By on April 11, 2016

Tesla Model 3

Much to the delight of EV fanatics and sandal enthusiasts around the world, Tesla reported last week that 325,000 people had placed refundable $1,000 deposits on its Model 3 sedan. Even pessimistically projecting a defection rate of 25 percent, that’s still nearly a quarter of a million cars which need to be built and delivered starting late next year.

Industry analysts have nattered at length about the logistics of the mass order and Tesla’s ability to pull it off. However, there is a new obstacle on the horizon, this time involving the core reason many have given for reserving a Model 3: tax credits.

Electric vehicle credits and their limitations vary by country. In America, arguably Tesla’s biggest market for the Model 3, the Feds put a yearly limit on the number of $7,500 tax credits able to be claimed by single manufacturer. Currently, that limit stands at 200,000 credits.

Sharp eyed readers and mathematicians alike will note this figure is far less than the number of Model 3 sedans reserved to date and much less than Tesla’s goal of eventually building half a million vehicles per year. It seems then some customers may come up empty handed. Losing a $7,500 incentive would sting even for purchasers of a $100,000+ Model X; at the Model 3’s price point, it may prove ruinous. After all, $7,500 is a very attractive carrot on a $35,000 car.

The problem is compounded when one considers the $30,000 (after credit) Chevrolet Bolt, which heads to showrooms this fall. Expected to sell at a slower pace (simply because it’s not a Tesla), a sizable price gap could open up between the Bolt and Model 3 after Tesla runs out of credits.

The upshot to all this? The IRS in America doesn’t close the $7,500 credit for electric-drive vehicles until the end of the quarter after the one in which a company hits the 200,000 vehicle delivery mark in the U.S.

Put plainly, Tesla could plan to hit its credit limit on Day 1 of a particular quarter, delivering vehicles over the next two quarters until the credits are used up like napkins at a Waffle House.

It’s like a high stakes game of musical chairs using someone else’s money. Cynics in the audience might speculate that Tesla could simply say “damn the torpedoes,” manufacture and deliver as many Model 3 sedans as possible, and let customers figure out the tax credits on their own. Once all the tax credits are gone: tough luck, Mister.

The thing is though, Musk himself seems to have acknowledged this strategy during an April 3 Twitter AMA, saying, “We always try to maximize customer happiness even if that means a revenue shortfall in a quarter.” This seems to indicate Tesla is aware and planning for a credit shortage.

This is not to say Elon & Co. are intentionally gaming the system, but it does beg the question: will some customers be left standing with a $7,500 surprise when the music stops?

[Image: Tesla Motors]

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119 Comments on “Juggling Act: Tesla Will Have to Deal With a Tax Credit Gap...”


  • avatar
    laserwizard

    there should never be a tax credit to purchase anything. If you are so stupid as to purchase something, then you should bear the entire cost of the purchase; you should not require someone else to pay for your tax credit – that is what happens when we offer them. You get the discount and your neighbor pays the bill or parts of it. Or worse, it gets paid by deficit spending and we pay for this in perpetuity since we know we never pay our debts! Debts get refinanced.

    • 0 avatar
      seth1065

      I hope you feel that way with your mortgage in the US and you do not write off the taxes or interest on your 1040. because that is a tax credit in a way.

      • 0 avatar
        Master Baiter

        “I hope you feel that way with your mortgage in the US and you do not write off the taxes or interest on your 1040.”

        On libertarian grounds, I agree with you, however It’s pretty universally accepted that home ownership is worth encouraging. It’s far less universally accepted that EVs should be subsidized.
        .
        .

        • 0 avatar
          VoGo

          MasterBaiter,
          Why so anxious to subsidize the oil industry, but not electric?

          BTW, your avatar is looking pretty presidential these days.

          • 0 avatar
            Master Baiter

            “Why so anxious to subsidize the oil industry, but not electric?”

            Yes, opposing EV tax credits is equivalent to enthusiastically supporting the other 2500 pages of the U.S. tax code. Makes perfect sense.

          • 0 avatar
            VoGo

            I just don’t recall you ever opposing all the tax credits that go to oil companies, so, you tell me…

        • 0 avatar

          @Master Baiter

          Around here where supply is constricted, the mortgage write off is just a subsidy to the banks. People bid up until their monthly payment, accounting for the tax, is the most they can afford.

          Removing the tax incentive wouldn’t mean fewer people owned houses, just those people would owe less money to the banks.

          Getting rid of it now though would cause a massive drop in house prices and personal wealth, and almost certainly start another Great Recession.

        • 0 avatar
          John

          I’ve lived in Canada and USA – mortgage interest not deductible in Canada, deductible in the USA – and yet, Canadians seem to house themselves.

      • 0 avatar
        Sigivald

        Deductions aren’t credits.

        And back when I had a mortgage, I thought the interest deduction *was a bad idea*, yes.

        (Using them while thinking they’re bad policy is not contradictory, however – “the State should not use this means to encourage behavior X” is *not* incompatible with “since this means exists, I will take advantage of it”.

        Unless, that is, one’s argument is purely “the State should take in as much tax money as possible”, but … it ain’t.)

    • 0 avatar
      derekson

      I have no problem with credits for things when they help people who otherwise couldn’t afford the product, but millionaires and billionaires taking a $7500 credit + state incentives for buying a 6 figure priced car is offensive.

      If we wanted to incentivize EVs for families and middle class buyers that’s one thing, but tax payers should not be paying for toys for upper middle class and upper class people.

      • 0 avatar
        VoGo

        We’ve been through this debate many times. The purpose of subsidizing a $80K car with a $7,500 tax credit is to build the market and make EVs viable.

        If you are truly opposed to the federal gov’t subsidizing toys for the wealthy, then focus on eliminating the small business tax credit for buying Escalades.

