Electric Vehicles TeslaSign via USA Today

Published on February 10th, 2016 | by Steve Hanley


Could You Really Buy A Tesla Model 3 For $21,500?

February 10th, 2016 by  

Elon Musk has one overarching goal for Tesla Motors — to make electric cars so affordable that mainstream shoppers will buy them. If there were no fossil fueled vehicles on the road, Musk would be a happy man. It may be hard to see his plan when you realize that a fully loaded Tesla Model S or Model X costs more than $140,000, but the upcoming Model 3 is supposed to change all that.

TeslaSign via USA Today

The Model 3 is slated to start at $35,000. Musk announced a year ago, “When I say $35,000, I’m talking about without any credits.” In other words, the net cost will be $27,500 once the federal tax credit is taken into account. According to Salim Morsy of Bloomberg New Energy Finance, the average price of a new car in America is $31,000 today. If the Model 3 is less than that, then Musk’s dream of making a compelling mass market electric car will be nearer reality.

Colorado has the most generous state incentive for electric car buyers at present — $6,000. That means a person living in Colorado could park a brand new Model 3 in the driveway for a very affordable $21,500. That’s a price that could get a lot of people interested in joining the EV revolution. California, Tennessee, and Massachusetts have $2,500 incentives in place. Even tiny Rhode Island has announced a new $2,500 incentive, although that program only has enough funding for less than 100 cars.

People also need to understand how the federal tax credit works. If you buy an electric car in 2016, when April 15, 2017 rolls around you will be able to whack $7,500 off your tax bill. But what if you don’t owe $7,500 to Uncle Sam? Then your credit is whatever you owe in taxes. That’s it. The credit is good for one year only. There is no carry over to subsequent years if you don’t use all of it.

Adam Jonas is an automotive analyst at Morgan Stanley. He follows Tesla closely and has been a strong supporter of the company for years. But even a committed Teslaphile like Jonas is skeptical about whether people will ever actually be able to buy a Model 3 for $27,500 or less. Why? Jonas cites two reasons.

One, he says Tesla has a history of being late to market with its new models. Tesla says that won’t happen with the Model 3, but both the Model S and Model X were two years late getting into the hands of actual customers. Why is that important?  Because the federal tax credit begins to phase out once a manufacturer sells 200,000 EVs. If the Model 3 is delayed, Tesla may already have sold more than 200,000 cars, meaning Model 3 owners will get smaller credits.

Two, Jonas notes that Tesla is known for loading the first examples of its newest models with every available option, which boosts the price significantly. For instance, the first Model X cars were limited edition Signature Series models reserved for people who had plunked down a hefty deposit to reserve one. The price of the Signature Series cars was 70% higher than the nominal base price. Jonas expects the first Model 3’s to cost closer to $60,000 rather than the $35,000 base price.

Combine those two factors and much of the available federal incentives may be applied to high zoot premium models for wealthy buyers, leaving less available for those mainstream shoppers Musk says he wants to attract.

Will the Model 3 arrive on time? Will people actually be able to buy one for the $35,000 starting price? What information about the car will Tesla reveal at the official unveiling in March? No one knows. Tesla spokesperson Khobi Brooklyn told Bloomberg News this week, “We can confirm it’s $35,000 before incentives. We haven’t changed our minds.” She also said, “The Model 3 is on time, and everyone is going to learn more about it at the end of March. That’s when we’ve committed to talking about it and giving a really great update, and that’s what we’re going to do.”

Now if only Tesla actually does what it says it is going to do.

Photo credit: USA Today

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About the Author

I have been a car nut since the days when Rob Walker and Henry N. Manney, III graced the pages of Road & Track. Today, I use my trusty Miata for TSD rallies and occasional track days at Lime Rock and Watkins Glen. If it moves on wheels, I'm interested in it. Please follow me on Google + and Twitter.

  • bobcat4424

    There are a couple of points that the article missed:

    1) There is a hefty savings from not using the dealer network. This is not only an upfront savings, but also breaks the lock on after sale maintenance and repair.
    2) Traditional car companies make their cars all over the map so that populations of different locales can share in the jobs (and garner political favors.) By making everything in one place, Tesla will dramatically reduce the cost of manufacture.

    • Steve Hanley

      I beg to disagree with you. The article deals with what a customer will need to spend to get one of these cars. How Tesla makes cars more efficiently to keep prices down is a good story, but a subject for another day.

      • bobcat4424

        It still figures into what the customer has to pay (as a savings). Do you not think that GM gives a profit margin to dealers? Or that a savings in the manufacturing process can be passed on to a customer? Just those two things alone are equal to a subsidy of as much as $3,000 per car.

  • disqus_DDEkcLuNfY

    used honda civic is $4000. so thats 23,500 of gas money i saved.. for gas. Thats about 940 tanks full of gas, which would be about 40 years of fillups.

    • Chris

      or you could walk for free, or ride a free bicycle from craigslist. Comparing an old honda civic to a new car is not a fair comparison. If you were in the market for a new car in this price range then the Tesla becomes attractive, no maintenance other than brakes, which in an electric car like a tesla can go upwards of 80K miles before needing replacement….o and tires.

