazy.

    Government corporate subsidies are NOT ‘fair’ by any definition.

    Why should hard working market leaders be out competed by newcomers just because government says so?

    Only end goal of subsidies can be fair or right or beneficial to society.

    End goals for EV subsidies are:
    a) bigger independence from energy outside resources
    b) smaller health costs to society from transportation
    c) attaining/retaining innovation leader position

    For above, it do not matter weather subsidies are ‘fair’, ‘right’. Only whether they are effective.

    They where. However CA system of credits could be pointed as more successful.

    But will this system hamper end goals when some manufacturers loose subsidies? NO, by any means NO.

  29. Spider-Dan says:

    I think it’s clear that Congress would never allow Toyota/Honda/VW to continue to put $7500 on the hood of new EVs while GM and Tesla receive no such advantage. The credit will certainly be rewritten as GM approaches it, so the closer Tesla can time their own approach to GM’s, the better for Tesla.

  30. Just_Chris says:

    Is it possible there are a few different strategies at play:

    GM – use the full credit faster than everyone else and then lobby like mad to have it cut

    Tesla – build capacity and order book to the point where you can open the flood gates at will. Hold off 200k until the production line is stacked then deliver 150k cars in 12 months.

    Nissan – build as big a global market as possible whilst keeping sales in the states modest but profitable. Once you have reached large enough scale to not need the credit expand in the US.

    Toyota – hold off doing anything until you absolutely have too, then add a plug to every hybrid.

    Ford – planning is expensive, just throw some batteries in the boot to keep people happy.

    1. TomArt says:

      Your proposed GM strategy sounds the most reasonable, unfortunately. It will be interesting to see where they stand when the time comes…

  31. Kevin says:

    The only thing that is “un-American” is that tax incentives are wasted on more vehicles rather than addressing the real issues facing our country. How about fixing some of the crumbling infrastructure which plays a huge role in the fuel efficiency that is realized by 100% of the US vehicle fleet, be it ICE, CGN, BEV, FCV, etc. Giving more tax breaks to the wealthy and then allowing this money to be funneled to specific locations such as California is an outright slap in the face to the American tax payer, free market competition, and the development of a robust technology that can be competitive on its own right. Electric cars are the best option right now but they are nothing but the current entry in a long line of technologies aimed at reducing emissions. Subsidizing sports cars for the wealthy does nothing to address the actual issue and demonstrates exactly how backwards this entire system is. The only acceptable path forward is to remove all government subsidization of this vehicles and allow market forces to operate as they intended.

    1. TomArt says:

      What planet do you live on? That has never worked, ever, at least since the advent of denominated currency.

      Markets are inherently inefficient because they are too slow to react to long trends, like waning public health and global warming.

      Furthermore, what could possibly be more efficient than providing substantial economic incentives to accelerate efficient engineering and renewable energy? Why piss around and poison ourselves some more unnecessarily?

    2. TomArt says:

      To be reasonable, I agree that infrastructure is a serious problem that we, as a group, continue to fail extravagantly at fixing.

      At this point, I don’t know what to do – that bridge for that interstate in Minnesota collapsed several years ago, killing people and making global news, and there have been other, less extreme cases like that happening throughout the US over the last decade or so…and yet, no action…nothing…I don’t get it…I really don’t…

    3. Jerome says:

      Good post you brought up some good points. With model S owners having first dibs at the model x the rich people will be the o KY ones saving money. This is crazy and how about fixing our nation’s infrastructure? The Obama administration has done next to nothing in 8 years to address our crumbling infrastructure. Giving tax credits to rich people is insulting.

  32. mr. M says:

    Interessting that everyone is expected to launch their Next Gen BEV (Bolt, Leaf, M3) right before the credit expires.