Tesla Will Adjust Model 3 Production To Maximize Tax Credits

In an e-mail sent to Model 3 reservation holders Wednesday night, Tesla says “We are currently increasing our production plans to minimize the wait for the Model 3.” The company now claims it has 325,000 reservations for the car, according to a Bloomberg. 180,000 of those reservations were made in the first 24 hours. Tesla wrote in a blog post on Thursday that they represent “about $14 billion in implied future sales, making this the single biggest one-week launch of any product ever.” In making that claim, Tesla assumes all of those reservations will be converted into actual sales.

Model 3

All this interest in the Model 3 is making people nervous about whether the federal tax credit will still be available when their Model 3 is manufactured. The answer lies buried deep within IRS Code Section 30D. I won’t burden you with the actual language. As usual, it is unintelligible to mere mortals. But here’s the gist of it.

Once Tesla sells its 200,000th car in America, the federal tax credit shifts from a focus on how many cars have been sold to when they are sold. For example, let’s assume Tesla sells it 200,000th car on January 1, 2018. During the rest of that quarter and for the entire quarter following, every car it sells will get the tax credit. If it could build and deliver 200,000 cars during those 2 quarters, every one of them would be eligible for the federal tax credit.

Elon Musk has indicated via Twiiter that the company is keeping this all in mind and will try to do right by its customers. It might even reduce sales temporarily to maximize the tax credit. In other words, if Tesla is bumping up against the 200,000 limit near the end of the 4th quarter of 2017 — when Model 3 production is scheduled to begin — it might simply stop selling cars in the US all together for a week or two and not start deliveries again until the next quarter begins.

For Tesla to preserve the credit for as many Model 3 customers as possible, it will need the factory ready to produce its projected maximum of 3,000 cars a week right from the get go. No months of gradual ramp up as happened with the Model X. Of course, all of this speculation depends on what happens to Model S and Model X sales in the meantime. The excitement about the Model 3 may boost sales of those other cars. That could eat up all the available tax credits before the Model 3 production even begins. And remember, Tesla has never started manufacturing a car on time yet.

What a problem for Tesla to have — too many orders. There are about a dozen major car companies around the world who would kill to have that problem.

Source: Bloomberg News

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.