What happens to the federal tax credit once Tesla reaches 200,000 cars

[mrjedistud]

I was reading through some IRS materials on the EV tax credit. Unless extended it appears to expire after a manufacturer reaches 200,000 cars. I'm not sure if this is overall or for each model (ie, Model S and X count separately). If the former, credits for Teslas may run out in late 2016 or early 2017, which is before the arrival of the Model 3. Any tax accountants out there that can clarify?

 

[techmaven]

Tax credit explanation is here: Federal Tax Credits for Plug-in Hybrids Purchased in or after 2010

Remember, this is for U.S. sales only. Tesla might be close to selling 200,000 cars ever through the end of 2016 throughout the world.

 

[mikeash]

Once they hit 200,000 cars, the credit continues until the end of the quarter, and the next quarter. Then it gradually phases out over the next year, with the credit applying at 50% for the first two quarters, and 25% for the last two.

Note also that the 200,000 number is for vehicles sold in the US. Tesla is approaching 100,000 vehicles sold, but that's worldwide. I don't know when the US number could be expected to hit 200,000, but that's a factor to consider.

 

[Max*]

And it's per manufacturer, not per car. Roadster + Model S + Future Model X.

 

[Vgsllc1]

well then they need to hurry up with MODEL 3. i want another Tesla!

 

[BBryson]

I understand why and fully support the EV credit, but I anticipate the US Congress will repeal the credit before Tesla reaches the 200,000 mark.

Regardless of my option, US taxpayers subsidizing purchases of +$100K luxury cars is a tempting target for big oil to go after, or the dealerships could use it as well. It would be interesting to see what the auto makers stance would be if their dealerships try to impede Tesla in a way that impacts the entire EV market.

Does anyone have any insight into how much warning we would have before the credit is repealed or changed?

 

[igotzzoom]

As unpopular as this may be to hear to hard-core EV fans, it's ultimately in the long-term best interest of the EV market to not be as reliant on subsidies, credits, exemptions, etc. Sure, you can make the case for all the subsidies the oil industry gets, and how the cards are stacked against EVs, but similarly to the solar market, where costs have come down dramatically, the more attractive EVs can be on their own, separate from any "sweeteners" will ultimately strengthen their market standing.

 

[jeffro01]

I tend to disagree with the idea that Congress shouldn't renew this credit, why? Because Congress, and by extension the IRS, artificially keeps the price of gas suppressed in the US. So long as it's the policy of this government to prop big oil up and thereby keeping gas prices artificially low then it seems only fair.

Feel free to disagree...

Jeff

 

[jerry33]

I doubt the credit is going anywhere because they would actually have to repeal it, making them even more unpopular than they already are.

 

[cpa]

I have no crystal ball, but these are really small potatoes in the overall scheme of things. The maximum credit allowed per manufacturer ($7,500)(200,000) equals $1.5 billion, plus the final 1+year where the credit reduces to $3,750 and finally $1,875. Also note that this credit does not carryforward or back so any unused credit evaporates. So, maybe $2 billion total times all the manufacturers out there. Someone probably know how many car makers there are, but almost all of them now have some sort of BEV or PHEV available for sale, so my take is that by 2020 many of these manufacturers will have exceeded their allotment, rendering repeal of this credit moot.

Now, they very well might tweak the credit with a new Congress in 2017 (maybe putting AMT back into the equation, or a phase out if income is over a certain threshold), but that is another show.

 

[TaoJones]

As unpopular as this may be to hear to hard-core EV fans, it's ultimately in the long-term best interest of the EV market to not be as reliant on subsidies, credits, exemptions, etc. Sure, you can make the case for all the subsidies the oil industry gets, and how the cards are stacked against EVs, but similarly to the solar market, where costs have come down dramatically, the more attractive EVs can be on their own, separate from any "sweeteners" will ultimately strengthen their market standing.

Seems that the cumulative effect of efficiency *and* subsidies would make (insert product here) more attractive to more people, with the possible exceptions of pundits, politicians, and AM radio windbags, no?

It's an imperfect world...

 

[wdolson]

I understand why and fully support the EV credit, but I anticipate the US Congress will repeal the credit before Tesla reaches the 200,000 mark.

Regardless of my option, US taxpayers subsidizing purchases of +$100K luxury cars is a tempting target for big oil to go after, or the dealerships could use it as well. It would be interesting to see what the auto makers stance would be if their dealerships try to impede Tesla in a way that impacts the entire EV market.

Does anyone have any insight into how much warning we would have before the credit is repealed or changed?

As slow as things move through Congress, I suspect we would have a lot of warning.

The cause for not giving the rich more tax breaks led the California legislature to do away with the state tax credit for EVs based on yearly income. In Washington State the sales tax exception was done away with for any EV worth more than $35,000. Washington doesn't have income tax and anything that smells like a tax related to income ends up in the courts. I do wish they could tie the exemption in some way to income instead of the price of the car. There are a fair number of people with moderate incomes stretching their budget to afford a Tesla Model S (and probably the same for a Model X).

 

[TomServo]

I tend to agree it should be based on INCOME. Someone making $150+K a year and buying a Tesla really doesn't need any tax payer assistance.

