Model 3 Production Levels Down?

[dfwatt]

As I understand it (and I'm certainly not a tax pro) the Tax Credit has nothing to do with deductions, which reduce the taxable income. The Tax Credit is applies to the actual tax paid, so any tax paid up to $7500 gets erased. Its money in the pocket for anyone who pays federal tax, regardless of their deductions. If withholding was paid there could be a large refund.

The only people who can't take advantage of this are those that pay little or no tax - which usually means low income, or retired and living off pension and savings, but little actual income, or a very clever accountant.

This is correct, but even in the latter instance, I believe that you have several years to carry that forward. Or you can I believe just get it added to your refund.

 

[Kichwas]

As I understand it (and I'm certainly not a tax pro) the Tax Credit has nothing to do with deductions, which reduce the taxable income. The Tax Credit is applies to the actual tax paid, so any tax paid up to $7500 gets erased. Its money in the pocket for anyone who pays federal tax, regardless of their deductions. If withholding was paid there could be a large refund.

The only people who can't take advantage of this are those that pay little or no tax - which usually means low income, or retired and living off pension and savings, but little actual income, or a very clever accountant.

Yeah while I didn’t understand the tax thing my buddy who is a tax lawyer basically came back with “that is the really good benefit and you should buy that thing NOW, maybe I should too.”

One of his BMWs is not long for this world...

 

[dfwatt]

Yeah while I didn’t understand the tax thing my buddy who is a tax lawyer basically came back with “that is the really good benefit and you should buy that thing NOW, maybe I should too.”

One of his BMWs is not long for this world...

yup. We bought two for that reason, plus the unlimited free SC. Figure that those combined worth about $35,000 over the life of the two cars, as SC just perfectly located for how we drive in FL, almost perfect for NH and MA

 

[Knightshade]

This is correct, but even in the latter instance, I believe that you have several years to carry that forward. Or you can I believe just get it added to your refund.

AFAIK you cannot carry the excess unused EV credit forward for use in future tax years.

 

[voip-ninja]

Well, it's not as easy as you make it sound. First of all, I don't know if you have seen the tech teardowns on the M3 - done recently, in conjunction with a parallel teardown of the Chevy Bolt and the BMW i3. The tech guys who disassembled were stunned by what they call the "military grade" components throughout the M3, not seen remotely in the other two. Their conclusion: NO WAY Tesla can make money with this kind of construction without some premium value added features, such that they are not selling primarily Model 3s without upgrades.

So . . . . they first have to get some cash in the front door. After all, Tesla for all the attention it gets has actually not made ANY money. Musk is if anything generous to a fault and doing this for all the right reasons - he would rather have the best car in the most homes than an extra ten billion added to his personal wealth. Anyone who thinks he's just in this for the money doesn't know Elon. This has created an unusual dynamic, never seen before at this scale anyway in a spectacularly successful disruptive tech business: the CEO/Chairman giving stuff away at cost virtually, while the bean counters are trying to get him to raise prices.

Bottom line - Tesla is allowing us to reap the benefits of Musk's most unusual approach. They will produce that $35k everyman car. But not until its break even price is buffered by the S, X, and max optioned 3.

What teardown? You should provide a link. In his teardown analysis, Sandy Munro indicated that Tesla should make a profit, albeit a small one, on a $35,000 lower range Model 3.

Tesla have also stated that they are coming out with a new design for the battery pack for the SR car and Musk has commented to others that he "would not do it like we did it" if designing the Model 3 battery pack a 2nd time.

I think all of this points to some real cost cutting on the production of the SR battery pack, and eventually that cost cutting will find its way into larger battery packs Tesla uses on their other vehicles so that they can improve their margins.

For the SR Model 3, remember it's only expected to have ~50kwh battery. Tesla is soon to hit $100 at the cell level per kw and they should be $100 per kw at the assembled pack level by late next year.

So that means the battery pack costs them $5,000 in their $35,000 single motor Model 3. Most of the rest of the heavy costs are probably the electric motor (which could also be a lower spec lower performance version) and the navigation hardware that every Tesla currently ships with.