        • 0 avatar
          28-Cars-Later

          The Escalade still has a market without a tax benefit, the Tesla may not have (although I argue it would now). So in effect Tesla was helped, if not partially created, by a deliberate distortion of the market. I’m glad you are ok with this.

          • 0 avatar
            VoGo

            I agree that Tesla was helped, if not partially created, by deliberate distortions of the market. And yes, I am OK with it, as I see a role of government in supporting nascent industries that can bring good jobs and end our destruction of the planet.

            325,000 people are waiting in line to buy a Tesla that likely won’t be available for 2-3 years, which shows me that there is real market demand now. I am one of them.

            Now it’s on Tesla to actually produce at scale.

          • 0 avatar
            28-Cars-Later

            I find the Model S intriguing, and assuming the Model 3 can be built to scale, I may find it the same. We disagree on the role of gov’t in this case, and I would point out you may not care for its meddling if it was developing a product or industry you disagreed with personally (not that I disagree with EVs per se, the market as of now is simply not asking for them).

    • 0 avatar
      zerofoo

      The Libertarian in me says: My Government took the tax dollars from me. I paid for these government programs. I am taking every single tax deduction and credit for which I am eligible – and I don’t feel bad about it one bit.

      Once we move to a flat tax for everyone, then we can talk about getting rid of tax deductions and credits.

  • avatar

    Just wait till all these Environmentaliberals get hit with EV taxes – since the government and politicians need more money and EV don’t pay gas taxes.

    Thing is: electricity is usually a byproduct of fossil fuel burning (depending on your region).

    EV owners get to pay twice.

    • 0 avatar
      VoGo

      Electricity generation in the medium term in moving quickly to natural gas- which is abundant in the US – and in the long term to solar and wind. I am happy to pay an EV tax, so long as I never have to pay for another war in the Middle East.

      No American soldiers should have to die abroad because some egomaniac needs to drive a Hellcat so he can feel good about himself.

      • 0 avatar
        CarnotCycle

        It would be relatively straightforward to make supercharged V8 Hellcat analog – or any gasoline engine – that burns CH4 instead. But all hydrocarbons are evil (CO2 = sin) in current eco-doom orthodoxy.

        To be ideologically pure, one must charge Tesla with electricity sourced from passive environment akin to a reptile sunning on a rock – such as windmills, tidal-generators, or solar panels.

    • 0 avatar
      honda_lawn_art

      “Thing is: electricity is usually a byproduct of fossil fuel burning (depending on your region).”

      Where does refined fuel come from? Miracle power?

      It takes about 4-7kWh to refine 1 gallon of fuel, an EV could go about 16-24mi on that. So a big truck actually uses more electricity than most EV’s, plus the fuel itself, plus whatever it took to get the fuel out of the ground and to the refinery, and then out of the refinery.

      • 0 avatar

        The difference is, BIG TRUCKS usually get more work done.

        Garbage trucks can get 5MPG for all I care. They provide services HONDAS CAN’T.

        • 0 avatar
          honda_lawn_art

          You can tow a ski-doo twice a year with a Ram if you want, but it doesn’t use any less electricity than a Leaf on the daily commute just because the owner doesn’t realize where gas comes from.

        • 0 avatar

          Umm, what? Most large trucks I see do absolutely nothing useful. They’re $80k each and carry their owner around, but do absolutely nothing else for fear of getting it dirty or scratching the bed.

          • 0 avatar
            Big Al From 'Murica

            Show me an 80k truck. I paid 36k. I tow probably 20 times a year and my bed is full of rotted floor from the camper I tow those 20 times right now. Now Porsches on the other hand…worse mileage than I get and can’t pull a greasy string out of a cats behind. And not all electricity comes from fossil fuel…some came from Fukushima, Chernobyl, and 3 Mile Island.

          • 0 avatar
            Vulpine

            TMI is still operating. Can you say the same for the other two?

            There are $80K trucks and the Ford Raptor is one that has reached that mark, as well as other high-trim Ford models. They tend to run around $65K but that’s before adding options beyond the trim packages.

          • 0 avatar
            28-Cars-Later

            TMI Reactor Two, where the partial meltdown accident took place, has not operated since 1979. TMI Reactor One is still operational as of 2016. If TMI had only had one reactor, it would have been decommissioned.

            Chernobyl Reactor Four exploded and thus was rendered non-operational however the other three reactors were used until 2000.

            Fukushima Daiichi had three reactors destroyed in a short time, with Reactor Four suffering an issue with the spent rod pool which may have cooked off in the atmosphere. Reactor Five and Six survived the earthquake but were permanently shut down afterward. From what I remember, TEPC wanted to keep Reactor Five and Six operational in order to continue making money during the “cleanup” but it was realized the whole site was too damaged to ever be used again.

          • 0 avatar
            Drzhivago138

            Give us a single example of a Raptor that’s ever reached $80K MSRP, please. The highest I can possibly option an F-150 on the Build and Price is $71K for a Limited with absolutely everything.

  • avatar
    DeadWeight

    The Model 3 is the beginning of the end for Tesla.

    I evaluated the situation over the weekend, and there’s not even a remote possibility Tesla will be able to add enough manufacturing capacity, not to mention that Tesla has an incredibly inefficient & massively expensive vertically integrated component supply structure, to manufacture & deliver even 25% of the Model 3s pre-ordered by 2020.

    Tesla’s inability to deliver actual Model 3s in even approximately reasonable volume, and even within an entirely generous 4 to 5 year window, is going to shred Elon Musk’s credibility even in the eyes of the most loyal, cult-like Tesla worshippers.

    If Musk is as smart a promoter as I think he is, he should be working on selling Tesla for a huge gain, now, while the hype is hanging ripe in the air.

    • 0 avatar
      VoGo

      Show your analysis.

      • 0 avatar
        DeadWeight

        It’s proprietary and I don’t give proprietary work away for free.

        Send me bank check for $10,000,000.00 USD, and once I verify the funds have successfully been deposited, I’ll send you the complete analysis.

