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Monday, January 30, 2017

When Will Tesla Hit 200,000 US Sales


Will Tesla Model 3 buyers in the US get the full $7,500 tax incentive? Take a look at the data.

As of the end of 2016, Tesla has sold about 110 thousand cars to US buyers. This puts them over half way to the 200 thousand mark. The 200k mark is important because it triggers changes to the US EV incentive.

Currently, there's a $7500 US Federal tax incentive for plug-in cars with 16kWh or larger battery packs. The way the incentive is structured, it starts to phase out soon after an automaker hits 200k US sales. It appears that Tesla will be the first automaker to cross this threshold. More details of the impacts to follow.

There are about 400k people waiting for the Tesla Model 3 to ship. With about half of these orders going to the US market. This means that there are about 200k people that really want to know, one, when they will receive their Model 3 and, two, will the US EV incentive still be in full effect when their car is delivered.

So when will Tesla deliver their 200,000th car in the US? If Model 3 goes according to plan, it could be this year. Here is what Elon Musk said when asked about Model 3 deliveries.

So as a rough guess, I would say we would aim to produce 100,000 to 200,000 Model 3s in the second half of next year. That's my expectation right now.
~Elon Musk, Tesla Q1'16 Earnings Call


In the quote above, Musk is not talking only about the US market. 100,000 to 200,000 is a big range, and Musk has consistently been optimistic with delivery dates and targets.

Rather than decipher words and argue, let's look at the data. Below is Tesla's US sales data from June 2012 through the end of 2016. The projection still leaves plenty of room for argument.

Tesla Motors sales from June '12 through December '16 with projections into 2018
The trendline above is a simple mathematical guess. You can find more and less optimistic trendlines that fit the data just as well, but let's use this one for now. This line forecasts that Tesla could ship their 200,000th US vehicle in March of 2018.

It is not hard to see that if 110k cars have already been shipped, 200k people in the US are waiting, and incentive charges start happening after 200k cars, then some people may not receive the full incentive. This simple calculus does not tell the entire story. How the incentive program phases out will have a big impact on the number of people that receive the full benefit. So...

Here's how the incentive phases out: In the quarter following the 200,000th sale, Tesla will report that they have delivered the 200,000th vehicle. In the quarter following that, the incentive will be cut in half, dropping it to $3,750. Six months later it then drops again to $1,875 for the six more months. After that, it's done. Figure 2 below will show this graphically.

March is the last month of the first quarter. Noting how the Federal incentive program works, you'd want to ship your 200,000th vehicle early in a quarter, rather than late in a quarter. Timing this delivery is not cheating or illegal, it's just smart. It's like the difference between tax planning and tax evasion. The former is smart and everyone should do it, the latter is illegal. Scheduling the 200,000th delivery for early in a quarter allows more people to receive the full Federal incentive; it's the right thing to do for customers.

So if Tesla really is on-track to deliver their 200,000th vehicle in March of 2018 as the trendline above projects, then they would likely reduce US shipments that month, sending a few more cars to Europe and Canada for example, and then deliver the milestone car in April instead. If they do, the below table explains how the incentive would progress.

The above scenario allows Tesla to deliver Model 3s (and Model S and X) until September 30th, 2018 with full Federal incentives intact. If you are buying a Tesla, then this date for the Federal EV incentive to reduce is far more important than when the 200,000th car was shipping. This is the date that you really need to know so you can take delivery on, or before, September 30th, 2018. When Model 3 starts shipping we'll have a much clearer picture of the timeline and we'll publish an update to this story.
US Federal EV Incentive Phase Out Example

Wrap-up 

Tesla is likely to deliver their 200,000th vehicle in the first half of 2018. This will trigger the Federal EV incentive to begin its one-year phase-out. This should ensure that all US Model 3 reservation holders as of today will receive some level Federal incentive with the vast majority receiving the full $7500.