When Will Tesla Run Out of Federal Consumer Tax Credits?

U.S. Tesla buyers have counted on a $7,500 federal tax credit for a few years now, but the automaker is due to hit a 200,000-unit threshold at which point they’ll begin to fade away.

Thanks to its Model 3 which begins the first 30 deliveries this month, then begins a steep ramp-up to high volume, the California automaker will likely be the first to hit this cap, followed probably by General Motors, then Nissan.

But how quick might this be? If Tesla’s highest estimates come true, it could be early 2018 or sooner, but Michigan-based analyst, Alan Baum has tempered his estimate so it may be a little longer.

The Rundown

As of the end of June, the midway point this year, Tesla had an estimated 131,900 sales in the bag, so that leaves 68,100 units for it to blaze through in U.S. sales.

It could still be relatively quick, says Baum, who for July-December 2017 estimates Model S sales at 12,000, Model X at 9,000 and the Model 3 at just 12,000.

If you’re curious, the S through June has an estimated 11,100, so this would give it 23,100 for 2017 – fewer than last year’s 29,156. The X would be at 18,100 by New Year’s 2018 – about even with last year’s 18,028.

And, the year end total? With the 3 added in Tesla would be at 164,900 with 35,100 to go, and the Model 3 building momentum.

Baum estimates 2018 will see 102,000 U.S. Model 3 deliveries, and the S and X will taper off to 22,000 and 16,500 respectively.

This means by this time next year, if not by the first quarter, Tesla will have hit 200,000. Considering that $7,500 is more than an effective 10-percent off a Model S, or 22-percent off a Model 3, assuming a base “$35,000″ (sans delivery fee), that is a bit of a hit on incentives once freely enjoyed.

As a side note, since the 3 is backordered with a long list, if anyone was to decide to buy a Tesla, if they like the idea of capturing a federal tax credit, that’s an extra reason to opt up to a Model S or X.

After 200,000

There’s no indication the Trump administration is planning to green light an extension for Tesla, but optimists can always hope.

Otherwise, under IRS law, when Tesla sells its 200,000th car in the U.S., the $7,500 tax credit is cut in half to $3,750 for two quarters, then it’s halved again to $1,875 for a couple more quarters, then it’s zero.

The section in the tax law that spells out the 200,000 cap and credits fading away over the following year is under “phaseout period” 26 USC § 30D, according to IRS media rep Anthony Burke.

The 200,000 cap under IRS rules is based on units sold – not credits applied for as has been the case, for example, with California state credits which are part of a pool of credits that remains until extinguished. For this federal law, regardless whether consumers’ tax situations make them eligible to apply for federal credit or not, once 200,000 Teslas are sold, it is at the limit.

Wild Card?

A speculative report has suggested Tesla may effectively game the system. Last year, some observers noticed a potential loophole in the IRS rules: the $7,500 credit isn’t cut until the end of the quarter after the one in which a company hits its limit of 200,000 cars delivered in the U.S.

Tesla could extend that time period by reaching the limit on the first day of a quarter then deliver Model 3s over the next six months before the credit begins to disappear.

Musk has said things that led people to guess Tesla may just try this.

“We always try to maximize customer happiness even if that means a revenue shortfall in a quarter,” Musk replied to comments in an April 3, 2016 post on Twitter.

When asked whether he thinks Model S and Model X tax incentives will exhaust the remaining credits, Musk posted a vague response. “Our production ramp plan should enable large numbers of [new customers] to receive the credit,” Musk wrote.

GM and Nissan Next

General Motors actually has more sales of plug-in electrified vehicles through June 2017, at 142, 306 counting the Chevy Volt, Bolt, Spark EV, and Cadillac ELR and CT6 plug-in hybrid.

Its sales are not expected to skyrocket however so by year’s end it may nearly match Tesla with 165,000, and by the second half of 2018, it too will see its federal credit eligibility hit its limit, and begin tapering down.

Nissan, with 110,845 through June, has a “good while to go,” says Baum, and we’ll see how quickly the gen-two Leaf gets snapped up. Its best year on record has been a bit over 30,000.

Penalty For Success

Tesla is out in front of the EV movement, and it’s been observed it took huge risks, and meanwhile has helped a still-growing market mature.

Automakers like Toyota, Honda, Ford, Volkswagen, and others have sat back letting the frontrunners drive down battery costs, teach the public about the benefits and drawbacks of EVs so they’re more familiar with them, and so they stand to gain.

How do they stand to gain? They do because automakers other than Tesla, GM, and Nissan have many more credit-eligible days ahead of them as they have not nearly the sales and they can take advantage of ground plowed by the pioneers.

Assuming no extension, Tesla meanwhile will have to sell without the extra incentive of a federal credit, although state incentives where still available, will be in play.

This was the plan from the beginning, it is being called a price for success, Tesla’s goal of the Model 3 coming to market is being met, and as far as anyone knows, it is not looking back.


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