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Expiration of $7,500 federal tax credit w/Model 3

Discussion in 'TSLA Investor Discussions' started by Cattledog, Aug 2, 2014.

  1. Cattledog

    Cattledog Active Member

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    With Tesla's new projections for vehicle sales, it looks to me like the $7,500 federal tax credit might be in jeopardy for Model 3, or at least only available to early purchasers. That full credit expires after a manufacturer has sold 200,000 vehicles - partial credit at 50% is available the next 6 months and 25% the 6 month after that. Then it's time for the market to show who's boss.

    With the following gross assumption (please correct my numbers, I am not as fastidious as some of you on this):

    US Delivery Estimates

    Roadster 2,000
    Model S '12 2,500
    Model S '13 15,000 (est. 2/3 of total deliveries)
    Model S '14 17,500 (guessing 50% of 35k)
    Model S '15 20,000 (guessing 40% of 50k)
    Model S '16 24,000 (guessing 40% of 60k)

    Model X '15 10,000 (guessing 50% of 20k)
    Model X '16 24,000 (guessing 40% of 60k)

    So I am assuming 70,000 worldwide S&X deliveries in 2016 and 120,000 worldwide deliveries in 2017.

    If the above is true, they would have sold 115k cars in the US by the end of 2016. If we assume S&X sales are consistent between 2016 and 2017, by the end of 2017 they will have sold 163k cars. If release the Model 3 mid-2017, at best only the first 37k Model 3 owners will get the full credit (assuming they sell/produce 37,000 Model 3s in the second half of 2017. If not that many, then it's a rat race at the beginning of 2018 as Model S, X, and 3 will all be going full throttle and 200K cars will be approaching at lightning speed.) Definitely will stoke demand to get a $7,500 credit with your $35k car. If Model 3 stalls into 2018, or sales for S&X exceed what's above, there might not be much tax credit money available for anyone who buys Model 3.

    Moral: Get your Model 3 reservation in early as I suspect the reservation rate will be at least triple what we've seen for S&X and there will be few credits available.
     
  2. mountaineer

    mountaineer Member

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    This law needs be updated in a few years:)

    By the way, I guess the total delivery of S&X will surpass 120K in year 2016 so we will have this issue pretty soon...
     
  3. Tedkidd

    Tedkidd Member

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    I thought the credit applied to cars, not manufacturers.
     
  4. Carefree

    Carefree Member

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    It is indeed by vehicle and NOT manufacturer. No worries there will be plenty of tax credits for the Model 3 and the Model X.
     
  5. DaveT

    DaveT Searcher of green pastures

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    I'm pretty sure it's by manufacturer and not by vehicle.

    http://www.irs.gov/Businesses/Plug-In-Electric-Vehicle-Credit-(IRC-30-and-IRC-30D)

    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.
     
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  6. yobigd20

    yobigd20 Well-Known Member

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    It's definitely by manufacturer (not by car) and I also think your sales numbers are low. I think tesla will have sold over 200,000 cars before the first production gen III even hits the road so no I don't think to the credit will be available at all for gen III owners.
     
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  7. blakegallagher

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    I have thought that Gen 3 would likely not qualify for awhile now. I said as much on this forum and got reprimanded about a year ago or so :) .... now more people are beginning to see the light !
     
  8. Cattledog

    Cattledog Active Member

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    Perhaps. If we get more aggressive with the numbers from 2015 on, they look like this:

    Roadster 2,000
    Model S '12 2,500
    Model S '13 15,000 (est. 2/3 of total deliveries)
    Model S '14 17,500 (guessing 50% of 35k)
    Model S '15 20,000 (guessing 40% of 50k)
    Model S '16 30,000 (guessing 40% of 75k)

    Model X '15 15,000 (guessing 50% of 30k)
    Model X '16 30,000 (guessing 40% of 75k)

    So under a more aggressive scenario I am assuming 80,000 worldwide S&X deliveries in 2016 and 150,000 worldwide deliveries in 2017 (150k being what Elon felt was doable with battery packs pre-Giga, with having an outside shot at 200k - still potential issue of body stamping line maxing at 2,500/week, if so will need another line to exceed 125K/yr.)
    If the above is true, they would have sold 132k cars in the US by the end of 2016. If we assume S&X sales are consistent between 2016 and 2017, by the end of 2017 they will have sold 192k cars. Assuming 40% of US even though he estimated 40% for North America.

    So under this more aggressive sales scenario, if they release Model 3 any time in 2017 the first several thousand will likely get to claim the credit. If it's in 2018, the credit is likely gone. Under any scenario, if they are producing 150k cars per year, 12.5k cars per month, when you get within 50,000 cars of the credit expiration I think you'll actually see sales pick up in all models. When Tesla announced a price increase on the Model S effective 1/1/13, it created a huge uptick in orders in December of '12.

    I don't think this scenario is likely, but as a shareholder I'd love it. What I am going to do is be ready to reserve the Model 3 the first time they are available in the hopes of sneaking in the credit window.
     