        • 0 avatar
          porschespeed

          It’s OK DeadWeight, the first step of being very right, is always having the majority of the commenters call you insane.

          I’ve been down this road a couple of times here already. People who don;t know cars, the business, or cap ex from SpaceX will proclaim their love for the company, and lay out all the things that are unlikely to happen which will make the company succeed.

          You will run the numbers, point out that these things just don’t happen. Ever. You will point out quality issues, logistics, whatever. They will not listen.

          Eventually, as the inevitable happens they will get even dumber. I remember long posts explaining to people why their old GM stock was toilet paper, they still believed they would be made somehow, someway, whole. It was hilarious.

        • 0 avatar
          TheEndlessEnigma

          DeadWeigth is an accurate name, I have never seen you offer any positive contribution to the discussion here. I feel quite certain you would argue against the benefits of warm sunny days due to your well demonstrated simple bloody mindedness.

        • 0 avatar
          Big Al From 'Murica

          Give em’ hell DeadWeight. I always scroll TO your comments. Life is serious enough.

      • 0 avatar
        MR2turbo4evr

        http://www.forbes.com/sites/bertelschmitt/2016/04/06/teslas-unbelievable-model-3-pre-order-mirage-be-careful-what-you-wish-for/#1ebece6d4dcb

    • 0 avatar
      mister_p

      Why do you hate America?

    • 0 avatar
      CarnotCycle

      A possible factor in Tesla’s future direction is SpaceX. A SpaceX IPO is essentially an untapped bank account for Musk, and would certainly raise sums not immaterial to running Tesla.

      • 0 avatar
        Sigivald

        Well, he can sell his *own* shares in SpaceX to raise cash, sure.

        The money SpaceX, Inc. gets in a hypotehtical IPO, though, is not part of Tesla, Inc – and any mass transfer “because Elon still owns a majority” would get him hit with a massive shareholder lawsuit, and quite rightly so.

        SpaceX can’t act as a Tesla slush fund, not without lawsuits he can’t possibly win for breach of fiduciary duty.

        • 0 avatar
          CarnotCycle

          You are correct, I am talking about Musk’s monetizing his personal SpaceX equity and shipping it off for combustion in the dumpster fire that is Tesla. And I’m not even saying Musk will do such a thing, just that it is a card he could play, and playing that card would be enough cash to materially affect longevity of said dumpster fire.

    • 0 avatar
      Vulpine

      I have just one question, DW: What makes you think there is, “not even a remote possibility Tesla will be able to add enough manufacturing capability…”? Discounting your supply structure argument for now, exactly WHY do you say it’s impossible?

      • 0 avatar
        derekson

        I’m not DW, but:

        Because they lack the capital to invest in enough expansion in new equipment and hiring? Because they have a massively underfunded Manufacturing Engineering and Operations that doesn’t understand how to mass produce a modern automobile?

        • 0 avatar
          VoGo

          $32B market cap says otherwise, guys.

          • 0 avatar
            Pch101

            Market cap = stock price.

            You can research “1929”, “dot.bomb” and other such things to learn how fickle that can be.

          • 0 avatar
            VoGo

            Yes, stock prices change. Also, but $32B is a strong indication that Tesla has all the capital it needs to complete the Gigafactory and refurbish Freemont.

          • 0 avatar
            CarnotCycle

            “$32B market cap says otherwise, guys.”

            Tesla has about $1.5 billion or so in short liquidity. They lost about ~$700m last year just being Tesla. To be bigger Tesla losing bigger money making lots of Model 3’s, they will need some billions presently not available anywhere on their balance sheet.

            Lots more shares getting printed between now and then for sure.

          • 0 avatar
            DeadWeight

            “Tesla has about $1.5 billion or so in short liquidity. They lost about ~$700m last year just being Tesla. To be bigger Tesla losing bigger money making lots of Model 3’s, they will need some billions presently not available anywhere on their balance sheet.”

            Tesla cultists are convinced Tesla will make up for their per unit losses on much higher volume. /s

            Also, consider that the Model 3 has a purchase price which is 40% of that of the Model S, which nearly guarantees a bigger loss on each actual vehicle delivered than the Model S – and, in the best case scenario – even if Tesla does come close to meeting its Model 3 production schedule (it won’t, but let’s pretend), it runs out of its one, actually profitable enterprise – selling carbon credits – sooner.

          • 0 avatar
            Big Al From 'Murica

            “We’ll make it up on volume”
            -Elon Musk and Roger Smith

    • 0 avatar
      zerofoo

      There is speculation that the Model 3 will use a newer, cheaper, battery formulation:

      https://wattsupwiththat.com/2016/04/08/this-new-battery-is-a-game-changer/

      Since the battery comprises about 25% of the cost of the Model S, a significantly cheaper and easier battery should make the Model 3 easier and cheaper to produce.

      If your Model 3 analysis is based on the logistics and financials for the Model S/X then your analysis is, most likely, flawed.

      Past performance does not predict or guarantee future results.

    • 0 avatar
      tekdemon

      Lol, not to sound like Mitt Romney but talk is cheap, put your money where your mouth is and put legitimate money on the line with me in a bet about whether Tesla will be able to deliver these cars by 2020. We can either use a smart contract system to guarantee the payouts or place the money in escrow.
      Hell, I’ll bet you the pink slips to my wonderful 2003 Camry LE if you want a car in lieu of cash, no guarantee that it’ll still be in good condition by 2020 though.

  • avatar
    shaker

    If there was a check box on my tax return “Donate $10 to the EV Tax Credit Fund” instead of “Donate $1000 to the Boondoggle Fighter Plane Fund”, well…

    • 0 avatar
      THE_F0nz

      A very interesting point. I’m going to look into the costs going into each bucket.

      Also: I’m interested in what measured benefits Americans are actually getting from driving more electric cars.

      Thanks for getting the gears in my head turning on this groggy Monday.

