Another Bonus from Tesla's Stepped-up Model 3 Production Schedule

[Haxster]

Tesla's new objective to move the 500K vehicles/per year from 2020 to 2018 has many implications. But here's one that may not be so obvious:

1. By 2020, Tesla would have most likely passed the 200K US shipment mark and begun the phase-out cycle for the customer $7,500 tax credits. Perhaps only 100K US customers of Model 3s would qualify for the full tax credit based on the 2020 ramp to the 500K/year production rate.

2. By moving high volume production up two years, several hundred thousand customers would likely be able to qualify for the $7,500 or $3,750 tax credits. To eliminate uncertainty, Tesla could even guarantee it at the time of ordering.

What does this mean? While it's obviously good for customers and reduces the number of potential cancellations and purchases of competitive vehicles, it also puts $3,750 or $7,500 extra dollars in the pockets of buyers...or in their potential use of this "free money" to use to option-up their Model 3s.

So lets assume that due to the new production schedule, 300K "additional" vehicles qualify for an average of $5,000 in tax credits. And that 200K of these buyers used $4,000 of that credit for options that they might not otherwise purchase. This is $800M. And if Tesla makes only 50% average on these options, this becomes $400M of extra profit to Tesla. Not bad.

While one can certainly challenge my top-of-my-pinhead numbers, my point is that this is yet another incentive for Tesla to move up their high volume production schedule. Good for everyone but Tesla's competition (and the US taxpayers who foot the tax credits).

 

[McHoffa]

Judging by the number of Model S/X sold so far and likely to sell over the next couple years, they'll hit the 200k mark in 1st quarter 2018 at the latest, 3rd quarter 2017 at the earliest (if 3 production beings that quarter). He already said most likely all the pre reveal orders will get theirs in 2017, and that 100k-200k of them would ship in 2017, so that means they will definitely hit the 200k mark in 2017 if they don't hit speed bumps.

 

[clp1]

While it's obviously good for customers and reduces the number of potential cancellations and purchases of competitive vehicles, it also puts $3,750 or $7,500 extra dollars in the pockets of buyers...or in their potential use of this "free money" to use to option-up their Model 3s.
).

NonTesla owner living in MN, I reserved on 4/31/2016 online just before the show started. From everything I read and hear I'm planning on a Aprilish 2018 date for myself. Going on the assumption that Tesla won't want to have a bunch of newbie drivers saying their 215 mile range car isn't getting that when its -10F out. If you have Tesla now, yeah sure, you know about this already.

Even if they would get to me sooner in late 2017 (Nov-Dec) I may opt to wait a few months until around April for reasons...snow will be gone and my new car will stay clean and I will be able to save alittle more for options. Want bigger battery and dual motors with supercharging for sure...everything else (AP, colors, Air suspension) is a wait and see. No performance or ludicrous options here.

Now about this "free money"...as I understand this its a credit against your taxes. You still need to either finance or pay in cash the full amount or am I missing something? Example: If I optioned up to a $44000 Model 3 I would still need $44000 not $36,500. I need payments to stay right around $500 to make this work for myself. Plus there is the taxes, plate fee, delivery fee etc...

 

[Haxster]

Now about this "free money"...as I understand this its a credit against your taxes. You still need to either finance or pay in cash the full amount or am I missing something? Example: If I optioned up to a $44000 Model 3 I would still need $44000 not $36,500. I need payments to stay right around $500 to make this work for myself. Plus there is the taxes, plate fee, delivery fee etc...

Right. It's free money with strings attached.

It's like you had a rich uncle (Sam) offering you $7,500 (or whatever the existing credit is) if you buy a Model 3. But you won't get the money until after you file your taxes next year. And to get the full credit, your taxable income must be sufficient.

However, if you're confident in qualifying for a specific tax credit and if you don't mind "living on the edge", you could (carefully) reduce your income tax withholding to adjust for the anticipated tax credit.

This extra money in your paycheck could compensate for higher monthly payments on additional options. Just make sure to adjust it back after the first of the year.

I'm not a tax advisor. This strategy is not without some financial risk and I'm not suggesting anyone do it..but they could. Caveat emptor.

 

[JeffK]

You aren't missing anything... that's how the tax credit works.

