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

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

Steve Hanley

Closely following the transition from internal combustion to electricity. Whether it's cars, trucks, ships, or airplanes, sustainability is the key. Please follow me on Google + and Twitter.