      • 0 avatar
        Vulpine

        Fuel costs are a huge advantage for BEVs, all else being equal. At current rates, a BEV can cover the same number of miles as a similarly sized and performing ICEV at about 33% the fuel cost or less. As fuel prices rise, that advantage can move to 25% or even 20% that of an ICEV over the same distance.

    • 0 avatar
      TrailerTrash

      Any way you word it…you get to pick the box to check.
      In this case…the PC greenie government social manipulation has checked the box(es) for you.

      One, however, is an attempt to keep your country free…the other is an attempt to manipulate consumer purchases through other people’s money. And if you really wanna get picky here about real government wasted money…we could pick a whole lot more.

      But is government waste the road you wanna go down here, or just how they support/manipulate/socially experiment with consumer purchases?

      And IF you are going to give out money for EVs, IMO, it should at least be limited to the 3 and other “real peoples cars” rather than a 130 thousand frigging dollar purchase for those who need it not.

      I have always been angirer, although not happy with any gov funded purchases, about the money being wasted on the purchases of the rich than the actual incentives themselves.

      • 0 avatar
        VoGo

        “One, however, is an attempt to keep your country free…the other is an attempt to manipulate consumer purchases through other people’s money”

        Which is which, TrailerTrash?

        The US has a real opportunity in the next decade to ends its dependence on foreign oil, and stop sending our soldiers off to die in wars to protect oil. Isn’t that the REAL freedom?

        • 0 avatar
          CarnotCycle

          Handing out subsidies for consumer purchases is coercion by the state via carrots instead of sticks. Handing out subsidies for boutique conspicuous consumption like luxury sedans is silly.

          Try this: End American military engagement in the Persian Gulf. Wait three or four years for the locals to make a complete (nuclear) mess of things without the strategic babysitter around, and the resulting price of oil will “fix” our dependence on the stuff all by itself, at least in the sense of making other energy tech more price-competitive – no subsidies needed.

          If anything, the government saves money by not handing out subsidies to eco-hipster narcissism AND not having equivalent of France’s entire navy and air force camping out on other side of the world.

          The United States (and by extension North America) would also become only volume supplier of hydrocarbons in world with any strategic reliability. China also gets strategically knee-capped a little, owing to their need of hydrocarbons – let them go babysit the oil patch, or be dependent on the fickle Russians.

          Just wins all across the board for the USA if the government does LESS and not MORE.

        • 0 avatar
          rpn453

          You figure all that oil won’t be strategically valuable if all driving EVs?

        • 0 avatar
          TrailerTrash

          what?
          Which is which?
          Really?
          Others are reading this and they kinda just saw what your wrote here.

          Are you trolling? Or are you just simple?

          You should read more and try understand the oil market more.
          Perhaps you don’t even know what the American production of oil is and can be should regulations be allowed to help.

          Do you even know our production of oil? Have you really been so uninformed as to our production capabilities and the reason for the Saudi increased production this past year?

          • 0 avatar
            VoGo

            I am up on the oil market. Enough to know that the US continues to import sufficient quantities that we have fought 3 wars in the last 2 decades to keep the oil flowing.

            If fracking seems over-regulated to you, why is it that the State of Texas makes it illegal for local towns to keep it out? What is the cause of all the bad drinking water and earthquakes for the people living with it?

          • 0 avatar
            Big Al From 'Murica

            In my experience Afghanistan has tons of Blue Lapis Chess Sets and fake Beats headphones, a valuable resource.

        • 0 avatar
          Sigivald

          Our oil comes from Mexico and Canada more than anywhere else.

          None of our troops have been “dying for our oil” in … well, ever, honestly.

          (As of latest EIA numbers – https://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_ep00_im0_mbbl_m.htm

          About 1/6 of our oil imports came from the Gulf – and most of that from Saudi Arabia, not a battleground for US troops.

          40% of our oil imports came from Canada.)

          “Dying for oil” is a trope that *never* made much sense, and is utterly baseless now and for the past, oh, over 20 years.

          • 0 avatar
            Sigivald

            (Contra above, 3 wars in the past 2 decades?

            The last invasion of Iraq had nothing to do with oil, and we don’t even import Iraqi oil in quantities that aren’t rounding error. Nor was Hussein “gonna shut off the oil” such that it prompted an invasion.

            Afghanistan? No oil, no threats to oil, nothing of any resource import at all, ever.

            Libya? Also no threat to oil access. Also no troops.

            Syrian rebel support? No troops either, also no threat to any oil supplies.

            If we were fighting wars “to keep the oil safe” we’d have invaded *Iran*, which keeps threatening the Strait of Hormuz and talking big about how we’re the Great Satan.

            Iran remains entirely free of any military effort of the United States, note.)

          • 0 avatar
            VoGo

            Sigivald,
            1. Look up the term “fungible commodity”. The source doesn’t matter – what matters are supply and demand. When 50% of the world’s oil is in the Gulf and Russia, our economy is vulnerable to grinding to a halt when it stops flowing.

            2. If you truly believe the first Gulf War was about defending the liberties of Kuwaitis, then we can end the conversation now, because no logic will reach you.

            3. The second Iraq war was clearly a continuation of the first, driven by a child’s need to “avenge” his father’s “defeat”. WMDs were a ruse.

            4. Afghanistan was about revenge for 9/11, which was caused by Al Queda’s hatred for the US, driven by having US soldiers in Mecca. If they weren’t there defending the oil, there would have been no 9/11.

            5. Libya is in Africa. I do not know why you mention it.

          • 0 avatar
            rpn453

            They’ve got Iran surrounded. It seemed like they were trying to justify taking it a few years ago, but couldn’t get public support.

          • 0 avatar
            shaker

            Gee, if EV adoption could replace the “1/6th” of our oil supply from the Middle East, that would be a worthless goal?

            I’d still check that box.

