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Friday, February 19, 2016

How To Get $3750 Of Free Upgrades On A Tesla Model 3

Tesla confirmed that the highly anticipated Model 3, set to be unveiled on March 31, will have a base price of $35,000 before incentives. Tesla will start taking pre-orders on unveiling date and they plan to start delivers of vehicles in Q4 of 2017. With the $7,500 federal tax subsidy, you could drive off in a base Model 3 for $27,500. If you live in a state that has additional tax credits, it could be even cheaper.

That $7,500 federal tax incentive is a significant price reduction to a $35,000 vehicle, but (even if you pre-order this year) there is no guarantee that this incentive will still be available by the time you receive your Model 3. The law creating the federal tax incentive only applies to the first 200,000 vehicles sold in the US from each auto manufacturer then it phases out over 1 year. More specifically, after the quarter following the 200,000th sale, the incentive drops down to $3,750 for six months and then it drops to $1,875 for the next six months.

When Will Tesla Hit 200,000 Total Sales?

So the question is, when will Tesla hit 200,000 in sales? And will it be before they start Model 3 deliveries? Tesla holds their sales data closer to the vest than most car companies. They release quarterly sales numbers, rather than monthly, and they don't break down their sales by country. Inside EVs reports that cumulative worldwide sales through the end of 2015 for Tesla tally up to some 107,000 Model S, the first batch of 214 Model X, and about 1900 Roadsters. Trying to determine the US sales for Tesla, I found the Inside EV folks also have a monthly sales scorecard that was very helpful. They comb Tesla's data and they make monthly and US estimates. Taking their data, I have created the chart below:

After plugging their data into a spreadsheet, I added a trendline to estimate the 200,000 vehicle mark. This trendline, of course, is just based on the historic data. It has no weighting for economic factors or other very important (and possibly unpredictable) things like competitor's products or production delays. Additionally, there are many ways to generate trendlines. This one is a 4th order polynomial. Some other options were more optimistic, others were less optimistic. This one felt right. In other words, while a good fit, it's just a guess. This guess predicts that Tesla will cross the 200,000 mark in September of 2017. The Model 3 is planned to start deliveries in Q4 of 2017. If this guess is accurate, it would mean that the federal tax incentive for Tesla vehicles will be halved right about the time that Model 3 deliveries begin.

The federal tax incentive for Tesla could be halved just as Model 3 deliveries start.

How to move up in the queue

In the Tesla Motors fourth quarter 2015 financial conference call, regarding Model 3 sales, Elon Musk said:
Our default plan, as we've done in the past, is that the initial sales are the relatively highly optioned versions of the car. Because, obviously, we've got to pay back the investment of all the tooling and everything, so that sort of makes sense to have the higher optioned versions first. That's what we did with the Model S and also again with the Model X.
So your neighbor could order a base model on in the first hour of pre-orders, then two weeks later, you could order an optioned-up version with the tech package, premium interior, and high fidelity sound system and you would get your car months before your neighbor. Is it fair? Maybe not, but that's how it works.

$3750 Of Free Upgrades

So we finally get to The Click-Bait title of the article. How do you get $3750 worth of free upgrades?

If the trendline above is close to accurate, then it is likely that only the first quarter of Model 3 delivered vehicles will qualify for the full $7500 of federal incentives. After that, the incentive will drop down to $3750. So waiting in line behind the optioned up vehicles could cost you $3750 in incentives. If you are going to pay an extra $3750 for waiting in line for a basic model, why not spend the $3750 on upgrades, pay the same price and get your car sooner and get the entire federal incentive?

There are a few caveats that I should include. Tesla's sales may ramp slower than the trendline above, in which case you'll be able to receive the full incentive. Conversely, the Model 3 could be delayed and there is no guarantee that even the first Model 3 would receive the full incentive if sales of the Model S and X continue at a brisk pace.

A Better Incentive

Tesla is not the only auto manufacturer that is approaching the 200,000 vehicle mark in the 2017/18 timeframe. I'd like to propose a change to the tax incentive to make it apply to the first 4 million EVs sold, rather than the first 200,000 per manufacturer. The argument is that setting a limit per manufacturer punishes the early pioneering companies that advanced the technology and created the market.

Imagine it's 2019, VW and Kia EVs receive a $7500 discount, while Tesla, GM, & Nissan EVs would have no federal incentive. This would be a very uneven playing field for EV sales. Additionally, I propose that the ramp down steps are per tax year, rather than 6-month intervals. This would simplify tax filings for credit.

There have been other ideas to improve the incentive too such as making it $10,000 and applying it at the point of sale rather than a tax credit. These are good ideas that should also be considered for a better incentive program.

Good luck and I hope to see you in a Model 3 soon!

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