Tesla's best strategy is to delay introduction of a $35,000 SR car until as late as possible as they continue to work towards cost reduction. They can achieve this by initially only offering SR cars with the $5,000 PUP which is probably highly profitable and potentially also only offering early SR cars with dual motors.

 

[dfwatt]

Eh - with the doubling of the standard deduction this year, there will be a lot fewer buyers who can take advantage of the tax credit in the first place. Rough estimates I've seen are that only about 5% of filers (as opposed to ~26% of filers previously) will itemize deductions. Now if you're on the edge, a smaller tax credit could in theory move you from itemizing, to not, but I think that'll be a distinct minority of buyers.

It does bring up an interesting question, though. They will at some point have to tell buyers "You're getting a car in 2018, or not". For example right now per the website, delivery estimates for LR AWD are "2-4 months", which straddles 2018/2019. I gotta think buyers for whom the tax credit matters are going to take a dim view of that range - at some point Tesla is just going to have to say "hey listen you're getting your car in 2019". Probably not great for end of quarter delivery stats.

You are conflating a deduction and an outright tax credit - and unfortunately you might actually scare some people off with this misinformation - which would be bad. The EV tax code provides for the latter and not the former. This means that irrespective of your income, you will show a tax credit of $7500. If you have no taxes you can either apply that for next year, or simply have the IRS send you a big fat check. A tax credit for this reason is a totally different horse so to speak, and way better than a deduction.

 

[dfwatt]

Actually I think it is wise for Tesla to think about Tax credits... that $7800 credit being cut in half on January 2019 is going to be a smack in the face to sales.

It will make it a lot harder to get middle income buyers to get in.

Myself... ordered a RWD on 9/30, but my order page says 10/3... so I am guessing I got bumped down a few days... and I kinda hope they don’t retool away from RWD too soon...

True Dat. Not sure what Tesla can do about it though, other than get the ridiculous limit on full tax credits for only the first 200K cars or whatever it is changed. That's not up to them, that's up to us.

 

[dfwatt]

What teardown? You should provide a link. In his teardown analysis, Sandy Munro indicated that Tesla should make a profit, albeit a small one, on a $35,000 lower range Model 3.

Tesla have also stated that they are coming out with a new design for the battery pack for the SR car and Musk has commented to others that he "would not do it like we did it" if designing the Model 3 battery pack a 2nd time.

I think all of this points to some real cost cutting on the production of the SR battery pack, and eventually that cost cutting will find its way into larger battery packs Tesla uses on their other vehicles so that they can improve their margins.

For the SR Model 3, remember it's only expected to have ~50kwh battery. Tesla is soon to hit $100 at the cell level per kw and they should be $100 per kw at the assembled pack level by late next year.

So that means the battery pack costs them $5,000 in their $35,000 single motor Model 3. Most of the rest of the heavy costs are probably the electric motor (which could also be a lower spec lower performance version) and the navigation hardware that every Tesla currently ships with.

Tesla's best strategy is to delay introduction of a $35,000 SR car until as late as possible as they continue to work towards cost reduction. They can achieve this by initially only offering SR cars with the $5,000 PUP which is probably highly profitable and potentially also only offering early SR cars with dual motors.

I'm a bit surprised that someone would believe someone with no resume in large scale manufacturing over the actual manufacturer. Your treating speculation as fact. They are after all different. This is the problem with getting all your information from youtube. I would tend to believe Musk's own statements about their costs over Sandy Munro. But then again, like in all things, YMMV.

 

[PremiumPackage]

You are conflating a deduction and an outright tax credit - and unfortunately you might actually scare some people off with this misinformation - which would be bad. The EV tax code provides for the latter and not the former. This means that irrespective of your income, you will show a tax credit of $7500. If you have no taxes you can either apply that for next year, or simply have the IRS send you a big fat check. A tax credit for this reason is a totally different horse so to speak, and way better than a deduction.

