The Tesla Model 3 is revolutionary because it’s an electric car for the masses. Over 200 miles of electric range and a sub-$35,000 price tag added up to hundreds of thousands of pre-orders, before anyone had even seen the Model 3. Lost in the Tesla Model 3 hysteria, however, was a little math problem.
The Tesla Model 3 base price will be $35,000, minus local tax credits and the $7,500 federal electric car tax credit, right? Well not for most Model 3 customers, as the federal tax credit is phased out after an automaker sells 200,000 vehicles in the U.S.
Tesla’s likely to reach that threshold before many Model 3s are delivered to customers.
Although it’s hard to nail down the exact number of vehicles that Tesla has already sold in America, analysts expect the 200,000 limit to be reached by 2018, mostly fueled by rising Tesla Model S and Model X sales. They’re not the only automaker facing this limit. General Motors will likely hit the threshold soon after the Chevy Bolt goes on sale.
If the company’s history of product delays is repeated with the launch of the Model 3, it’s likely that very few, if any, will be eligible for the federal electric car incentive. As of April 21, Tesla had received nearly 400,000 orders for the new model, each accompanied by a $1,000 deposit, Tesla Chief Executive Elon Musk confirmed last week.
Tesla plans to start delivering the Model 3 by the end of 2017, though most industry observers see the schedule as overly ambitious, especially for a company with limited experience mass producing mainstream vehicles and with a track record of delayed vehicle shipments.
The way the federal tax credit works is that once the 200,000 vehicle threshold is met, all vehicles produced in that quarter and the following quarter would still be eligible for the federal subsidy. For the next two quarters, the electric car tax credit would be halved to $3,750, regardless of the number of vehicles sold in that time. For the final two quarters of the program, the credit would be halved again, to $1,875, before being eliminated altogether.
It’s been theorized that Tesla, a company that can strictly control its pace of sales due to its direct sales model, can arrange for the 200,000 sales threshold to be met on day one of a quarter, thus allowing thousands more vehicles sold in that quarter and the next to qualify for the electric vehicle tax credit.
Of course, that all could change if Congress decides to extend the Tesla tax credit, though no such extension is currently proposed.
In order to enhance cash flow, the company is expected to begin production with heavily optioned, high profit-models, adding to the unlikeliness that a Tesla Model 3 will ever be delivered for $27,500 (minus state incentives).
It’s unknown how many of the people who put their $1,000 down on the Model 3 will rethink their decision once they realize that they won’t be eligible for the tax credit, making their out of pocket Tesla price much higher. Auto analysis firm Kelley Blue Book surveyed car buyers interested in a Model 3 and learned that 40 percent would not be interested without the federal tax credit. It’s not known how many of those respondents actually put a deposit on a Model 3.
Of course, to get the best incentive on a new Model 3 you could move to Colorado. The state offers a tax credit of up to $6,000 on alternative fuel vehicles sold until 2021, when the last of those 400,000 Tesla Model 3s might finally be delivered.
Tesla Model 3
The Tesla Model 3 unveiled on March 31 is a five-passenger electrically powered four-door sedan. Tesla has announced that the car will have a range of 215 miles on a single charge and accelerate from zero to 60 mph in six seconds.
Pricing will start at $35,000, less available incentives and tax credits. Current Tesla buyers have shown a propensity to add many expensive options to their vehicles, fueling speculation that few Model 3s will be sold at anywhere near the base price.
When it arrives in the market, the Model 3 will already have some company in the reasonably priced, long-range electric vehicle segment. The Chevy Bolt is due at the end of 2016 and promises a 200-plus mile range like the Tesla. Its base price is a slightly higher $37,500, though the Tesla’s pricey option list is likely to drive it to a higher average final sales price. The Bolt will be available nationwide, unlike GM’s previous battery-electric offering, the Spark EV.
The Tesla Model 3 joins the Model S high-performance luxury sedan and the lightning quick Model X SUV in the company’s lineup. The Model S is the No. 1-ranked vehicle in U.S. News and World Report’s listing of luxury large cars. The Model X SUV recently arrived in Tesla galleries, following long production delays caused by its innovative, yet problematic falcon doors.