            As far as “dying for oil” is concerned, filling up our tanks in some way funded the Saudis, and (to some measure) Osama Bin Laden.

            So, I’d still check that box.

  • avatar
    28-Cars-Later

    Ok so we’ve established tax credits are corporate welfare, and yes Volt and Leaf buyers have benefited along with Tesla buyers to this point. But now that up to 325K new sales are in the offing there is a chance the tax credit evaporates? Do I read that right?

    • 0 avatar
      THE_F0nz

      I didn’t know that was established…

      Edit: Yes i’m just trolling with this sarcastic post. I just generally have my B.S. meter go off immediately when someone establishes their position by stating: “since everyone agrees my position is absolute truth, I’m going to connect a few more dots for everyone to accept truth as well.”

      • 0 avatar
        VoGo

        How are EV tax credits that go to the individual consumers buying cars classified as ‘corporate welfare’?

        It’s a tax credit, like you get on the interest on your mortgage or a charitable contribution.

        • 0 avatar
          dartman

          VoGo–A tax “credit” such as on electric cars and solar panels for your home is very different from a “tax deduction” such as mortgage interest. The tax deduction for mortgage interest can be eliminated if you are subject to AMT. Credits are not subject to AMT and reduce your tax bill dollar for dollar, tax deductions just reduce your taxable income.

          FWIW I think tax credits in general are a good way of affecting social policy, stimulating the economy and reducing taxes.

          • 0 avatar
            Pch101

            In the macro, credits and deductions are effectively the same thing: They allow taxpayers to use some sort of activity to reduce their tax liability. The math is different, but that isn’t material to the purpose that they serve, i.e. to motivate behavior.

        • 0 avatar
          28-Cars-Later

          Because of the existence of the tax credit, when doing product planning the actual target price of the product is simply inflated the value of the tax credit. If the target price is 30K with a ten percent margin (so production cost 27K) the targeted translation price suddenly becomes 37500 when the tax credit is offered. There shouldn’t be a tax credit in the first place, in addition to the poor use of capital, it artificially increases the cost of the product.

          Since we’ve already gone down that road, I will find it very curious of the credit is reduced or eliminated for the more ordinary people placing orders for the cheaper Model 3 since there will be well over 200K orders.

          • 0 avatar
            Pch101

            “it artificially increases the cost of the product.”

            Without the tax credit, the product might not be produced in the first place. It’s ultimately a subsidy to the producer, but the more likely alternative is to not build it at all.

            That being said, I suspect that Tesla’s strategy will involve selling little or no product at $35k. That’s a sort of bait-and-switch to get people in the door, and the real world prices will be higher.

          • 0 avatar
            28-Cars-Later

            I agree pricing the Model 3 at 35K is a bait and switch tactic.

            “Without the tax credit, the product might not be produced in the first place”

            I don’t have a problem with this. I don’t recall Ransom Olds’ or Henry Ford’s companies getting a Federal tax credit, and yet they prevailed (this is not to say either gentleman’s business did not benefit from some from government policies, but they were not the direct recipients of a Treasury check for their product as is Tesla, Nissan, or GM).

          • 0 avatar
            Pch101

            My point is that the subsidy doesn’t make the vehicle more expensive, but allows it to exist in the first place.

            Without the subsidy, the gross revenue per unit would probably be the same. But without a subsidy, the net price paid by the individual consumer would be higher. That higher net price should lead to fewer sales.

            If the anticipated sales fall below a certain level, then the product gets shelved. Cut the volumes too much, and the cost per unit will be too high to justify launching it. The effect of the subsidy should be higher volumes, not higher prices.

  • avatar
    285exp

    The limit of 200,000 vehicles eligible for the $7500 credit isn’t a yearly credit; once Tesla has delivered 200,000 vehicles total the credit begins to phase out for good. The only issue is how many Model 3 buyers will even get the reduced credit, much less the full credit. If Tesla’s typical production delay occurs, they might sell enough Model S’s and X’s to hit 200,000 before they sell the first 3. And the credit doesn’t start again at zero the next year unless government decides to renew it, and it would seem unlikely that they would. The whole point of the credit was to encourage the development of EVs, now that Tesla has developed a mainstream EV, it’s time for it to stand on its merits.

    • 0 avatar
      TrailerTrash

      That s how I understood the credits…for total cars sold.
      It would be unbearable if that number started anew every January.

      • 0 avatar
        VoGo

        EV tax credits are “unbearable”, but sending kids to die in Iraq is just good business?

        • 0 avatar
          TrailerTrash

          yes.

          and giving my brothers who have the ability to purchase homes throughout the world a tax break so they can spend 7K less on their 130K car is madness…no matter who twisted your liberal logic is.

          Not being able to distinguish between government waste and this tax break for the rich is a sad reflection on your ability to reason at all.
          And your mad drive to connect THIS discussion with wars and military involvement throughout the world is another reason not all folks should be allowed to reproduce…let alone vote and drive.

          • 0 avatar
            VoGo

            You want me to have a vasectomy because you can’t comprehend that paying to create a new market for electric cars is preferable to going to war? Get in line, TrailerTrash.

      • 0 avatar
        mike978

        It is how it works – a total of 200,000. So by late next year Tesla will have probably sold around 100,000 Model S and X’s. Therefore no more than 100,000 US buyers of Model 3’s will get a credit.

        Musk was clear on the price being $35,000 before incentives and not highlighting those. He could have been misleading and said the 3 only costs $27500, thankfully he didn’t.

        • 0 avatar
          285exp

          In December of 2015 the Model S hit 100,000 total sales, and they sold over 50,000 vehicles in 2015 alone. Now they are starting to deliver Model X’s in greater volume, so they could hit 60,000+ this year and might easily hit 200,000 before the first 3 is delivered.

          And VoGo, I doubt that the $7500 tax credit is going to have much of an impact on how many kids die in Iraq.

