Will Tesla Model 3 Buyers Have Access to EV Incentives?

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Though electric vehicle incentives seem like they’ll last forever, automakers have a set cap on federal tax credits of $7,500 available to buyers, and the number stands at 200,000 vehicles per manufacturer. As Tesla ramps up production of the Model X while continuing its run with the best-selling Model S, the Fremont-based automaker will see its number of available credits narrow — and possibly disappear — by the time the mass-market Model 3 hits the market.

While this issue has been raised on numerous occasions, HybridCars.com dug into the numbers in detail to get an approximate timetable for the tax credit’s phaseout for Tesla. Through December, Tesla had hit around 65,000 credits, with another 50,000 expected in 2016, which would bring the total to 115,000 heading into 2017. Elon Musk has said Model 3 production would begin in mid-2017. By then, it would be reasonable to assume 140,000 credits will be used by buyers of the brand.

At that point, the Model 3 would have to share the remaining 60,000 credits with Model X and Model S buyers. After 200,000 credits, the $7,500 reduces to half ($3,750) for buyers for two quarters, after which it becomes $1,875 before disappearing. It is impossible to tell how production constraints would affect the automaker’s rollout of the Model 3, but assuming equal billing with the two existing models, there would be a mere 20,000 tax credits of $7,500 for buyers of the company’s first reasonably priced EV.

This math could be challenged on a few different levels, but then again the Model 3 could appear later than the summer of 2017. By then, ever fewer credits would remain. In this equation we see the best reasoning for Musk’s assertion the mass-market Tesla would retail at $35,000 — or $2,750 less than the Chevy Bolt EV. Its MSRP will be lower because its post-incentive cost is likely to be higher.

Chevy Bolt

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Chevy has already committed to a $37,500 MSRP for the Bolt EV that will enter the U.S. market by late 2016. In GM’s case, there is much more leeway to work with on the tax credit. Assuming a strong year for the Chevy Volt (25,000), we estimate cumulative plug-in sales for GM will remain under 120,000 credits if the Bolt launches in December.  That would leave plenty of credits for the consumers who want to get the long-range EV while it is most affordable.

Looking at another segment leader, Nissan hit 90,000 U.S. plug-in sales in January, according to GoodCarBadCar data. If Leaf sales get a minor bump and hit 20,000 in 2016, there will still be a massive pile of credits waiting if the automaker can get its own 200-mile option to market that year. Though Tesla is enjoying a great deal of success with its luxury business model, these important credits could be wasted on wealthy consumers rather than middle-class buyers who actually depend on them to finance a car purchase.

Maybe the government will step in and renew its commitment to electric vehicles by extending the credit to, say, 300,000 vehicles once the first benchmark is reached. Another option is Tesla will build the type of car that’s well worth another $5,000 when consumers compare it to the Bolt. In any event, having few or no federal EV incentives available is a distinct possibility for Tesla. This issue will surely have an impact on the EV market of the coming years.

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