Tesla Model 3: new production plan’s effect on $7,500 federal tax credit

While one of the Tesla Model 3’s goals is to make electric cars competitive with gas-powered cars before EV incentives, some US-based reservation holders are still counting on the $7,500 federal tax credit to buy the vehicle.

Tesla recently updated its guidance for the rollout of the vehicle and we take a quick look at how it could affect access to the federal tax credit.

As we previously reported, the $7,500 federal tax credit starts to phase out after an automaker hits 200,000 rebates.

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 after they hit the mark.

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.

The whole process makes the timing of Tesla delivering its 200,000th vehicle in the US very important. Earlier this year, we reported on Tesla reaching 100,000 vehicles in the US.

It’s difficult to predict when Tesla will hit 200,000 vehicles, but it looks unlikely that it will be by the end of the year with Elon Musk’s updated guidance for early Model 3 production.

Earlier this week, Musk said that they plan to deliver the first 30 units at an event at the end of the month and scale to 100 units in August, 1,500 units in September, and they aim for a production rate of 20,000 units in December, which is the most important thing.

The production rate at the moment they hit 200,000 vehicles determines how many people can still benefit from federal tax credit during the first phase-out period.

If Tesla sticks to Musk’s guidance for the Model 3 production ramp up and deliveries stay concentrated in the US, it looks like the phase-out would start during the first quarter 2018.

That’s where things start to get interesting because in order to optimize the number of people benefiting from federal tax credit, Tesla would try to hit the mark early in the quarter or wait for the next, and concentrate Model 3 production in the US during that period, which could result in pushing deliveries in other countries.

But if Musk is right and they can be at 20,000 Model 3 vehicles per month by December, it could solve most of the problems and they could work through most of Tesla’s Model 3 backlog in the US with the federal tax credit available.

Either way, it looks like US-based Model 3 buyers should have access to at least half of the $7,500 federal tax credit throughout 2018 and likely the entire credit for most of the year.

Featured Image: Two Tesla Model 3 prototypes spotted at a CCS/CHAdeMO charging station – Picture by Addison Conzet