Welcome to Tesla Motors Club
Discuss Tesla's Model S, Model 3, Model X, Model Y, Cybertruck, Roadster and More.
Register

Model 3 Ramp and US Tax Credit Implications

Which calendar quarter do you believe Tesla will sell its 200,000th vehicle?

  • 1Q18

    Votes: 8 18.6%
  • 2Q18

    Votes: 29 67.4%
  • 3Q18

    Votes: 5 11.6%
  • After 3Q18

    Votes: 1 2.3%

  • Total voters
    43

RTPEV

Member
Mar 21, 2016
872
916
Durham, NC
The topic of the Model 3 ramp and its implications on the US federal EV tax credit continue to pop up in other threads, and I couldn't find a thread dedicated to the subject, so I am creating this so that discussion can take place.

The big question is whether the tax credit itself will survive the GOP Tax Reform effort. The following thread covers that subject: EV Tax Credit

Assuming that the credit survives (perhaps a big assumption, but if it doesn't, the picture quickly becomes very clear!), the next big question on people's minds is when will the credit for Teslas phase out and will they be able to get a standard battery, non-PUP vehicle, AWD, bridge to their lease end, etc.

As a reminder, the way the credit works is that if you take delivery of a qualified vehicle in a given tax year, and you have a tax liability (not refund, or shortfall, but liability--the net amount of tax you actually pay, whether it's through withholding or you write a check) of up to $7500, you are entitled to a credit (a reduction in the amount of tax you owe) up to that $7500. You effectively get this tax credit back when you file your taxes the next calendar year (although you could decrease your withholdings so as effectively get the credit back in small chunks in each paycheck).

Once a given car manufacturer (Tesla in this context) sells it's 200,000th vehicle in the US, the credit starts to phase out (presumably because by that time, the manufacturer has achieved economies of scale necessary to price a vehicle competitively with ICE vehicles). For the quarter in which the 200,000th vehicle is sold AND the subsequent quarter, the full $7500 credit applies. It then reduces to 50% ($3750) for the next two quarters, and then finall to 25% ($1875) for the following two quarters. It then phases out entirely and is gone. Note that whether the 200,000th vehicle is sold on the first day of a quarter or the last day, the full credit is only available for THAT calendar quarter and the NEXT calendar quarter. It is not 6 months after car 200,000 is sold. The implication here is that it is most beneficial to sell car #200,000 as early as possible in a given quarter to gain full advantage of the remaining credit. And Elon has implied that Tesla would "do the right thing" with regards to maximizing the tax credit. I take this to mean that if they near the end of a quarter and are approaching that 200,000th vehicle that they will withhold sales, or divert sales to foreign countries, until the beginning of the next quarter.

The following illustrates the phaseout process. Note that this is for illustrative purposes only. This is NOT a prediction of how I think the phaseout will occur.
upload_2017-11-29_17-16-21.png


So with that out of the way, let the discussion commence. Where do you think Tesla stands with respect to the phase out?
 

RTPEV

Member
Mar 21, 2016
872
916
Durham, NC
When this topic comes up, I think many people believe they will hit 200K in 1Q18 and are worried about receiving the full credit by the time their configuration is available.

I strongly believe that it will not be until at least 2Q18. Here is my reasoning.

What we know (almost as a fact) is that as of the end of 3Q17, Tesla had sold 146,566 vehicles in the US (source InsideEVs).

In 3Q17, Tesla's sales were 15,002. Third quarter is usually a strong push by Tesla, and I expect there to be a slight dropoff in the fourth quarter. This is offset somewhat by the fact that Model 3 is ramping up, but as we know now, it's not ramping as fast as initially predicted. I'm still assuming a fairly healthy quarter for Model S (5924) and X (4587), but this is definitely off 3rd quarter numbers. InsideEVs October US sales estimates (which admittedly are only estimates) were quite disappointing, but the rationale was that Tesla was stockpiling cars for foreign sales that should allow them to post great worldwide sales in December. Not just that, but it also indicates to me that Tesla has done its own projections and come to the conclusion I am about to make and is starting a diversion of Model S/X offshore to avoid hitting 200K in 1Q18.

As for Model 3 in 4Q17, I am actually assuming 3145, but I think the consensus is that it will be more in the 2000 range, but I am trying to present a realistic to optimistic view here to make my point that I don't think they will hit 200K in 1Q18.

In sum, I estimate Tesla will have sold 160,222 US vehicles by the end of 2017.

