Tuesday 29 August 2017

Price of Success: Tesla Model 3 Buyers Might Not Get Full EV Tax Credit

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Tesla Model 3 driving

Sometime about a year from now, whether or not Tesla can ramp its annual production level up to the 500,000 mark CEO Elon Musk is hoping for, Tesla will face a new challenge: Its cars will effectively become a little more expensive to buyers—even if the official prices don’t change.

That’s because, with electric vehicles, sales success comes at a price—the phase-out of the federal EV tax credit that effectively gives buyers with the tax liability up to $7500 off the price of the vehicle. That phase-out is triggered when any automaker reaches 200,000 cumulative sales (starting in 2010) of qualifying plug-in hybrids or fully electric vehicles.

Alan Baum of Baum & Associates, which forecasts and tracks sales of hybrids, plug-in hybrids, and electric and fuel-cell vehicles, projects that with the mass-production ramp-up of the Model 3, Tesla will reach the 200,000 mark in the first quarter of 2018. Tesla entered 2017 at 111,953 cumulative U.S. deliveries (including a small number of Roadsters, pre-2010). For the year to date, Baum estimates another 37,130, which brings today’s total near 150,000. Musk has suggested a 20,000-per-month production rate for Tesla by the end of the year, but even at a more modest rate it would hit that ceiling in the first quarter of 2018.

Tesla Model S-3-X

Reaching the sales mark triggers a phase-out period in which, two calendar quarters later, buyers can still claim 50 percent of the credit for two quarters, and then 25 percent for vehicles delivered for two quarters after that. So with the timeline experts anticipate, a $7500 tax credit will apply to Tesla models delivered by September, then a $3750 credit would apply through 2018, followed by an $1875 credit for the first half of 2019. Tesla vehicles wouldn’t be eligible for the credit at all after that.

To its credit, Tesla has been noting a starting price of “$35,000 before incentives,” rather than singling out the $7500 credit prominently. Effectively, though, the credit could bring the bottom-line price of the base Model 3 to just $28,700 (including destination)—and that’s before state rebates or other local incentives. While those who place a reservation today almost certainly won’t get the full $7500, they’ll likely get one of the phase-out amounts.

A Perk That Phases Out First for Tesla

No other automaker is poised to hit its phase-out period in the next year. Cumulatively, through last month, Nissan has sold 112,128 Leaf EVs, which gives it several more years at the rate that model has been selling—or at least a year or two if sales pick up. GM has sold 145,820 qualifying plug-ins to date, of which 125,939 are Volts, according to Baum. Through June, GM had only sold about 7600 Chevrolet Bolt EVs, although some project it at about a 20,000 annual sales rate—about on par with the Volt, or a little less. At those figures, GM might have nearly a year more than Tesla for buyers to claim the full $7500.

2017 Chevrolet Bolt EV

The Internal Revenue Service keeps a regularly updated page on cumulative sales on the way to 200,000, but its list only includes BMW, Ford, and Mercedes-Benz. When this page was last updated—in June, with final numbers through the first quarter of 2017—all three of those automakers were far behind Tesla. Today, Ford is likely around the 100,000 mark, while BMW is nearing 50,000.

Rest assured, you’ll be able to get the EV tax credit with most other makes for a long time. There will soon be a bevy of brands with long-range electric vehicles—including some automakers (Jaguar, for instance) that will be effectively starting at zero—and those electric vehicles will qualify for the tax credit for years, barring any changes from Washington. Tesla might not see the market playing field as being level at that point, but it’s about to get interesting.

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