Will Model 3 truly be 'mass market'?

[Red Sage]

Here the thing is... Some seem to think of the term 'mass market' as a measure of price point, while others consider it as a metric of units produced. Each perspective is both valid, and overlapping. There is no need to choose one over the other. Check sales stats and you'll find there are quite a few vehicles that cost under $25,000 as a base price that are outsold by the BMW 3-Series.

 

[gregincal]

Here the thing is... Some seem to think of the term 'mass market' as a measure of price point, while others consider it as a metric of units produced. Each perspective is both valid, and overlapping. There is no need to choose one over the other. Check sales stats and you'll find there are quite a few vehicles that cost under $25,000 as a base price that are outsold by the BMW 3-Series.

I do believe that Tesla is using mass market in the units sold sense. And affordable is relative. Before they released the Model S they referred to it as an "affordable family sedan".

 

[Red Sage]

I do believe that Tesla is using mass market in the units sold sense. And affordable is relative. Before they released the Model S they referred to it as an "affordable family sedan".

Correct. It is all a matter of relativity. If you can afford to have a family, you can likely afford to own a new electric car, and a nice home to charge it in every night. Of course, the reality is that most people start a family well before they can afford one. They instead fall into the 'Good Credit' trap, where rather than actually being able to afford things, they are merely able to 'make the payments' on a monthly basis. Plus, let's face it: Had GM, Volkswagen, or Ford released a car with the Model S specifications, it would have cost at least $100,000 more per car at every trim level as MSRP -- even before the 'independent franchised dealerships' decided to add an upcharge to 'what the market can bear'.

 

[Big-T]

I'm clearly in the minority of TMC readers here, but I think I represent the "mass market" better. After all, most folks that participate in an online forum about a car that hasn't been announced yet and won't be delivered for 1-2 years aren't the mass market of car buyers. The reason I'm excited for the 3 is that it's going to be affordable, by that I mean on par with a Toyota or Hundai and here's how I"m going to get to those prices: (HINT THE KEY IS TAX CREDITS PEOPLE, WHY IS NO ONE MENTIONING THE TAX CREDITS!)



35k - rear wheel dirve base price (no tax for Washington Sate EV purchases)
1k - Paint upgrade (based on the cost of the S)
1.5k - Pano roof (based on the cost of the S)
2.5k - Autopilot (based on the cost of the S)
-----------------------------------------
40 k - Before Credits
-7.5k - Federal Tax Credit
$32,500 FINAL PRICE
========================================

Compare that to the following:
Camry SE (midrange options package) for $26,000 + $2,340tax = $28,340
Kia Optima EX (midrange options package) for $29,950 + $2,695 = $32,645

And there you have it, a sweet model 3 with autopilot that sits between the price of a Kia and Camry....the Model 3 Priced for the masses, like me.

 

[Twiglett]

I'm clearly in the minority of TMC readers here, but I think I represent the "mass market" better. After all, most folks that participate in an online forum about a car that hasn't been announced yet and won't be delivered for 1-2 years aren't the mass market of car buyers. The reason I'm excited for the 3 is that it's going to be affordable, by that I mean on par with a Toyota or Hundai and here's how I"m going to get to those prices: (HINT THE KEY IS TAX CREDITS PEOPLE, WHY IS NO ONE MENTIONING THE TAX CREDITS!)

Thing is though - its a tax credit, not money in your pocket or a reduction in the price of the car.
So you get to pay the full amount when you buy the car, then claim a credit against your taxes the following April - assuming you pay enough tax to use all the credit.

 

[Az_Rael]

Thing is though - its a tax credit, not money in your pocket or a reduction in the price of the car.
So you get to pay the full amount when you buy the car, then claim a credit against your taxes the following April - assuming you pay enough tax to use all the credit.

This is very true. I experienced this with my Volt. I bought the car for ~32k ish out the door, and then filed for the tax credit the next April. I got the full $7500 back, but it didn't translate well to changing the payment amount on my car, etc. since I had rolled the 7500 into the car loan essentially. (I knew this going in, FYI but I suspect a lot of folks don't grasp it)

If I was going to do it again, I would front the extra $7500 via cashing out some savings or a short term loan or something, finance the car at the lower amount, then pay that back with the tax credit once it is obtained. You gotta be very sure you WILL get the credit in that scenario, but you end up with lower payments that way.

 

[tga]

You actually don't have to wait until the following April. If you're sure you will get the tax credit, you can reduce your withholding/quarterly tax payments to get it back during the current tax year. You can roll the increase in take home pay into paying down the loan faster, re-paying savings used to purchase the car, etc.

 

[dhanson865]

You actually don't have to wait until the following April. If you're sure you will get the tax credit, you can reduce your withholding/quarterly tax payments to get it back during the current tax year. You can roll the increase in take home pay into paying down the loan faster, re-paying savings used to purchase the car, etc.

+1, you can even do things like change your witholdings for half the year and then change them back later to save up some to offset it if you were aggressive. You just need to do the W4 calculator math every 2 or 3 months and readjust to suit your needs.

 

[vinnie97]

Any tax credits I might be eligible for will be swallowed up by not abiding by a certain health insurance law. I refuse to pay the penalty, and it's less than the subsidized cost of insurance anyway, but I'm sure the IRS will be happy to use any potential credit to pay it down (they'll certainly use your refund to do it, and I ensure I'm not owed a refund by the aforementioned method of withholding). Life's a bitch.