    • Zé M. S.

      But the maintenance costs will “eat” that money you saved for gas. Old cars tend to be expensive.

    • Rafael Formisano

      Or you could buy an used i-MIEV for $7000 and pay 20 Dollars a month of electricity.

    • rick abrahamson

      And you’re still driving a POS Civic. Have fun with that.

  • Fred Walker

    I hope they give you the options for autopilot , I would add that feature after I save up that money.

    • Steve Hanley

      How the Model 3 will be equipped is an open question. The thinking is that the hardware needed to make the Autopilot system possible will be built in to every car, but activating the software will be an extra cost option.

      There is still a lot we don’t know about the Model 3 and Elon says a lot of details will not be released until the car is close to production. We will have to be patient.

      But autonomous driving is a priority with Musk. No way the Model 3 will not have it, at least as an option. I find it odd that Chevrolet has not made it a priority for the Bolt, at least as of this moment.

      Thanks for your comment.

  • Rick Danger

    I think there will be a lot more demand for the base Model ≡ than there was for the S40, or even the S60.
    I also think there will be much demand for loaded Model ≡s.
    I think Model ≡ is going to keep the Tesla factory(s) busy for several years to come.

    • MrBoyd

      Yay, thanks for the proper ASCII. A shame ford tried to kill S ≡ X Y

      • Julian Cox

        Don’t worry. Tesla will likely buy the Model E trademark out of Ford’s bankruptcy. Not too long now in terms of years. Wait and see.

        • Joseph Dubeau

          Or Ford could get a cheap deal on a factory after Tesla’s “bankruptcy. Wait and see.”

          • Julian Cox

            Yeah right. Horse drawn carriage fanboy vs Henry Ford.

  • Julian Cox

    $2.00 gas (Gas 2 – lol) is triggering oil industry layoffs, stranded assets and sending oil companies bust. Much of the world’s oil production is going into storage in the hope of higher selling prices at a later date. $2.00 gas is still a huge burden on consumers when compared with the cost of electrical mileage.

    $21K is exciting stuff but let’s not forget that That at $35K, the Tesla is a vehicle that can only be compared to ICE cars costing closer to $50,000 plus disproportionately more in fuel and maintenance. (Anyone that does not realise this should wait for the March reveal). Never before have consumers anywhere been able to access the power, safety and sophistication of a base Tesla Model 3 for $35K. This is the disruptive tipping point. The total up-ending of the whole idea that an EV is either a compromise or an expensive luxury.

    Note: The Bolt is not – and nowhere near it. The Bolt is a compromise at $37.5K before incentives ($30K after). It is extremely straight-forward to buy an objectively better ICE car for much less money. With the Model 3 it is impossible to buy an equivalent ICE vehicle without spending significantly more.

    • Steve Hanley

      I sense you will be one of those putting down a deposit on a Model 3 in about 6 weeks, Julian! ; – )

      Can’t say I disagree with any of what you say — assuming it all turns out as planned.

      • Julian Cox

        Oddly enough no – maybe for family members to replace 3 and 5 Series BMWs. I’m dead centre of the Model S target market after a long line of BMW 7s Mercedes S Class, Porsche grand tourer and Jaguars. But damn that Model X is tempting (first time I ever felt that way about an SUV).

  • Joseph Dubeau

    Too early to tell, we will have to wait and see.

  • Alec Sevins

    Note to Elon Musk and others who want to electrify the planet:

    Electric cars are green IF they don’t get their power from gigantic wind turbines that turn rural areas into industrial parks to feed city demands. Same goes for covering large swaths of desert with solar photovoltaic or mirror arrays. I can’t in good conscience buy an “eco” vehicle that enables rampant destruction of rural and wild scenery while zealous proponents claim that only fossil fuel blight affects the environment. Who came up with that selective blindness and forced it on the public? I suspect it was engineers, not serious environmentalists.

    Tesla’s Nevada Gigafactory plan shows a nearby hillside covered with wind turbines, and one can assume they approve of lofty goals to litter the planet with millions of them (250k+ already exist). A large solar array also hogs desert acreage nearby (solar should be focused on rooftops). That’s my main concern about electric vehicles, which, along with wind turbines and solar cells, will always require fossil fuels for manufacturing and deployment.

    People need to be realistic about where electricity comes from and the total environmental footprint vs. self-congratulatory rhetoric. Too many things are trending toward business-as-usual with a green spin, and the growing loss of open space to energy sprawl. This is blight that many parts of Europe are already saturated with (witness mounting protests) and the U.S. doesn’t have infinite land or coastal waters to industrialize.

    • Rafael Formisano

      It’s a joke? or you are that crazy?

  • so expensive

    • Most importantly – the lesser Expensive (but not Cheap) Model 3, and to a Lesser Extent – the Chevy Bolt, will drive down the prices on shorter range EV’s, and particularly the Used ones, so – it will have a beneficial effect for those who can’t see to acquire the Model 3, or lease/finance it!

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