        • 0 avatar
          tekdemon

          That’s not how it works. Once the 200000th car is sold the phase out starts but the car company gets two fiscal quarters to start phasing it out entirely. So it’s not like the 200001th car doesn’t get a tax credit, the 200000th unit just triggers the timer then the next six months or so (it’s not exact because it depends on when in the current quarter this milestone is reached) people can still get the credit and then it goes to half, quarter, then zero pretty rapidly.

          Bloomberg did a good analysis here:
          http://www.bloomberg.com/news/articles/2016-03-31/want-a-discount-on-the-new-tesla-model-3-get-in-line

          So by their estimates the full credit should be available on cars sold until late 2018, but of course many if not most of those cars are already pre sold at this point.

          My guess is pretty much everyone who waited on line has a reasonably good shot at the $7500 credit because Tesla will only need to be able to produce maybe 50,000 cars to fill US orders before the end of 2018 which they should be able to achieve. While they’ve bungled previous launches this model is less complex than previous models because of it’s more downmarket nature and a lot of the R&D is already done because it was done for the other two models. So filling 50,000 orders should not be impossible.

    • 0 avatar
      Russycle

      285exp is correct, and Matthew really needs to correct that. Granted, the EV tax credit scheme is a bit confusing, but Matthew flat out got it wrong here.

      It is worth noting that Musk didn’t include the credit in his promotion of the 3, and the $35K price is not out of line compared to other premium brands’ starter models. Whether Tesla is a premium brand is of course a matter of perception, but there seem to be few hundred thousand people who feel it is.

  • avatar

    When i was a kid my parents put me on a list with Pan Am airlines for when commercial service to the moon begins. They didnt put down 1k towards that fantasy, though.

    Has anyone actually read the deposit agreement or whatever contract of adhesion came along with this ? B and B. Someone out there has one.

    • 0 avatar
      mike978

      When I looked at the contract it was a simple one page document. Detailing that it was a fully refundable $1000 deposit and was to reserve a place in line. It was not particularly onerous and really the only issue is if Tesla collapsed in the next 21 months before production should start.

  • avatar
    honda_lawn_art

    I don’t think this lack of credits is itself a showstopper. The Model 3 makes a fine case for itself against Infiniti’s and such at it’s full price. Even when the government starts charging a road tax for EV’s I think sales will be fine.

  • avatar
    porschespeed

    “Even pessimistically projecting a defection rate of 25 percent, that’s still nearly a quarter of a million cars which need to be built and delivered starting late next year.”

    Pessimistically? In what universe? There were deposits put down by kids who can’t even drive yet (which is illegal, but for another day). No to mention over the next 2 years (the soonest any cars will actually be delivered, there’s a lot going on with other companies. No to mention people who just can’t wait. Or have no actual money, Or, or, or….

    Every automaker knows that if they have a hit, they could sell 100K in week one. But since they are never that ramped-up, it never happens.

    It optimistically might be 30% conversion by the time it actually comes. And that’s only because Tesla fanbois have no mind of their own. If it actually ever comes, and all the logistics are strongly against this ever coming together. The crossover is still not fully baked, and has many unresolved issues. (Which is kinda where they should have focused, but that’s a different post.) The Model S has quality problems that are coming to light after a few years of ownership, I guess we should throw cars away just like phones, huh?

    When your $90K car is not right – especially after you’ve owned it for a few years, guess how well the company will execute a car that costs half as much?

    Vanity cash furnace. Nothing more.

    • 0 avatar
      VoGo

      I don’t think anyone who actually owned a Porsche would look at another car and use the words “vanity cash furnace.”

      • 0 avatar
        porschespeed

        VoGo, Obviously you do not own a Porsche, or you think an UberBeetle is a Porsche. Only because the badge says so…

        I have a few watercooled, front-engined Porsches. A few knock hard on the double-ton (gotta regear), they run on pump gas, and start when I twist the key. Every time. they’re pathetically simple to fix and cost me just this side of a Toyota for parts.

        They are stone-axe reliable. My 928 daily driver has died precisely once in 300K miles (bad fuel pump). Leakdown is currently about 10%, so the engine will eventually be ring/bearing slapped and returned for a couple hundred more thousand miles. I’m sure the bore is fine, it’s a Reynolds 390 block after all.

        I have a couple of 928s, a couple of 951s, and a 968.

        911 owners have a variety of troubles that don’t affect clean-sheet Porsches. You know, the ones actually profitable enough that have kept Butzi’s Mistake in production all these years.

        I have a few clients with high mileage Cayennes. They’ve survived 150K miles plus without any major issues. One is at 225K miles with nothing but routine service.

        • 0 avatar
          VoGo

          No,
          I don’t own a Porsche, and I have no idea what an UberBeetle is or what it means to knock hard on a double-ton. I don’t know who Butzi is, and I don’t really care.

          I am flirting with the idea of buying a 718 Boxster, but I suspect that you’re just the kind of person who would lecture me on how that “isn’t a real Porsche”.

          But I do know that if you don’t see the irony of or humor in a Porsche owner using the phrase “vanity cash furnace” for another vehicle, then maybe you take yourself too seriously.

          • 0 avatar
            porschespeed

            “I have no idea what an UberBeetle is or what it means to knock hard on a double-ton. I don’t know who Butzi is, and I don’t really care.”

            So you readily admit that you have no idea what you’re commenting on, and have no qualification to speak at all. Got it. But you can speak your nonsensical drivel, because why, exactly?

            Once again, you have no idea what you are talking about.

          • 0 avatar
            porschespeed

            Oh yeah, and the 718 Boxster? It has it’s engine where it belongs – ahead of the rear wheels. It’s a far better driver than a 911 (UberBeetle) derivative.

          • 0 avatar
            VoGo

            All I was writing was I found it humorous that a Porschephile used the term “vanity cash furnace” about another car.

            Is your ego so fragile that you can’t tolerant the gentlest of ribbing?

