Model 3

Updated Projection of US Tax Credit Phase Out (UPDATED 10/02/17 after announcement of Q3 on M3 deliv

edited October 2017 in Model 3
(UPDATED 10/02/17)
With the announcement of 26150 MS's and MX's and 220 M3's delivered in Q3, I have updated my "US Tax Credit Phase Out" projection numbers. (Skip to the last to paragraphs of this post if you don't care to see the math worked out.)

Total cars sold by Tesla (worldwide):
Through 2012 = 5,100
In 2013 = 22,442
In 2014 = 31,665 (41% increase over 2013)
In 2015 = 50,658 (60% increase over 2014)
In 2016 = 76,234 (51% increase over 2015)
Cumulative at end of 2016 = 186,098 (worldwide)
Assume 58% of sales are in the US = Total US Sales through 2016 = 107,937 (will round up to 107,950)
(58% of the sales from the US - seemed to be a historical average, and may be lower in future quarters as Tesla expands into more countries)

With the assumption of a continued 10% increase of MS and MX sales per quarter (equivalent to a 46% yearly increase) - then .....

Quarter : Future quarterly US sales / Cumulative US Sales (including M3, assuming 100% of M3's go to US customers)

Q1-2017 : 14,500 / 122,450

Q2-2017 : 15,950 / 138,400

Q3-2017 : 15,387 / 153,787 (26,150 x 0.58 assumed to be US = 15,167 + 220 M3's all assumed for the US) therefore did not hit a cumulative 200,000 US sales during this quarter

Q4-2017 (estimate w/ 10% increase in MS & MX): 16,925 / 170,713 (+ ??? Model 3's) - therefore hits 200,000 US deliveries during quarter if over 30,000 M3's are delivered in the US during Q4. Therefore, it would seem that the 200,000 threshold would be reached in Q1-2018, as any M3 over 30,000 could easily be stockpiled or sold overseas)

So my non-binding summary and conclusion is:

$7,500 Federal Tax Credit through 06/30/18
$3,750 Federal Tax Credit 07/01/18 through 12/31/18
$1,875 Federal Tax Credit 01/01/19 through 06/30/19
No Federal Tax Credit after 06/30/19

Thoughts ?? Mistakes ??? Ridicule ???
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Comments

  • edited January 2017
    "Of course there are a lot of variables here". So,pure conjecture. But I get it,numbers can be fun.
  • edited January 2017
    don't think anyone should be depending on the tax credit for affordability reasons on their M3.... it's so up in the air... when they hit 200k, where you are in line, geographic location, tentative delivery timeline, ect...

    looking at the tax credit as the cherry on top of my M3 ownership experience... not needed but would be great
  • edited January 2017
    Looks about right. I'd certainly be counting on the tax credit to help out. It should be a bit more than 10% of the purchase price for me.
  • edited November -1
    Love it - application of logic and mathematics, if only there was more of it! Yes it's speculation and conjecture, but if we stopped that this forum would get 1 post per week :)
  • I agree that you should plan on being able to afford the car without it.. but you can't deny $7500 is pretty huge!
  • edited November -1
    It's not only huge but may very well be the difference between someone choosing a P vs. non-P.
  • edited January 2017
    @bmwgs -
    While there is a lot of speculation and pure conjecture on these boards, I think that my numbers and statements above represent much more than that. The worldwide sales numbers should be close and can be found at a number of sources. The percent of the sales attributed to the US has been often reported to be between 46% and 60% by a number of sources (I have included one reference below)
    en.m.wikipedia DOT org/wiki/Tesla_Model_S (jump to "Sales and Markets)
    The 10% quarterly increase in sales is a reasonable extrapolation of what has happened over the last three years.

    As there are periodic questions on these boards regarding the phase out, I thought that I would summarize the updated situation as concisely as I could. The conclusion of Q4-2017 or Q1-2018 aligns with most previous educated estimates and is not a surprise.

    The availability of the federal tax credit is a big deal. It will make or break the sale for a lot of people - and for people like myself, it will determine how many options I get. I have a minimum number of "must have" options, and then I will plow that $7500 into buying my "want to have" options, while not exceeding my max net price. It is therefore likewise a big deal for Tesla's bottom line during this huge expansion and period of capital investment.
  • edited January 2017
    I hope the people that need the federal tax credit in order to afford the car realize that if they get the car in January, they won't see that credit until they do their taxes the following year. Of course that's assuming your tax liability is at least as high as the credit. If they really need that, then they may not have enough income to qualify anyway.

