How Tesla Could Keep Some Tax Incentives for Model 3

Model 3 red and gray

Source: Tesla

Tesla’s success so far in selling its Model S and Model X electric cars — and attracting reservations for the Model 3 — is good news for the company, but not necessarily for Model 3 customers. That’s because Tesla is pushing closer to the 200,000-unit cap that triggers a phase-out of the $7,500 Federal tax credit for electric cars.

For Model 3 customers, an early delivery date could mean the difference between getting the credit, or not. Tesla is a aware of this, though, and may try to do something about it.

Model 3 rear

Source: Tesla

The company could manipulate deliveries to maximize the number of customers that get the $7,500 credit, explains a recent Forbes article. This theoretical “hack” hinges on the fact that credits don’t phase out until the end of the quarter after a carmaker hits the 200,000-unit limit.

So Tesla could, in theory, deliver its 199,999th car on the first day of a quarter, and then have that quarter as well as the next one to continue delivering cars that qualify for the full tax credit. It may accomplish that by shifting deliveries to other markets for a period of time.

The pace of deliveries could also slow in order to keep more customers eligible for the tax credit, suggested Tesla CEO Elon Musk. He recently tweeted that Tesla will try to “maximize customer happiness even if it means a revenue shortfall in a quarter.”

Model 3 rear

Source: Tesla

A move like that will likely be necessary to ensure Tesla doesn’t hit its tax-credit quota at the very start of Model 3 production. The company delivered between 50,000 and 60,000 cars through the end of 2015, and plans to significantly increase deliveries this year.

Over 300,000 customers have already put down refundable $1,000 deposits for the Model 3, which won’t start production until the end of 2017 at the earliest. Once a carmaker hits the 200,000-unit quota, the credit is cut to $3,750 for the two quarters following the one after the limit is reached.

model 3 gray

Source: Tesla

The credit is then cut again to $1,875 for two more quarters, before disappearing completely. But the precise timing required to stretch out eligibility for the full credit may not be possible for Tesla.

The company has missed every one of its own deadlines for vehicle launches so far. Pushing the Model 3 launch back further will only make it more difficult for Tesla to implement its tax-code “hack.”

Barring any creative accounting, whether Model 3 customers get the full credit may depend largely on who they are, and where. Tesla is prioritizing existing customers, and will begin deliveries on the West Coast first, then fill other orders from there.

[hat tip: Brian Henderson]

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