          • 0 avatar
            porschespeed

            I’m fine with the most hostile of ribbing – if it’s rooted in fact. Argue a point, you’ll get my view, and something called respect for an opposing viewpoint based in fact.

            When it’s completely out of left-field bull excrement by someone who readily admits they have no idea what the eff they’re talking about, then you’ll get derision.

      • 0 avatar
        tekdemon

        The funny thing is I own a Porsche as did many of the people on line with me to put down a deposit on their model 3s. Quite a few fellow PCA members too. Porsche owners appreciate cutting edge tech that costs a bit more money after all. A Tesla isn’t a track car but the raw acceleration is still pretty fun and the low center of gravity certainly helps hide the heft of those batteries.

        And frankly while Porsches are reliable in the sense that you can technically make them last a long time, you can easily spend more in maintenance in a year than you’d spend on a regular car in a decade. Clutch oil change? That’ll be $1100 and only the dealerships can do it because it needs the PIWIS tool. Oh add another $1000 for the major service every 20,000 miles. If you aren’t careful the dealerships will sell you $200 wipers lol. A tesla will likely break a lot more often but given the nonexistent maintenance of the power train and much less brake maintenance due to regeneration account for much of the brake force you’ll probably break even again most Porsches. Not that owning one out of warranty will be a fantastic idea.

    • 0 avatar
      derekson

      I think 50% conversion to sales would be optimistic. 30-50% sounds like a good estimate of the practical range that will convert to actual deliveries.

  • avatar
    dwford

    It is what it is. As long as they inform customers further down the wait list that the tax credit may not apply to them, that’s all they need to do.

  • avatar
    Master Baiter

    Obama will just get out his pen and his phone and extend the tax credit to 1M Teslas. Problem solved.
    .
    .

    • 0 avatar
      VoGo

      From your mouth to God’s ear, as they say. But what you describe sounds a lot like legislative action, not executive.

      • 0 avatar
        Master Baiter

        “But what you describe sounds a lot like legislative action, not executive.”

        Duh. That’s the whole point. It’s akin to issuing hundreds of waivers to companies that prefer not to deal with the onerous provisions of Obamacare. You see, what Obama is trying to do is too important to rely on the consent of that pesky congress run by those rascally Republicans.

        • 0 avatar
          VoGo

          If Congress were to step up and start to actually legislate, or – heaven forbid – advise and consent, then perhaps the President wouldn’t have to take action unilaterally.

          • 0 avatar
            Master Baiter

            Plenty of past presidents were able to work with and compromise with an opposition congress. The fact is, Obama is a horrible negotiator, and, by and large his policies are unpopular.

          • 0 avatar
            VoGo

            They won’t even meet with him. Not because he’s black or anything – that would appear racist. Because they are PRINCIPLED, and True Conservatives with principles would rather shut down the government then allow a bill to pass that violates their sacred principles.

  • avatar
    rjg

    Wasn’t Tesla late with both the Model X and Model S? Lots of customers put down $5000 for a place in line with those models, and it didn’t seem to hurt Tesla that they were delayed. Sure, the model 3 will be late, many people on the waiting list won’t actually order one, and the tax credits will disappear, but I’m sure they’ll still be able to sell as many as they can produce.

    It just seems like pundits are quick to predict Tesla’s demise with every new model. Would a company without as strong personality like MUsk at the Helm be able to get away with that? Probably not. But I think we’ve learned by now not to bet against him.

    Also, the whole point of the tax credits was to stimulate consumers interest in electric cars. Mission accomplished. Unlike many of the EV “compliance cars” to date people seem to actually desire Teslas. It’s not like choosing an electric Fit simply because the lease is so damned cheap. So the fact that there will be no more tax credit is unlikely to hurt them much in terms of demand.

    Even the buyers of the base “35k” model are more likely to be similar to buyers of entry level luxury cars such as the BMW 3 series. They likely won’t be buyers who would’ve bought base Camry LE. So if they like the car, they’ll pony up for it tax credit or not. (and just like the 3 series, the bulk of sales won’t be stripper base models anyway).

    I don’t really see the Bolt as a substitute despite its similar range. The Model 3 has a much sexier design (and brand) that will draw buyers in. It’s sort of like comparing a loaded Honda Accord to a base 320i. They’re both sedans in the mid 30s, but will appeal to differnet buyers for different reasons.

    The whole cult-like aspect about Tesla turns me off as much as it does some of you. But I wouldn’t let that color your predictions.

    • 0 avatar
      DeadWeight

      Tesla’s inherent takes & warts will be magnified greatly as it attempts to ramp up a new production line for the much higher volume, and lower profit (almost inevitably money losing even with carbon tax credits given Tesla’s inefficient vertically integrated component sourcing) Model 3.

      This is where existing manufacturing capacity (supplier and assembly) really counts, and expanding both through capex is as a Herculean a task as any in the auto and aviation sectors.

      • 0 avatar
        VoGo

        It’s really hard to do what Tesla is attempting. The streets are littered with startup car companies from the past century. And yet, Musk & Company are giving it valiant effort.

        I am surprised by the lack of support among the B&B. Maybe they are completely in love with the products already on the market from Cadillac, Dodge and Nissan, and they don’t feel the need for another carmaker.

        Maybe they simply love getting schlonged by dealers, so they hate Tesla’s direct sales model. Maybe they don’t see the need to accelerate to 60MPH in 5 seconds. Or maybe they just don’t like new technology.

        Or, just maybe, they’re jealous of one of the greatest entrepreneurs of our time. Whatever the reason, they are loud.

        • 0 avatar
          derekson

          “I am surprised by the lack of support among the B&B. Maybe they are completely in love with the products already on the market from Cadillac, Dodge and Nissan, and they don’t feel the need for another carmaker.”

          Some of us analyze things rationally based on the actual facts rather than rooting based on our biases.