  9. pgiralt

    pgiralt Active Member

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    I wonder if the resale value of all our cars will actually end up going up after the tax credit expires. Definitely a good thing for current owners.
     
  10. yobigd20

    yobigd20 Well-Known Member

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    I don't understand your numbers. I was thinking more like this:

    Roadster 2000

    2012: 2500 MS
    2013: 22500 MS
    2014: 40000 MS
    2015: 100000 MS + MX
    2016: 120000 MS + MX

    By the time 2017 rolls around, they'll already have sold 280k cars. AFAIK they're only track up to end of 2014 and I'm really just guessing about 2015 and 2016. Even if you halve my 2015 and 2016 numbers you're easily still at 177k. Entering 2017 they'll still be selling MS and MX like crazy as they enter new markets. Ah crap I just realized - when they make a car here in the US and ship it outside the US for sale - does that count towards the the 200k numbers?? I don't think it does...and if that's the case there may actually be some gen III owners that can claim the discount...
     
  11. swaltner

    swaltner Member

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    Yes, worldwide sales will be way past 200k cars by that time, however, the phaseout of the US Federal Tax Credit of $7,500 is based solely off sales within the US. It's all spelled out in the IRS document linked above.
     
  12. ecarfan

    ecarfan Well-Known Member

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    Elon has been clear that the $35,000 price target for the base Model 3 is without factoring in any tax credits or rebates. I think he is fully aware that tax credits will probably not be available to early Model 3 buyers.
     
  13. Cattledog

    Cattledog Active Member

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    I certainly think long wait times, which will continue while they have demand outstrip production, work in favor of higher resale.
     
  14. austinEV

    austinEV Active Member

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    If the credit was 200k/vehicle model, TM could just make a "model S2" that was reeeeaaaal similar to the Model S. Rinse, repeat forever.
     
  15. pz1975

    pz1975 Member

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    I don't think this will matter. The demand for the Model 3 will be through the roof $7,500 credit or not!
     
  16. RobStark

    RobStark Active Member

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    IRC 30D – Plug-In Electric Drive Motor Vehicle Credit Quarterly Sales

    Year 2014

    [TR="class: first-child"][/TR][TR="class: last-child"][/TR]
    Make
    Model
    Cumulative Sales to Date2014 Cumulative SalesSales for Quarter Ending 3-31-2014Sales for Quarter Ending 6-30-2014Sales for Quarter Ending 9-30-2014Sales for Quarter Ending 12-31-2014
    Ford2012-2014 Ford Focus Electric 30,3745,861 5,861000
    2013-2014 Ford Fusion Energi
    2013 C-MAX Energi

    Mercedes2013 smart Coupe Ev1213405405000
    2013 smart Cabrio EV

    Nissan2011-2013
    Nissan Leaf
    64,78210,06410,064 000

    Strange, this IRS table does not list Tesla.

    Maybe it is time Tesla and Nissan get together to hire some K streeters to lobby for change in this law.

    Increase the number of cars for each manufacture or better yet replace the numerical limits with a date limit.

    All cars qualify that are sold before Jan 1,2026.
     
  17. omarsultan

    omarsultan Active Member

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    Probably going to be an unpopular opinion, but I think the credit expiring is the right thing--it should be in place to help a manufacturer ramp up, no be installed as a permanent crutch.

    O
     
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  18. RobStark

    RobStark Active Member

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    #18 RobStark, Aug 3, 2014
    Last edited: Aug 3, 2014
    In theory yes. But when only 2 or 3 OEMs want to ramp up and the rest are using the credit to lower the losses on selling compliance cars then the law should change.

    Having Tesla Model 3 with no federal credit compete against a bevy of similarly priced compliance BEVs with federal credit eligibility does not pass the smell test.

    I think Tesla should be rewarded for leading the charge not in relative terms punished for it.

    BTW For the legacy OEMs I think it is fair to say that 200k BEVs sold based on modified ICE platform that sells ~1M units worldwide can rightly be considered a ramp up for its BEV program.

    For Tesla 200k units sold in total is far from the end of its ramp up phase.

    In any event, a date based limit I think is more fair. If you refuse to ramp up during the Federal credit time period then tough bananas for you. You should be punished for being a laggard.
     
  19. SebastianR

    SebastianR Member

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    I would totally support the notion of a having the tax credit phased out for all car makers as soon as 2 or 3 companies have sold more than 200k - this way there is more of an incentive to "race" to getting the maximum of the tax credit.
     
  20. RobStark

    RobStark Active Member

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    The only problem with that proposal is that you will likely get counter lobbying from the laggards.

    In that situation satus quo usually wins.

    CA will likely require all OEMs that are required to sell ZEVs,the top 8 by volume in the state, to sell over 200k cumulative ZEVs by 2026. So my proposal is no skin off the backs of the laggards. So they would largely ignore the proposal making its way through Congress.
     

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