It's funny you would claim that, and yet put misinformation in your very post. I've already admitted up thread that I had mixed up credits with deductions, and that you don't need to itemize deductions in order to use a tax credit. However, the EV tax credit is not a refundable tax credit - you need to have at least a $7,500 tax liability to use it. You also can't roll it over to the extent your claiming the vehicle for personal purposes, which I imagine is the vast majority of us.

Note when I say "tax liability" I don't mean "You owe the government money on April 15th" - it refers to your total tax liability over the course of a year. It is possible, however, that if your pre-tax credit tax liability is, say $30,000, but your withholding and other payments amounted to $40,000 over the prior year, than the government will increase your tax refund from $10,000 to $17,500. This makes it seem like they're sending you cash, but it's not really what's happening.

 

[voip-ninja]

I'm a bit surprised that someone would believe someone with no resume in large scale manufacturing over the actual manufacturer. Your treating speculation as fact. They are after all different. This is the problem with getting all your information from youtube. I would tend to believe Musk's own statements about their costs over Sandy Munro. But then again, like in all things, YMMV.

Sandy Munro has no resume in large manufacturing?

I don't even understand what you're arguing here.... Elon Musk quoted a German teardown article that gave approximate profit margins for the Model 3 as almost being spot on and those numbers were similar to the ones Munro came up with.

You still haven't provided any actual information to back your assertions. The only "teardown" I have seen in which they argued that the Model 3 is not profitable is one that was done by a Wall Street firm with a short stake in Tesla who wanted to ice their own cake by producing a report that validated their own prejudices.

I don't know that anyone is arguing that a $35,000 SR Tesla Model 3 that Tesla would be able to produce right this moment would be a money maker for them... it wouldn't be. Musk has already stated that it would push the company to bankruptcy. That does not mean that continued cost reductions and cuts can't allow them to produce that car sometime next year and still turn a profit on it.

 

[webdbbt]

If you have no income, and no tax at all, you will simply have the option to have the $7500 returned to you in the form of a refund, or apply this tax credit to next years return.

Sorry, but you are not correct. Here is TurboTax 2017 guidance on the EV tax credit:

Limitations of this credit

- If your credit is bigger than what you owe in taxes, the taxes you owe are reduced to zero, and the rest of your credit is lost.

Example: If you owe $375 in taxes, and you receive a credit of $500, the tax you owe is reduced to zero, and the remaining $125 is lost. You won't receive a refund for the remaining $125.​

AFAIK the EV tax credit does not roll over, it must be used in the current tax year. This is implied by the guidance above.

To get the full benefit of the tax credit you must have tax liability, after deductions, of $7,500 or more.

 

[voip-ninja]

Sorry, but you are not correct. Here is TurboTax 2017 guidance on the EV tax credit:

Limitations of this credit

- If your credit is bigger than what you owe in taxes, the taxes you owe are reduced to zero, and the rest of your credit is lost.

Example: If you owe $375 in taxes, and you receive a credit of $500, the tax you owe is reduced to zero, and the remaining $125 is lost. You won't receive a refund for the remaining $125.​

AFAIK the EV tax credit does not roll over, it must be used in the current tax year. This is implied by the guidance above.

To get the full benefit of the tax credit you must have tax liability, after deductions, of $7,500 or more.

That's correct. There is absolutely no provision for rolling the EV credit over to a later tax year, splitting it or in any way doing anything other than take it in the year in which the vehicle was placed into service.

 

[PremiumPackage]

No, he's not. Deductions reduce your taxable income. Credits reduce your tax liability on a dollar for dollar basis. However, with a few exceptions, tax credits cannot reduce your tax liability below zero.

 

[CapnLoki]

This thread is repeating and spreading misinformation over and over. If you have no income, and no tax at all, you will simply have the option to have the $7500 returned to you in the form of a refund, or apply this tax credit to next years return. I suspect few would do that, and would simply take the check. Please guys, let's not unintentionally depress sales because someone reads all this and mistakenly thinks that they might not get the full (or any!) benefit from this year's last full EV tax credit.

It will still not be trivial next year (50% of the $7500 you would realize this year), and again, that benefit is independent of your deductions, income, etc. A TAX CREDIT IS BASICALLY MONEY IN THE BANK!!!

