One of the main concerns of some Tesla Model 3 reservation holders is the availability of the $7,500 federal tax credit that starts to phase out after Tesla hits 200,000 deliveries in the US. Tesla aims for the Model 3 to be competitive without the credit, but some reservations holders have been counting on it nonetheless.
While it’s hard to predict when Tesla will hit the threshold, we got new information enabling us to have a better insight into when the phase-out period should start.
The first metric to determine in order to estimate when Tesla is going to hit the phase-out period is the number of cars delivered in the US – something Tesla doesn’t disclose since it doesn’t break down deliveries by markets.
Sources familiar with Tesla’s North American sales confirmed that Tesla recently reached just over 140,000 cars delivered in the US. That’s mainly Model S and Model X vehicles – with a few Model 3 vehicles.
It means that Tesla buyers currently still have access to over 50,000 full tax credits before the phase-out period starts, which is higher than previous estimates.
Now the question is how long those will last and that’s anyone best guest, but we learned that Tesla aims to deliver just over 13,000 Model S and Model X vehicles in the US during the fourth quarter, which will bring them closer to the phase-out period, but still about 35,000 to 40,000 deliveries short of the start of the phase-out period.
It means that Model 3 deliveries will be the difference maker.
Starting from here it’s just speculation and not based on new information, but I think it could be valuable to Model 3 reservation holders and Tesla buyers in the US.
We don’t expect Tesla to deliver 35,000 to 40,000 Model 3 vehicles during the fourth quarter. Tesla would need to achieve a near perfect production ramp and deliver those cars at a record speed to make it happen, which is virtually impossible.
Buyers in the US need to complete their purchase and take delivery before the end of the year to claim the credit, which always creates a boost of deliveries during the end of Q4 and while it should make a difference, we don’t think it’s going to be enough.
Instead, we expect 15,000 to 25,000 available federal tax credits to slip into Q1 2018. It means that they could hit the threshold during the first quarter or Tesla could (and should) time its 200,000th delivery right after the end of the first quarter since the way the phase-out period is set up, buyers still have access to the full credit for the current quarter and another full quarter – meaning they would still have access to the $7,500 credit in Q2 2018 and Q3 2018.
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.
We think it’s the most likely scenario give or take a quarter depending on some variables.
Of course, the full federal tax credit is only accessible to buyers who owe enough federal taxes during the year and it’s not transferable, which is something to keep in mind.
Earlier this year, some Tesla salespeople were telling Model 3 reservation holders that $7,500 federal tax credit runs out in 2017. Tesla later said that they didn’t approve of that and it now looks like it’s indeed far from being accurate.
Tesla doesn’t want to comment on when the tax credit will phase out for them, but this estimate seems to match with their Model 3 delivery estimates. Once they hit the threshold, they are going to want to concentrate deliveries in the US to enable as many buyers as possible to take advantage of the full credit, which could explain why any delivery outside the US currently gets an estimate of “late 2018.”
What do you think? Let us know in the comment section below.