          • 0 avatar
            VoGo

            “Some of us analyze things rationally based on the actual facts rather than rooting based on our biases.”

            OK. That can explain pessimism for the business model. But the outright hatred? Methinks the B&B doth protest too much.

          • 0 avatar
            mcs

            >> Some of us analyze things rationally based on the actual facts rather than rooting based on our biases.

            The problem is that they don’t have actual facts. Has DW posted his analysis yet? Put up or shut up.

          • 0 avatar
            porschespeed

            mcs, This is a company that has NEVER made money. Ever. (EBITDAA showing a coupla MM ‘profit’ is not making money.)

            This steaming pile of an insult to the great Nikola Tesla exists *only* because a South African carnival barker lucked into a startup stock-grant payday, and has convinced a bunch of idiots to throw money at his goofy ideas. Which are those of every child who thought about trains. (A vacuum tunnel? How revolutionary! ROFLMFAO!)

            Back in the pre-GMBK days I used to lay out the numbers, explain it all. and waste my time on f-wit people who couldn’t get it.

            I no longer care that much. Stupid people can hand me their money on Tesla’s way down. Just like GM. Learning experience for them and whatnot.

            There is no reason this company has survived more than a couple of years, other than useful idiots.

          • 0 avatar
            VoGo

            porschespeed,
            Since you are obviously so much smarter and more experienced than the fools in the stock market who value Tesla at $32B, you shouldn’t waste another second on this site and should instead rush – RUSH I TELL YOU – to your broker to short the stock.

          • 0 avatar
            mcs

            @porschespeed When you’re building a company, you’re going to burn more money than you take in. I don’t know about companies that you’ve started, but that’s the way it’s been with mine.

            Look at what Tesla is doing. They’re developing a product line of at least 5 different vehicles, building manufacturing facilities, sales and service facilities, and fueling infrastructure. Once the initial product line and facilities are done, they’ll start turning a profit. They’re going to be helped by falling battery prices. GM and probably Tesla as well are paying about $145 per kWh. That means the cells for a 60 kWh battery will cost $8700. Better manufacturing technology is going to drop that cost further. I’ve seen the machines and process – they are real and moving out of the labs.

            Another thing they have going for them is that they seem to have paid a lot of attention to the cost and ease of assembly with the Model 3. That’s a major reason the dash is the way it is. That glass roof reduces painted surfaces and makes the roof and rear window a single piece. I wouldn’t be surprised to see a high percentage of automation on it’s line.

            I’ll join VoGo in encouraging you to short Tesla. go for it if you think we’re wrong. But first, you might want to go back a few years and read articles about Amazon and profitability.

          • 0 avatar
            porschespeed

            You do know that 25% of all available Tesla stock is borrowed for the short, no?

            I know exactly what I knew about old GM (and Enron and BetterPlace…) and they paid me very well.

            I’m fully fine with taking the money of fools who can’t actually read a 10K and actually *understand* it.

  • avatar
    Vulpine

    Some serious mistakes in the facts of the article itself, most of which have probably already been touched but which I would like to emphasize.

    That 200,000 credits is not a “yearly” credit but an overall one. Once a brand sells 200,000 ZEVs, that credit begins to drop on a calendar basis. The value of the credit will remain the same for six months after reaching that number, then drop 50% for six months, then drop one more time by 50% for a final six months, after which there are no more credits. For most brands this won’t be an issue because they sell so few ZEVs and even Chevrolet, despite already having the Spark on the road, will take two or three years to reach that 200,000 number as they have only scheduled for 30,000 per year with the Bolt which would give them between six and seven years if we don’t count how many Sparks have already sold. Chevy isn’t going to hold that number to 30K per year if there is significant demand but they may try to push production up now that they’re aware of how many reservations Tesla has for the similarly-priced Model 3.

    However, Tesla does have an issue which could make a difference for later reservation holders. Seeing as they have already produced nearly 100,000 total BEVs and we’re expecting another 18 months approximate before the Model 3 enters production, that will see Tesla with a possible 180,000 cars already on the road by the time the Model 3 comes out. This would give them a total of 20,000 combined S, X and 3 sales before they hit that 200,000 limit at which point Model 3 production needs to be at maximum output (conceivably 100,000 vehicles or so per year) just so the first 50K or so can get the full credit. The second 50K, including the S and X models, would realize a $3750 credit and the third period would see an $1875 credit. Then they’re all done with Federal credits in the US, though maybe not elsewhere and state/local credits if any.

    This does NOT count any CARB credits that can be sold to other OEMs.

  • avatar
    mcs

    “The problem is compounded when one considers the $30,000 (after credit) Chevrolet Bolt, which heads to showrooms this fall. Expected to sell at a slower pace (simply because it’s not a Tesla), a sizable price gap could open up between the Bolt and Model 3 after Tesla runs out of credits.”

    The Bolt is going to lose it’s credits too thanks to help from Volt sales. They’ll probably be gone shortly after the Model 3 ships.

  • avatar
    vagvoba

    No one should be given tax credit for buying a luxury product. It is ridiculous to give tax dollars to those who can afford buying a Model S or a Model X.
    The credit should be applied only to cheaper cars.
    For example the full credit should apply to cars not costing more than $25K, then it should linearly decrease and disappear at $40K. That would incentivize the industry to develop cheaper electric cars that more people can afford.
    Of course in the same time the credit should be reduced, so that more people can get it.

    • 0 avatar
      SCE to AUX

      The intent of the subsidy was to reduce the pollution footprint of purchased vehicles. The income of the buyer is irrelevant to achieving that end.

      Nissan is still (barely) the all-time sales leader for EVs in the US, but Tesla is way ahead now in sales pace.

      Nissan’s Leaf has become less compelling in the last two years, and so people aren’t buying it. The same $7500 credit – plus heavy Nissan discounting – still can’t move Leafs now. $80k Model Ss are selling at 3x the rate of $16k Leafs.

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