The one thing to keep in mind though, if your tax liability at the end of the year does not normally add up to $7500+ then you'll only get that amount not $7500. Depending on your salary you might get back everything you paid in for the year when you include other deductions.

If you had a crappy year, then you basically just lost the tax credit...

 

[clp1]

However, if you're confident in qualifying for a specific tax credit and if you don't mind "living on the edge", you could (carefully) reduce your income tax withholding to adjust for the anticipated tax credit.

I have been thinking of this also. But if I adjusted for next year, 2017 taxes, and the car didn't come until early 2018 I'd be paying my taxes bigtime come filing 2017. Although, I would theatrically have the money to pay them already in the bank if I didn't sign the purchase agreement in 2017.

Adjusting for a early 2018 purchase it wouldn't really add up to much more for the downpayment and would only help for one year of higher payments. I still have until 2020 until my solar system is paid off and my house should done another year or so after that. So close...

 

[McHoffa]

Right. It's free money with strings attached.

It's like you had a rich uncle (Sam) offering you $7,500 (or whatever the existing credit is) if you buy a Model 3. But you won't get the money until after you file your taxes next year. And to get the full credit, your taxable income must be sufficient.

However, if you're confident in qualifying for a specific tax credit and if you don't mind "living on the edge", you could (carefully) reduce your income tax withholding to adjust for the anticipated tax credit.

This extra money in your paycheck could compensate for higher monthly payments on additional options. Just make sure to adjust it back after the first of the year.

I'm not a tax advisor. This strategy is not without some financial risk and I'm not suggesting anyone do it..but they could. Caveat emptor.

except it's not like your rich uncle sam offering you money, it's uncle sam giving you back your own money

 

[Chopr147]

True, and I don't mind getting back some of my own money
God knows I pay enough for the free-loaders
If your taxable income did not reach $7500 how the hell are you able to afford a 50k car? Short of a gift, this would have to be extremely rare.

 

[JeffK]

Not taxable income... tax liability. So for a single person they'd need to make around $60K per year to get the full $7500 tax credit. (if they make less they get less back)

 

[Brian Minick]

A way around this finance wise that I have figured out. Just extend the term of your financing 1 yr, then, when you get the tax portion complete, pay that lump sum towards the loan. If your math is anything like mine, it will remove 14-16 months off your loan. You are essentially just buying time to receive the credit, but not affecting your monthly payment amount in doing so.

Im a numbers guy, so if this doesnt make sense, keep re-reading it.

 

[SageBrush]

You can reduce your monthy tax pre-payments by about 7500/12 for a year from car delivery date. Or if you do not want to shave too closely, reduce the pre-payments by the difference in monthly payment between your car cost with or without a $7500 cap reduction.

From the second year and until the end of the loan, the additional monthly payment is paid from the pile of tax credit left over.
Just don't spend the received tax credit on something else ;-)

 

[Mark C]

I'll pass 59 1/2 before the end of 2017 and don't expect my M3 until 2018, so I plan of checking what my tax liability will be against the tax tables for 2018 and since I won't reach $7500 tax liability by delivery time, I'm going to talk to my tax adviser to determine the amount I need to withdraw from my 401k so I can take the entire tax credit. With that in mind, I expect to get the full credit AND have a larger down payment to boot....win/win.

Being able to afford a $42k car is about how prepared you are, like having your home mortgage paid off, a really energy efficient home that makes utilties expense easier to bear, along with a big enough solar array to more/less zero out your electric bills for the year. With that, you can easily afford a car that costs about a house payment every month.

 

[ummgood]

Plus it isn't necessarily a 42k car. Depending on how Tesla does this roll out people could be buying a 35k car with a 7500 tax credit.

Thanks Mark for that I didn't even think of that scenario. I am sure if I was retired that would definitely be a concern. I am pouring into Roth's right now to the maximum every year so I can have as much money as possible be tax free when I retire.

 

[Mark C]

Plus it isn't necessarily a 42k car. Depending on how Tesla does this roll out people could be buying a 35k car with a 7500 tax credit.

I'm in agreement with you on this not necessarily being a $42k car. I threw that out there based on the figure Mr Musk is being credited with using as an average price.