    It will be nice, but I'm not considering it in the price of the car.
  • edited January 2017
    With more tax credits, and availability for Teslas became available around the world, I believe the % of total sales being US Based may have gone down. No information supporting that, but it does at least appear like their's greater pushes, and more building of superchargers overseas then there is domestically in the US.
  • edited November -1
    @akgof -
    Everyone will definitely need the full total at purchase time, via cash or loan - but need not wait til the following spring to recoup it. Minimizing your tax withholdings accordingly early in the year of the purchase will realise the credit earilier. In fact, if you were certain that your car would be delivered in December, you could effectively get the credit in the first quarter of the year well before you receive the car with lower withholdings and larger paychecks.
    Fun with numbers !!!
  • edited January 2017
    @mntlvr -
    Withholding less money will work for you and me, but hopefully some don't make the mistake of withholding too much. It would be a major bummer if some reduce their withholding the amount of the credit and then don't qualify.
  • edited January 2017
    @akagolf - agreed, if they are going to play those numbers, they better do it knowledgeably

    @jon - agreed, the 58% is throughout the company's life and not the current trends.

    The chart on the link shows:
    2012 - 100% US
    2013 - 83% US
    2014 - 53% US
    2015 - 50%
    2016 - 53% (first half of year)
    Cumulative through June 2016 - 58%

    This jives with other numbers I have found:
    Q3-2015: 5,756 US vs 11,597 Global = 50% US
    Q3-2016: 9,156 US vs 16,047 Global = 57% US

    So I agree that 58% is likely a bit high for projections beyond 06/16 (it may be closer to 50%) - though I wanted to put up a number toward the higher range - so that I erred slightly toward the credit expiring earlier than later.
  • edited January 2017
    "The availability of the federal tax credit is a big deal. It will make or break the sale for a lot of people". Again,pure conjecture. It will make or break the sale for SOME people,not a lot. It will not affect my purchase in any way because as mentioned in another reply,the credit may be at least a year after purchase,possibly longer.
  • edited November -1
    Just based on comments here and there across different forums/pages, I'd guess it will be make or break for only a few people. It will however factor in to option choices for some people.
  • edited November -1
    I can afford the car with or without the credit. I probably won't buy it without it. Thanks mntlvr23 for putting in the time!
  • edited January 2017
    reserved am 4/1/2016
  • edited November -1
    Do we even know if there will be a federal tax credit for 2017 and out years? I didn't think the new administration was a fan of it. Otherwise, I think the credit, if it exists, will impact more 3 buyers than the comments so far indicate. Remember that the 3 buyers are a different economic segment than the S buyers.
  • edited November -1
    Tesla is planning on 500,000 per year. Obviously they won't start out that way, but it's what they have in mind as they get new lines set up in the factory as we speak. They put literally billions of dollars into it. With the Model S and X they have done gradual improvements, and major ones such as the paint shop that can now handle 500,000 cars a year, but they didn't spend billions adding new production lines for it the way they are now. I think the ramp up will be far faster. We also don't know what percentage of sales will be domestic in any given quarter, but it's likely that they will batch international sales in a way that makes the most sense.
  • edited January 2017
    @alexanmh - "Do we even know if there will be a federal tax credit for 2017 and out years? I didn't think the new administration was a fan of it. Otherwise, I think the credit, if it exists, will impact more 3 buyers than the comments so far indicate. Remember that the 3 buyers are a different economic segment than the S buyers"

    As of right now the tax credit is still there for 2017. Since it is part of the tax code it can only be changed by congress. Can it happen? Sure, but it might not be too likely.
  • edited January 2017
    @roadkill & @bj - thanks for the good word, it is a tough crowd sometimes.

    @bmwgs - ok, I will accept replacing my vague "a lot" with your more vague "some" . We cool !

    @ alexnmh - regarding impact, exactly. I speculate that nearly all buyers of the Roadster, S and X had high levels of disposable income. I further postulate that the people reserving the M3 are across the full spectrum - from those stretching for a base model, to those who can swing a base but will stretch for options, to those who will stretch to load it up, all the way up to those who can easily afford a maxed out model. I will further hypothesize that there will be a lot (no, strike "a lot" and replace it with "some") who, like roadkill and myself, can afford much much more than they are willing to spend on a vehicle. But since there are (arguably) 400K to 600K reservers of the M3 two years in advance compared to under 186,000 purchasers of the previous models over a 5 year period - that the mix in the spectrum leans toward those with less disposable income.
  • edited January 2017
    @Everyone: Let's look at the potential impact of the Federal Tax Credit by looking at two potential extremes of the speed of the ramp up.

    Scenario A: If the M3 production goes similar to the MX and say it starts 2 years late and goes slowly. In this scenario, perhaps all of the tax credits will be eaten up by MX and MS buyers leaving the M3 buyers with little or no tax credits available. That would be a drag.

