Elon Musk says first 12 months of Tesla Model 3 production are ‘sold out’, what does it mean for the federal tax credit?

As we reported earlier today, there was a little controversy over the production and delivery timeline of the Tesla Model 3 after some misreporting around Tesla updating the marketing page of the upcoming all-electric sedan.

CEO Elon Musk has now official weighed in on the situation and he confirmed that the first 12 months of Tesla Model 3 production are “sold out”.

While it was some misreporting that put forward those talks about Model 3 reservations and the timeline to production, it still highlights some interesting new hints at what to expect of the ramp up of the vehicle program.

Tesla updated the Model 3 page today to clarify that “production begins mid 2017”, which is in line with the previously disclosed production deadline of July 1st, 2017, and the company also added that “delivery estimate for new reservations is mid 2018 or later”.

The automaker clearly expects a year of sold out Model 3 production and Musk confirmed the expectation today:

This is because the first 12 months of production are sold out

— Elon Musk (@elonmusk) October 18, 2016

It’s the best we got as long as Tesla refuses to update the tally of Model 3 reservations. The last number disclosed was 373,000 reservations back in May, but we reported that cash flow from customer deposits show that Tesla was closer to 400,000 reservations as of June 30.

When Tesla confirmed the 373,000 figure in May, Musk warned that new Model 3 orders would “soon” result in delivery after the end of 2018:

Tesla is increasing the production ramp as fast as possible, but I'd recommend ordering a Model 3 soon if you want 2018 delivery

— Elon Musk (@elonmusk) May 5, 2016

Based on Tesla’s update today, it looks like it’s still not the case in the US, which is good for reservation holders counting on the full federal tax credit. Tesla’s Model 3 marketing page is not showing the same “delivery estimate for new reservations is mid 2018 or later” note for people visiting the page from outside the US.

As you may know, the $7,500 federal tax credit starts to phase out after an automaker hits 200,000 rebates. Tesla is expected to hit the mark in the first few months of Model 3 deliveries in the US depending on the production ramp up.

The tax credit program states that the phase-out period starts during the second calendar quarter after the calendar quarter in which it reached the cap – meaning that customers will still receive the full $7,500 tax credit for at least a full quarter. In other words, people will still get the full credit for 3 to 6 months and depending on the production rate of the Model 3 at that point, it could result in a lot of people benefiting from the program since there’s apparently no limit on units.

If Tesla is at the full estimated production rate of 10,000 vehicles per week, it could technically result in up to 260,000 people benefiting from the full tax credit – more than before hitting the cap, but that’s almost impossible since it would need to hit the cap right at the beginning of a quarter and stop all international deliveries for up to 6 months.

Nonetheless, it still leaves some room for Tesla to optimized the full $7,500 federal tax credit program in the US, like we previously discussed in more details here.

After that, the tax credit is reduced by 50% for 6 months and then another 50% for another 6 months before being completely phased out.

In other words, if you are eligible for the full federal tax credit and you don’t have a Model 3 reservation yet, there’s a good enough chance that you could still get the credit by reserving right now, but it is at the limit and there’s no guarantee. Anyhow, you will most likely have access to at least a partial credit.

Footnote: a reservation only assures that you will be invited to order you car before anyone who reserved after you in the same region. So your delivery is still dependent on how quickly you confirm your order after being invited. Tesla expects to send invitations to configure your Model 3 and place your order during the first half of 2017 for reservation holders in the US. The analysis also assumes that there’s no change to the federal tax credit program for electric vehicles following the upcoming election.