 

[Bluejuice]

Also keep in mind that by the time the Model 3 is released the full tax credit will probably be gone. It starts going away once Tesla has sold 200,000 cars.

 

[Big-T]

This is very true. I experienced this with my Volt. I bought the car for ~32k ish out the door, and then filed for the tax credit the next April. I got the full $7500 back, but it didn't translate well to changing the payment amount on my car, etc. since I had rolled the 7500 into the car loan essentially. (I knew this going in, FYI but I suspect a lot of folks don't grasp it)

If I was going to do it again, I would front the extra $7500 via cashing out some savings or a short term loan or something, finance the car at the lower amount, then pay that back with the tax credit once it is obtained. You gotta be very sure you WILL get the credit in that scenario, but you end up with lower payments that way.

No worries, I assure you the government takes way more than $7,500 in taxes from me each year. Any financing I have to do will be in the form of a HELOC for further tax deduction of any interest paid on the loan - and no pre-payment penalties for paying it off early.

That's similar to what we did in '09 when taking advantage of that cash for clunkers program from the government. Turned in an ghetto old Ford Explorer with some engine problems in for 4.5k credit towards a new Ford Escape, wrote the dealership a check from the HELOC (paying in "cash" got you an extra $1,500 off from ford at the time if I remember my numbers right) and got everything paid off within about 3 years, all interest payments during that time were tax deductible.

Man I love government subsidies!!

 

[dhanson865]

Also keep in mind that by the time the Model 3 is released the full tax credit will probably be gone. It starts going away once Tesla has sold 200,000 cars.

Not this again. I guess I can add January numbers since it's been a month since I've replied to this sort of post.

JB Straubel- Model 3 will be mostly NEW technology - Page 13

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.

 

[gregincal]

Also keep in mind that by the time the Model 3 is released the full tax credit will probably be gone. It starts going away once Tesla has sold 200,000 cars.

There's no way Tesla will sell 200,000 cars in the US before releasing the Model 3. They've sold about 65,000 cars in the US so far.

Edit: Didn't see that dhanson has already posted the usual post.

 

[Az_Rael]

Not this again. I guess I can add January numbers since it's been a month since I've replied to this sort of post.

Why do you assume they will be able ramp up production numbers of the Model 3 that fast in 1 year? I know the gigafactory is out there, but those kind of numbers ramp up will probably also take additional assembly factories unless their current one is so underutilized that they have that extra capacity. I have worked in a factory production environment (albeit airplanes and not cars) and I can tell you that just doubling a production rate in a year is a very very difficult thing to do.

So I would expect far fewer Model 3s will actually get the credit since it's based on clock time once the threshold is hit. it seems like Teslas messaging is hinting at that as well, by advertising the price of the car without incentives. They know not that many 3's will be getting credits.

 

[pmadflyer]

They only use a tiny portion of the factory. It can handle 500k.

 

[Red Sage]

Big-T: Assuming that Tesla Motors is able to get up to speed with Model X Production... I expect that it will be far more popular in the US than in other territories. Thus, if 60% of Model X are Delivered in the US, all those units count against the 200,000 vehicle total before the Federal Tax Credits begin to diminish and eventually fade away.

Meanwhile, at least 40% of Model S buyers will be in the US. If both cars are Delivered at a 50,000 unit per year rate, that still makes for 20,000 Model S and 30,000 Model X reaching US Customers in 2016 and 2017. By the way, the IRS rule says that the cars must be 'offered' in a US specification. So, even those that are demos/loaners in the US count toward the total of 200,000 units without anyone buying or leasing them.

I actually expect the Model X to be at least twice as popular as the Model S in the US, though... And I don't expect the Model S to lose any momentum. So, if 60,000 Model S are built in 2017, and 30,000 of those go to US Customers... While 60,000 Model X are made available in the US next year, that would be 90,000 units that qualify toward the US total.

The credit begins to phase out for vehicles at the beginning of the second calendar quarter after the manufacturer has sold 200,000 eligible plug-in electric vehicles (i.e., plug-in hybrids and EVs) in the United States as counted from January 1, 2010. IRS will announce when a manufacturer exceeds this production figure and will announce the subsequent phase out schedule (Plug-In Electric Drive Motor Vehicle Credit Quarterly Sales).

This might be for something else, I'm not sure... But it lists that the phaseout begins at 250,000 units instead:

Internal Revenue Bulletin - June 29, 2009 - Notice 2009-54

 

[Model 3]

... unless their current one is so underutilized that they have that extra capacity.

Their current factory in Fremont is underutilized and have that extra capacity if they just build the new assembly lines in the free space. This factory has earlier been used by Toyota and GM to produce 500k cars/year. They have used some of this free space to produce some parts and machines - and let subcontractors use it to produce some parts. They are now in the process to freeing this space. Battery packs -> GF-I/Reno, Machines -> Lathrop, ...

 

[dhanson865]

Why do you assume they will be able ramp up production numbers of the Model 3 that fast in 1 year?

Why would you pick 1 year as the timeframe?

We have all of 2016 and 2017 to get ready to pump out the extra couple hundred thousand cars from Fremont.

I assure you they had that in mind when they did the mid 2015 expansion to the paint facility and rearranged the S/X lines.

If you picked on some specific line inside the quote, we'll get better numbers from Tesla as the quarters progress. That's all napkin math just to spitball a time estimate and make it easier for some to understand how the phaseout mike affect hundreds of thousands of cars pricing.