Looking out into the first quarter, I am taking the 4Q17 results for S & X and derating them by 20% to reflect a typical dropoff in the first quarter. Maybe this is unfair if Tesla is intentionally diverting vehicles overseas, but if they are doing so to avoid hitting 200K in 1Q18, I imagine they will continue this practice.

For the Model 3 ramp, I have estimated, again perhaps optimistically vs. consensus, 2000 vehicles per week for the month of January, growing to 2500 per week for the first two weeks of February, followed by 3000, 3500, 4000 and then finally settling in to 5K/week in the first full week of March. I really view this as a best case scenario, and any other glitches or bottlenecks that come along will surely move that ramp out. But again, my point is to provide that best case scenario to see where it puts us.

With these assumptions, I have Tesla sellling vehicle #200,000 on around March 15. Just two weeks before the end of the calendar quarter.

In this scenario, I can't believe there is any way that Tesla would move forward and sell that vehicle. They would either stop sales for 2 weeks, building up inventory in preparation to selling them all in that first week of April, or to soften that gap somewhat I think they would probably start stockpiling Model 3's at the rate of about 1000 per week, in which case they would be at 199,250 on March 31st which a nice pile of 12K Model 3's ready to be sold on April 1st.

With this scenario, the full credit will last until the end of September 2018, $3750 until the end of March 2019, and $1875 until the end of September 2019.
 
  • Like
Reactions: Dr. J

shokunin

P85 & M3
Feb 28, 2012
1,199
630
Irvine, CA
IMO, Q2 is a given to hit 200K in sales. Q1 is a stretch, it all depends on the ramp and the fact that the last few weeks of production typically need transport and service center prep before delivery.

The bigger concern is whether or not the credit will exist next year.

The first month of every quarter the US sales are low as they ship most of that production to international markets as transit and customs takes time.
 

ofsvegas

Member
Jul 29, 2017
10
5
Las Vegas, NV
As a reminder, the way the credit works is that if you take delivery of a qualified vehicle in a given tax year, and you have a tax liability (not refund, or shortfall, but liability--the net amount of tax you actually pay, whether it's through withholding or you write a check) of up to $7500, you are entitled to a credit (a reduction in the amount of tax you owe) up to that $7500. You effectively get this tax credit back when you file your taxes the next calendar year (although you could decrease your withholdings so as effectively get the credit back in small chunks in each paycheck).

Is this correct? When I purchased a solar system 2 years ago with the 30% federal credit my wife and I had to, like you were saying, change our withholdings from 0 to 6 so that we would owe $6300 at the end of the year (which the solar credit of $6300 covered) and we didn't owe anything.

I asked my CPA about the EV tax credit and as far as she could tell we didn't have to change our tax withholdings for it and could keep them at 0 and would get the $7500 back regardless of what we owed/were owed. If this is incorrect I need to know so on Jan 1 we can change our withholdings for 2018. My estimate is Jan to Mar 2018 for M3 delivery.
 

kengchang

Active Member
Jul 17, 2017
2,340
13,997
California
Is this correct? When I purchased a solar system 2 years ago with the 30% federal credit my wife and I had to, like you were saying, change our withholdings from 0 to 6 so that we would owe $6300 at the end of the year (which the solar credit of $6300 covered) and we didn't owe anything.

I asked my CPA about the EV tax credit and as far as she could tell we didn't have to change our tax withholdings for it and could keep them at 0 and would get the $7500 back regardless of what we owed/were owed. If this is incorrect I need to know so on Jan 1 we can change our withholdings for 2018. My estimate is Jan to Mar 2018 for M3 delivery.
It's the same thing. In your ITC case, you are getting it back monthly. In EV Tax Credit (if it still exist), you are getting it back when you file tax assuming you paid more than $7500 in Federal tax.
 

RTPEV

Member
Mar 21, 2016
872
916
Durham, NC
Is this correct? When I purchased a solar system 2 years ago with the 30% federal credit my wife and I had to, like you were saying, change our withholdings from 0 to 6 so that we would owe $6300 at the end of the year (which the solar credit of $6300 covered) and we didn't owe anything.

I asked my CPA about the EV tax credit and as far as she could tell we didn't have to change our tax withholdings for it and could keep them at 0 and would get the $7500 back regardless of what we owed/were owed. If this is incorrect I need to know so on Jan 1 we can change our withholdings for 2018. My estimate is Jan to Mar 2018 for M3 delivery.