    Scenario B: If the M3 production goes per Elon's most optimistic statements (200,000 sold by the end of 2017, and then total production of 500,000/year after that - for which I will recklessly predict that 400,000 of them will be M3's.) The phase out trigger could conservatively be hit in Q3-2017. This would result in 200,000 M3's getting $7,500 credit in 2017, 200,000 M3's getting the $3,750 credit in the first half of 2018, and 200,000 M3's getting $1,875 credit in the second half of 2018. (Refer to my whimsical, wild ass guesses in the OP as to the potential sales to date and more info on the theoretical triggers of the phase out)

    The difference between these extremes is that under Scenario B - Tesla sells M3's with over $2.6 billion of tax credits attached to them (over and above Scenario A, and above any MS's and MX's that will also get credits under either scenario). $2,600,000,000 ! .... and this could increase to $4.1B if somehow the trigger is not hit until Q4-2017. Without the tax credit, "some" of the orders disappear, and "some" other orders come with (significantly?) less options. This will eat into Tesla's potential income by some percentage of $2.6B (or $4.1B) - and "some" of this lost income will be on "reportedly" highly profitable options.

    I am going to go out on a limb and conjecture that the tax credit is a big deal for both Tesla and "some" potential customers. Hey, wouldn't Scenario B be spectacular !! While the tax credit laws are the same for all manufacturers - it would be hard to imagine any other company being able to leverage it as much as Tesla has the potential to do - due to its tremendous demand.
  • edited January 2017
    In case anyone forgot, there is no set number limit for how many cars can claim the federal tax credit.
    1. Once the manufacturer has sold 200,000 vehicles in the US cumulatively in a quarter (let's call it quarter Q), then
    2. All of the cars for the rest of quarter Q also get the full tax credit
    3. All of the cars for the QUARTER AFTER THAT (Q+1) get the full tax credit
    4. Cars in quarters Q+2 and Q+3 get half credit ($3,750)
    5. Cars in quarters Q+4 and Q+5 get quarter credit ($1,875)

    So if you think about it, to game the system you would want the 200,000th vehicle to be sold on Day 1 of a quarter. Then there would be six months where EVERY sale to a US customer could claim the credit. So if we assume Tesla was selling 100,000 cars a quarter (just to make the math simple for this example), the total number of people getting the full tax credit would be 400,000 (200,000 + 100,000 + 100,000). Then another 200,000 would get 50% credit, and another 200,000 would get 25% credit.

    So you can see that the number of people that get the credit will depend on when the 200,000 point is reached, and the production rate in that and subsequent quarters.
  • edited January 2017
    @mntlvr23
    One thing for your sceario B.

    AFAIK Elon has not said if the "500,000 a year in 2018", is the "annual production rate for that calendar year" i.e. all production over the calendar year 2018, or only a targeted production rate he intends to reach at some point in 2018.
    e.g. to make 500K per year he'd have to make about 10K cars (of all models) a week.

    So if they reached that 10K cars a week level say in late 2018 (maybe 2nd week of December 2018), then Elon could say "we have achieved [or on target to achieve] being able to make 500,000 cars a year in 2018"
    (by simply make at least 10k cars a week for the next 52 weeks during most of 2019.)

    I think some folks assume 500,000 in 2018 means Tesla will make 500,000 cars during the entire calendar year.
    I think Elon means they'll hit the production rate of being able to build 500,000 cars in a 12 months period, some time in 2018. Big difference in number of car made/delivered.

    Regardless of which is the actual rate, my take on Tax Credits, is that anyone who gets any model Tesla car delivered to them in the US in 2018 is unlikely to get a full tax credit.
    They may get the 50% or 25% tax credit amount, but not the full 7,500 figure.

    And yes, I think Tesla knows that many folks who qualify for a Tax Credit with their M3 will buy more options, thus increasing the M3 average price towards the 42K figure quoted by Elon. Which means Teslas early M3 cars may be more profitable to them due to the extra option those tax credits enable.
    So the Tax credits will benefit Tesla's bottom line initially anyway.
    As will ZEV credits (even at 50% of the full rate its still not to be sneezed at).

    And if Tesla can make the M3 battery able to refill itself within 15 minutes, it can claim 9 ZEV credits, not just the 4 it gets now.
  • edited January 2017
    john: One point... The phrasing is specific to note the words 'calendar quarter'. So, it is locked in as specific timeframes per calendar year. Thus, if the 200,000th qualifying car is acquired on March 31st of a given year, the Phaseout begins on July 1st. If it is sold on April 1st, the Phaseout begins October 1st.
  • edited November -1
    @greg - you are correct about "rate" versus "total produced" by the end of the year - my bad. Good catch.
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