Again, I'm not a tax pro, but I think you're wrong. If this were a "refundable tax credit" you would be right. But the Tesla credit is a "non-refundable" meaning if the credit takes the tax burden negative there is no refund.

Fast, affordable filing and trusted tax guidance, all year long.

 

[mattjs33]

Well, it's not as easy as you make it sound. First of all, I don't know if you have seen the tech teardowns on the M3 - done recently, in conjunction with a parallel teardown of the Chevy Bolt and the BMW i3. The tech guys who disassembled were stunned by what they call the "military grade" components throughout the M3, not seen remotely in the other two. Their conclusion: NO WAY Tesla can make money with this kind of construction without some premium value added features, such that they are not selling primarily Model 3s without upgrades.

So . . . . they first have to get some cash in the front door. After all, Tesla for all the attention it gets has actually not made ANY money. Musk is if anything generous to a fault and doing this for all the right reasons - he would rather have the best car in the most homes than an extra ten billion added to his personal wealth. Anyone who thinks he's just in this for the money doesn't know Elon. This has created an unusual dynamic, never seen before at this scale anyway in a spectacularly successful disruptive tech business: the CEO/Chairman giving stuff away at cost virtually, while the bean counters are trying to get him to raise prices.

Bottom line - Tesla is allowing us to reap the benefits of Musk's most unusual approach. They will produce that $35k everyman car. But not until its break even price is buffered by the S, X, and max optioned 3.

If Elon really is on some sort of mission which by necessity depends on Tesla's ultimate survival, then pricing the Model 3 at a level at which would not be profitable was a really bad decision.

 

[ebmcs03]

Actually I think it is wise for Tesla to think about Tax credits... that $7800 credit being cut in half on January 2019 is going to be a smack in the face to sales.

It will make it a lot harder to get middle income buyers to get in.

Myself... ordered a RWD on 9/30, but my order page says 10/3... so I am guessing I got bumped down a few days... and I kinda hope they don’t retool away from RWD too soon...

There’s nothing to think. The tax credit is getting axed. No one is getting it. Everyone on the same playing field now.

U.S. Senator Introduces Bill To End $7,500 EV Tax Credit

 

[Knightshade]

There’s nothing to think. The tax credit is getting axed. No one is getting it. Everyone on the same playing field now.

U.S. Senator Introduces Bill To End $7,500 EV Tax Credit

That is... exceedingly unlikely to pass into law. They tried that nonsense last year too- it also went nowhere.

 

[ebmcs03]

That is... exceedingly unlikely to pass into law. They tried that nonsense last year too- it also went nowhere.

Well then that’s too bad.

 

[Kichwas]

Well then that’s too bad.

ICE cars need to die off. They’re just bad and the planet is already likely to die thanks to them. All we can hope is to extend human life for another generation or two if we can kill off the ICE quickly enough.

 

[Knightshade]

ICE cars need to die off. They’re just bad and the planet is already likely to die thanks to them. All we can hope is to extend human life for another generation or two if we can kill off the ICE quickly enough.

Yeah but that is physically impossible.

There's nowhere near enough battery production capacity in the entire world to replace even a large fraction of ICE vehicles right now.

Tesla produces (by kwh) more batteries than the entire rest of the worlds car makers combined- and their max annual output right now is something like 20Gwh... planning to get up to 35 when they add some new lines...(eventually even higher).

So that means worldwide capacity is under 40 Gwh

That's 40000000 kwh.

Assume a 50kwh car battery (and of course many are higher).... that's only 800,000 cars.

That's more than can be produced at current battery levels.

Something like 90 million cars and light commercial vehicles are sold annually.

So less than 1% of all ICE vehicles can be replaced by EVs at current battery production levels.

So it's gonna be a while before ICE vehicles die off.



BTW- the planet isn't going to die. It's been through a lot worse than us.

we will do a ton of damage to ourselves, but the planet'll be here long after us.

Life, uh, finds a way, I've heard it said.