2018 Tesla Model 3 Will Have to Succeed Without Federal Tax Rebate

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The Tesla Model 3 most buyers take home won’t come with the $7,500 tax rebate. Here’s why.

Every battery electric vehicle that leaves a showroom floor sold to a private individual is eligible for a federal tax rebate granted to its owner by the U.S. tax code. The part of the tax code that covers this is called IRC 30D. The idea behind the law was to provide purchase-day support to EV buyers and manufacturers. It augments many other incentives automakers and buyers enjoy, but it has a limit. Each automaker gets to build about 200,000 vehicles that qualify.

This may seem like a huge number given that most EVs sell at a rate of just a thousand or so per month, but Tesla’s Model S and Model X success is cutting deeply into this 200K limit. The automaker is already at about 70,000, leaving just 130,000 vehicles left. Tesla says that its Model 3 may not be available in any volume for at least a year. During that time, Tesla will build and sell many more Model S cars and Model X Crossover/Minivans.

Tesla had announced over 180,000 Model 3 reservations as of this week. So clearly, the 200,000 limit will come into play. After the limit is reached, the program has a quick glide-down with lower incentives, and then it ends. Unless it doesn’t. Congress could act, or possibly a government agency could step in and supplement the plan or extend it. That did not happen with hybrids.

Not all buyers qualify for the tax deduction. One has to have enough of tax liability to qualify for the deduction, and you don't get the extra money back if you don't. This, coupled with California moving to eliminate its state incentive for wealthy buyers means that the Tesla Model 3 will not enjoy the same taxpayer support that prior Tesla Models have. It will be interesting to see how desirable affordable EVs do in a more free market environment than we now have.

Submitted by Ken Huff (not verified) on April 4, 2016 - 8:39PM

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I believe you have misunderstood the details of the rebate. Although the intention is to limit the rebates to about 200K cars per manufacturer, the actual rules are date based. So for one quarter after Tesla meets the 200K limit in the US, the rebate is still good. For two quarters after that, the rebate stands at 50%. For two more quarters after that, it is at 25%. With the 70K cars already delivered plus the 90K cars (optimistically) that Tesla expects to sell in 2016, that's maybe 160K. Not all of those are in the US but we don't know the mix. So it seems reasonable to guess that Tesla might meet the 200K US limit sometime in mid 2017. Depending on that and on the actual release date of the Model 3, it is possible that the full rebate will still be available. As long as they are not too late, it seems quite possible that at least 50% of the rebate will be available to ALL the early purchasers of the Model 3 in late 2017.

Ken, thanks for the clarification. Your details all seem to match what I understand the program to be. However, I think the story is accurate. With the updated news that Model 3 reservations are now standing at about 300,000, there is no doubt that the bulk of owners will face the possibility that the Model 3 they buy will not have a federal rebate. To succeed in the sense that the Model 3 will be a mainstream vehicle it needs to put up big numbers and that means the tax incentive will be used up early in its product lifecycle. There is a link embedded with details.

Submitted by mike w (not verified) on April 5, 2016 - 7:36PM

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Thanks J. Goreham. I never realized that the tax credits would expire so quickly. We were going to place a reservation soon but it looks like 2020 will be our optimistic deliver date. As you point out the credits will most likely be gone by then. BTW with all the hoopla over the Model 3 reveal you were the first person to identify this issue.