As kengchang pointed out, you don't HAVE to change your withholdings. You still effectively get the $7500 back in 2019 when you file your taxes (assuming the credit survives). But doing it that way you are effectively giving Uncle Sam an interest free loan which he will pay you back in 2019. And to be honest, in this political environment, I would probably keep things the way they are anyway in case the credit gets scrapped retroactively at some point during the year.
 

ofsvegas

Member
Jul 29, 2017
10
5
Las Vegas, NV
Okay great thank you RTPEV & kenchang I understand now. 1 more question. We are getting 2 M3's which would make it $15,000 back but our total tax liability is $11,500 so we can only claim $11,500 of the $15,000 right?

We were hoping to take delivery of one in December and one in January which would have allowed us to get $7500 back in 2018 & $7500 back in 2019... but the bottlenecks killed that.
 

kengchang

Active Member
Jul 17, 2017
2,340
13,997
California
Okay great thank you RTPEV & kenchang I understand now. 1 more question. We are getting 2 M3's which would make it $15,000 back but our total tax liability is $11,500 so we can only claim $11,500 of the $15,000 right?

We were hoping to take delivery of one in December and one in January which would have allowed us to get $7500 back in 2018 & $7500 back in 2019... but the bottlenecks killed that.
Yes, up to the total Federal tax bill. If the EV credit survives and tax-middle-class cut for the rich pass, it might be less than $11500.
 

rxlawdude

Active Member
Jul 10, 2015
2,478
1,732
Orange County, CA
Okay great thank you RTPEV & kenchang I understand now. 1 more question. We are getting 2 M3's which would make it $15,000 back but our total tax liability is $11,500 so we can only claim $11,500 of the $15,000 right?

We were hoping to take delivery of one in December and one in January which would have allowed us to get $7500 back in 2018 & $7500 back in 2019... but the bottlenecks killed that.
The chances of you getting TWO Model 3s before the natural expiration of the full $7,500 credit (if it's not completely repealed in the tax bill pending) is very low.
 

RTPEV

Member
Mar 21, 2016
872
916
Durham, NC
The chances of you getting TWO Model 3s before the natural expiration of the full $7,500 credit (if it's not completely repealed in the tax bill pending) is very low.

Why do you say that? If both were reserved at the same time, the chances of getting two before the phase out is practically the same as getting one. Additionally it sounds like @ofsvegas is probably an early reservationist with a Dec-Feb (or earlier) estimate.
 

rxlawdude

Active Member
Jul 10, 2015
2,478
1,732
Orange County, CA
Why do you say that? If both were reserved at the same time, the chances of getting two before the phase out is practically the same as getting one. Additionally it sounds like @ofsvegas is probably an early reservationist with a Dec-Feb (or earlier) estimate.
No indication they are existing owners, but to get the M3s at the same time, they would have to OWN TWO Teslas. Even those of us who are Tesla owners that reserved on 3/31/16, if we only own one Tesla, second reservations would be put in a later bucket.
 

RTPEV

Member
Mar 21, 2016
872
916
Durham, NC
No indication they are existing owners, but to get the M3s at the same time, they would have to OWN TWO Teslas. Even those of us who are Tesla owners that reserved on 3/31/16, if we only own one Tesla, second reservations would be put in a later bucket.
I wasn't assuming they were current owners, just figured that if someone had two reservations made at the same time that they would have equal priority. Maybe the rules are different for getting into the owner pool. But is that how it works for the non-owner pool? Subsequent reservations get kicked to the back of the line (or at least further back)? That doesn't seem right.
 

McHoffa

EV.network
Sep 29, 2015
1,100
1,189
Canton, NC
I wasn't assuming they were current owners, just figured that if someone had two reservations made at the same time that they would have equal priority. Maybe the rules are different for getting into the owner pool. But is that how it works for the non-owner pool? Subsequent reservations get kicked to the back of the line (or at least further back)? That doesn't seem right.
As far as I understand every reservation is in order based on stand in line, in store, pre reveal, reveal, post reveal, April 1, etc. My reservation 1 (stand in line, Charlotte NC) shows Dec-Feb first build. My reservation 2 (online pre reveal) shows Feb-Apr first production.

But if I owned a Tesla already my #1 would get moved to the front of the line. If I owned two Teslas both would get bumped to front of the line. I base this one people that made two reservations at the same time that currently own one Tesla only having one bumped and the other stays the same while those that own two Tesla got both moved up.
 

About Us

Formed in 2006, Tesla Motors Club (TMC) was the first independent online Tesla community. Today it remains the largest and most dynamic community of Tesla enthusiasts. Learn more.

Do you value your experience at TMC? Consider becoming a Supporting Member of Tesla Motors Club. As a thank you for your contribution, you'll get nearly no ads in the Community and Groups sections. Additional perks are available depending on the level of contribution. Please visit the Account Upgrades page for more details.


SUPPORT TMC
Top