Just an opinion

 

[Troy]

Hi,

I have done some calculations and the most likely scenario is, full tax credits will continue until the end of 2018. Initially I calculated that Tesla will reach 200,000 in late June 2018 but they could easily push that to July if they send more cars to Europe for a few weeks. Therefore the most likely scenario is like this:

Full Credit Amount	50% of Full Amount	25% of Full Amount	No Credit
$7500 USD	$3750 USD	$1875 USD
Jul Aug Sep	Oct Nov Dec	Jan Feb Mar	Apr May Jun	Jul Aug Sep	Oct Nov Dec	Jan Feb Mar
2018	2019	2020

Summary:
Full federal tax credits for Tesla will continue until the end of:
◘ Dec 2018 (70% likely)
◘ Sep 2018 (30% likely)
◘ Mar 2019 (0% likely)

Details:

	Roadster	Model S & Model X	Model 3	USA Total	Running total
2010-12	1500	USA	USA / Global	Global	USA	USA / Global	Global	1500	1500
Q3 2012		250	100.00%	250				250	1750
Q4 2012		2,400	100.00%	2,400				2,400	4150
Q1 2013		4,832	98.39%	4,911				4,832	8982
Q2 2013		5,120	99.19%	5,162				5,120	14102
Q3 2013		4,288	77.79%	5,512				4,288	18390
Q4 2013		4,223	61.27%	6,892				4,223	22613
Q1 2014		3,384	52.41%	6,457				3,384	25997
Q2 2014		3,907	51.55%	7,579				3,907	29904
Q3 2014		4,784	61.45%	7,785				4,784	34688
Q4 2014		5,345	54.35%	9,834				5,345	40033
Q1 2015		5,652	56.27%	10,045				5,652	45685
Q2 2015		5,630	48.82%	11,532				5,630	51315
Q3 2015		4,876	42.02%	11,603				4,876	56191
Q4 2015		7,308	42.00%	17,400				7,308	63499
Q1 2016		8,713	41.00%	21,250				8,713	72212
Q2 2016		8,713	41.00%	21,250				8,713	80925
Q3 2016		8,500	40.00%	21,250				8,500	89425
Q4 2016		8,500	40.00%	21,250				8,500	97925
Q1 2017		14,284	40.00%	35,710				14,284	112209
Q2 2017		13,927	39.00%	35,710				13,927	126136
Q3 2017		13,927	39.00%	35,710				13,927	140063
Q4 2017		13,927	39.00%	35,710	250.00	100.00%	250	14,177	154240
Q1 2018		22,796	38.00%	59,990	1,600.00	80.00%	2,000	24,396	178636
Q2 2018		16,797	28.00%	59,990	2,800.00	70.00%	4,000	19,597	198233
Q3 2018		22,796	38.00%	59,990	4,800.00	60.00%	8,000	27,596	225829
Q4 2018		22,196	37.00%	59,990	8,000.00	50.00%	16,000	30,196	256025

Color codes:

Yellow = Estimate

Orange = Estimate (click here for more details)

Green = Numbers published by Tesla.

Blue = Calculation based on estimates

Red = The assumption is Tesla will reduce USA deliveries

 

[Spidy]

On what are you basing those USA / Global %?

Especially Q4 is heavily biased with those 2k cars going to Denmark.

Also SUVs are more popular in the US and most reservations are US as far as I know.

 

[Troy]

Hi Spidy. USA/Global percentage is an estimation based on quarterly California deliveries numbers published by CNCDA.org (California New Car Dealers Association). They will publish Q4 2015 California deliveries this month. When they do, I will update the table HERE which has more details.

 

[Spidy]

I was more thinking about the overall long term trend. I just can't think of any reason why % would go down and not up, especially in 2016.

 

[dhanson865]

Hi,

I have done some calculations and the most likely scenario is, full tax credits will continue until the end of 2018. Initially I calculated that Tesla will reach 200,000 in late June 2018 but they could easily push that to July if they send more cars to Europe for a few weeks. Therefore the most likely scenario is like this:

I find your production estimates to be way low and you aren't running the projection out into 2019.

The current rate has them selling more than 20,000 in the US for 2015. Ramping up Model X and production in general might trigger the 200,000 mark in 2018? I figure it'll be a Model 3 that is the 200,000th sold in the US (or at least Model 3 sales will be under the 200,000 mark and contribute to the total).

The phase-out period stretches over one year, beginning in the second calendar quarter after the quarter in which the manufacturer hits the 200,000 vehicle US sales mark. From there, all qualifying vehicles sold by the manufacturer are eligible for 50% of their specified credit for the first two quarters and 25% of the credit for the next two quarters.

For example if a manufacturer sells its 200,000th vehicle in the first quarter (Q1) of 2018, the credit amounts for all of that manufacturer's eligible vehicles would phase out as shown in the table below.

Tax Credit Phase-Out Schedule Quarter Credit
Q1 2018 Full amount
Q2 2018 Full amount
Q3 2018 50% of full amount
Q4 2018 50% of full amount
Q1 2019 25% of full amount
Q2 2019 25% of full amount
Q3 2019 No credit

It's entirely possible that it will trigger sooner and run out sooner but the important concept is that it doesn't go away immediately and when it starts going away it diminishes slowly not all at once.

