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Tuesday, May 9, 2017

Will You Get The $7500 Federal Incentive For Your Model 3?


The delivery of the 200,000th Tesla to a US buyer is an important milestone, not only because it will be a landmark event that no other automakers has ever achieved in the electric vehicle space, but also because it will trigger big changes to the US Federal Tax Incentive that Tesla buyers in the US currently enjoy.

With three more months of sales data, this is an update to our January 2017 article "When Will Tesla Hit 200,000 US Sales".

There's currently a $7500 US Federal tax incentive for plug-in cars with 16kWh or larger battery packs. The incentive starts to phase out soon after an automaker hits 200k US sales. Tesla appears to be the first automaker that will cross this threshold.

We've been tracking Tesla's sales for awhile here and attempting to estimate the sale of the 200,000th US vehicle. A $7500 incentive is a significant price reduction on a $35000 car. When the incentive is eventually reduced or exhausted, this could detour some buyers or send them to consider EVs by other manufacturers that have not yet used up their allotment under this incentive.

In the recent Tesla First Quarter 2017 Financial Results Q&A Call, we learned a few details that will help tune our estimate for this key delivery.

First, we heard Elon Musk say that reservations for the Model 3 continue to grow.

[Model 3] reservations continue to climb week after week. No advertising, anti-selling, nothing to test drive, still grows every week.
~Elon Musk, Tesla Q1'17 Earnings Call


Assuming that many of these reservations turn into orders, Tesla will be able to sell the cars as fast as they can make them.

Next, we learned that Tesla is on track to start production in July of this year and ramp up to more than 5000 per week by the end of this year.

There's plenty of things with uncertainty, but I don't know anything that would prevent us from starting production in July, and exceeding 5,000 units per week by the end of the year.
~Elon Musk, Tesla Q1'17 Earnings Call


Note that Musk calls out "plenty of uncertainty". Starting in July is not a guarantee, it's a goal. Also, note that "starting production" is not the same as "starting deliveries". We covered the force majeure issue in this article and this is one of the factors that makes this estimate difficult. If Model 3 manufacturing starts without a hitch and ramps quickly this will obviously be a different result than 3 to 4 months of problems and only Model S and X deliveries. For an objective viewpoint, let's look at the sales trend and see where that projects the 200,000th sale.


Sales for Q1 of 2017 have been added to our chart and the 200,000 mark moved out slightly. It now lands in Q2 of 2018. As far as the incentive is concerned only the quarter matters, not the exact date.

If the 200,000th car lands in Q2 of 2018, the incentive will play out like this:

Assuming Model 3 deliveries start in August of 2017 and the incentive is in full effect until the end of September of 2018, Tesla will have more than one year to deliver Model 3s that will be fully eligible for the US tax incentive. This should include the dual motor all-wheel-drive and performance cars that are expected to start delivery in early 2018.

So to answer the question "Will You Get The $7500 Federal Incentive For Your Model 3?". The current data says the answer is (if you qualify and you already have a reservation) "probably".

On the earnings call, Jeffrey Osborne from Cowen & Co. asked Elon Musk how many of the hundreds of thousands of people that have put their deposit on the Model 3 will receive the $7,500 tax credit? (Thank you, Mr. Osborne, for asking one of the few good questions on the call.) I will let Elon have the final word. Here's Musk's reply:

I think most people that have put down a deposit are going to get it. And the credit rolls off – it's not like a complete stop, it rolls off over time. And we are prioritizing US production, which also helps us to keep things simple because we're not making many versions of the car for different countries. Yeah, so I mean I think provided some of these – I don't know, I guess it's probably most people putting down a deposit would be able to get the full tax credit. 
~Elon Musk, Tesla Q1'17 Earnings Call