Tesla Model 3 Buyers Might Not be Eligible for Tax Credits

Tesla Model 3 Buyers Might Not be Eligible for Tax Credits

Tesla Model 3 buyers might not get to take advantage of the $7,500 federal tax credit for electric vehicles.

As shoppers line up worldwide to be one of the first ones on the Tesla Model 3 order list, buyers in the U.S. might want to assume its final price tag will exclude the federal tax credit. One reason why Tesla Model 3 buyers might not be eligible is because the federal credit under Internal Revenue Code Section 30D begins to decrease once an automaker has sold 200,000 qualifying electric vehicles in the U.S.

Although Tesla doesn’t outright say how many vehicles it sells per country, its most recent letter to shareholders said it sold 42,000 Model S sedans in the U.S. in 2014 and 2015. The American automaker expects to deliver between 80,000 to 90,000 vehicles this year, and adding up all those figures including what Tesla sold in 2012 and 2013, the company will be close to the 200,000 mark by 2018 – when the Tesla Model 3 is expected to be readily available.

SEE ALSO: Watch the Tesla Model 3 Live Debut Here

Once Tesla sells 200,000 vehicles, the tax credit program enters a “phase out period,” which is when the tax credits get reduced to 50 percent over the next six months before dropping to 25 percent over the following six months. Analysts believe that Tesla will reach the cutoff mark by 2018. Naturally, if the Model 3 gets delayed, that means Tesla is accumulating more Model S and Model X sales, inching it closer to the 200,000 mark.

Another aspect to take into account if you’re a potential Tesla Model 3 buyer is whether you will fall into the same high income bracket as Model S and Model X buyers. According to Evan Niu of The Motley Fool, “The $7,500 credit can only be applied if the customer has a tax liability of $7,500 or more, and any unused portion is not refundable and can not be carried forward.” That likely means anyone taking home $50,000 annually or less may not qualify for the full $7,500 tax credit.

The American electric automaker will show off the Tesla Model 3 this evening, but CEO Elon Musk has said that it is just “part 1” of the debut, meaning we will likely see a concept vehicle and not a production model.

[Source: Teslarati]

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  • craigcole

    The U.S. tax code is beyond incomprehensible.

  • timothyhood

    That may be, but the part that deals with these rebates is pretty easy to understand. This article makes an excellent case why anyone who has their deposit on a Model 3 should not expect any federal rebate.

  • jimbo124816

    Taking away the $7500.00 tax credit is just like raising the price of the car $7500.00 and most of the treehuggers who buy electrics and hybrids, only do it because they get to cheat the rest of us taxpayers.

    Take away the tax credit and they will abandon Tesla in a heartbeat.
    Just look at all the Solar water heater companies that went out of business when the tax credits stopped.

  • Michael Young

    The 1-year phase out begins the second calendar quarter after the 200,000th US EV is sold. So if the 200,000th is sold in July 2018, the phase out doesn’t start until Jan 1, 2019, at which the max is $3750 for 6 months.

  • Ross Poling

    You can thank your GOP for the phase out of tax credit and wanting to redo new tax credits.

  • enfuegobuddha

    The phase out period doesn’t begin for at least 3 months after the 200,000 mark has been hit. The $1,000 reservation is refundable.

  • enfuegobuddha

    From IRS website:

    Qualified Plug-In Electric Drive Motor Vehicle Credit (IRC 30D) Phase Out

    The qualified plug-in electric drive motor vehicle credit phases out for a manufacturer’s vehicles over the one-year period beginning with the second calendar quarter after the calendar quarter in which at least 200,000 qualifying vehicles manufactured by that manufacturer have been sold for use in the United States (determined on a cumulative basis for sales after December 31, 2009) (“phase-out period”). Qualifying vehicles manufactured by that manufacturer are eligible for 50 percent of the credit if acquired in the first two quarters of the phase-out period and 25 percent of the credit if acquired in the third or fourth quarter of the phase-out period. Vehicles manufactured by that manufacturer are not eligible for a credit if acquired after the phase-out period.

  • timothyhood

    The $1,000 refundable deposit was never in question.

    While *some* Model 3 buyers will get some kind of rebate, *none* should *expect* *any* rebate. Why do I say this?

    Tesla is already more than half-way toward the 200,000 market (as of four months ago), and those numbers were achieved largely based on the Model S alone. Very few Model X vehicles had been delivered by that point. By now, Tesla has likely passed 115,000 units (conservatively based on almost now sales growth over Q42015 even though they’ve launched a new model).

    There are some 21 months before the first Model 3 is expected to be delivered, at best. Judging by the Model X release, it is highly likely that the Model 3 rollout will be slow for the first quarter. During this time, more S and X vehicles will be delivered.

    With Tesla’s past sales and projected sales of 80-90,000 units in 2016, they should hit the 200,000 mark in Q12017 without much trouble. Phase-out would begin in Q3.

    This means those who receive the first Model 3s will probably receive a 50% credit. Recalling the expected slow rollout for the first quarter (Q12018), full phase-out will happen just as Tesla is ramping up production.

    Finally, recall that Musk stated that production would be fulfilled first for customers purchasing the most options and it’s easy to see where anyone who isn’t purchasing a fully-loaded Model 3 may not see any rebate at all.

    Some Model 3 owners will likely be eligible for the rebate. However, under the scenario I’ve described, that number will be very small (especially compared to the number of pre-sales booked) and at only 50%. Thus, *no* owners should *expect* any rebate, but instead be pleasantly surprised if they get any rebate at all.

  • enfuegobuddha

    Estimates for hitting 200,000 in Q1 2017 are based on worldwide sales.

    Tesla could in theory manipulate its production/sales to increase the number of credits.

    If the credit does phase out, reservations can be refunded for buyers whose decision hinged on the $7,500 tax credit.

  • timothyhood

    Let’s come back in two years and see where things stand with Tesla. 🙂