If Tesla is pumping out 10,000 plus a month in 2018 they could easily sell 50,000 or more with the full tax credit. They could then be selling double that amount in the next 6 months with half tax credit. And then double rate again with 1/4 tax credit. All in all hundreds of thousands of Model 3s could be sold with federal tax credit.

Keep in mind Tesla can game this slightly by focusing on overseas deliveries of Model S and Model X the month they are going to roll over 200,000 US deliveries. If that rolls them into the next quarter it extends the tax credit by 3 months no matter how many they sell after that.


Now to update the current totals at end of 2015 would be

US running total Tesla Sales vs 200,000 for federal credit phase out trigger
2011 end 1,900
2012 end 4,550 (2,650 for 2012 + prior year)
2013 end 22,200 (14,650 for 2013 + prior years)
2014 end 39,500 (17,300 for 2014 + prior years)
2015 end 65,414 (25,914 for 2015 + prior years, Model S and Model X)
2016 current 66,634 (1,220 for Jan 2016 + prior years)

Do the math if Tesla is doing less than 26,000 a year US in 2015 how many years will it take to hit 200,000 US sales? They'll ramp up S and X production but there will still be plenty of discounts on Model 3.

Lets say 75,000 US for 2016 and 75,000 US for 2017, and maybe some of the tail of 2017 are founders Model 3. Then in 1Q 2018 they open the floodgates and a ton of Signature Model 3s come out, in 2Q 2018 a ton of regular model 3s come out all with full tax credit. Hoorah, look at this again

Tax Credit Phase-Out Schedule Quarter Credit
Q3 2017 possible deferred shipping to EU/ROW to avoid crossing 200,00 in US
Q4 2017 founders Model 3 with full credit (200,000 mark crossed)
Q1 2018 signature Model 3 with Full credit
Q2 2018 production Model 3 with Full credit (will they be making 4,000+ a week by then? Maybe 12 weeks worth is 50,000 Model 3s with full credit?)
Q3 2018 50% of full amount (maybe 75,000 Model 3s with half credit)
Q4 2018 50% of full amount (maybe 100,000 Model 3s with half credit, with extra production going outside the US)
Q1 2019 25% of full amount (maybe 100,000 Model 3s with quarter credit, with extra production going outside the US)
Q2 2019 25% of full amount (maybe 100,000 Model 3s with quarter credit, with extra production going outside the US)
Q3 2019 No credit

all in all they might get out 100,000 with full credit, 200,000 with half credit, and another 200,000 with quarter credit. I'd hardly call 500,000 Model 3s in 2018/2019 the same as your version of none of them getting the credit.

Shift that back a quarter and 100,000 less cars get a full credit, shift that forward a quarter and 100,000 more get a full credit. Just depends when they can start cranking out Model 3 en masse.

The Fremont facility has produced over 500,000 cars a year in the past and can easily be tooled up to do 500,000 a year again. Tesla will ramp it up as much as possible between now and the end of 2017 so it isn't impossible for them to hit my numbers. It's just uncertain.

And lets talk about Tesla's track record for a second.

2012 2,600 cars
2013 25,000 cars total (22,400 cars in 2013 + prior year)
2014 57,000 cars total (32,000 cars in 2014 + prior years)
2015 107,000 cars total (50,000 cars in 2015 + prior years)

2016 forecast in the last earning call is 80,000 to 90,000 cars.

2017 could take it up to 125,000
2018 could take it up to 190,000

It might be less but their "track record" is that they increased production by 56% comparing 2015 to 2014. So I have no reason to believe they won't increase it like they plan to.

 

[Half Dollar Bill]

Hi,

I have done some calculations and the most likely scenario is, full tax credits will continue until the end of 2018. Initially I calculated that Tesla will reach 200,000 in late June 2018 but they could easily push that to July if they send more cars to Europe for a few weeks. Therefore the most likely scenario is like this:

Troy - from Tesla's 2/10 earnings release letter:
US Model S sales 2014 = 16,689 2015 = 25,202
Your 2014 numbers are a tad high and your 2015 are a tad low, but net to be under by about 1,000 vehicles. This excludes the nominal X sales as well.

I guess I'm surprised that only half the 2015 sales were in the US; I thought it would be more. I'd bet that your 2016/17 US percentages are low too, but even so, I think it means the 200K sales amount isn't reached until sometime in late 2017.

But who has a crystal ball, really? Nice strawman.

 

[Drivin]

Because Congress, and by extension the IRS, artificially keeps the price of gas suppressed in the US. So long as it's the policy of this government to prop big oil up and thereby keeping gas prices artificially low then it seems only fair.

If big oil wasn't propped up, then higher gas prices would impact the economy, and anyone who buys gas - invariably poorer people get disproportionately negatively affected.

Compare that to the EV subsidies which are utilized by rich people (and yes, if you can spend 75k for a car, even if it means stretching your budget, you are rich).

It is like saying "well, since we have subsidies for milk, it is only fair that we subsidize caviar and champagne"