Tesla = 1st To Lose US Tax Credits, But Tesla Vehicles Will Still Sell Very Well

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In the past week, most Tesla watchers have been nattering positively or negatively about Musk’s consideration of taking Tesla private. But there’s been another big news story that is worth looking at now that some of the dust has settled: Tesla broke 200,000 car sales in the USA.

Oddly, Tesla didn’t announce this as a great milestone, but as a tax credit concern. There’s a reason for that, of course. The US federal tax credits for plug-in electric vehicles have a volume threshold. As soon as a company sells 200,000 plug-in electric vehicles in the USA, the tax credit has a time limit and ramps down.

As Tesla points out, the credit doesn’t disappear immediately, or even get reduced in 2018. But it does raise the question: will Tesla sales be impacted by this, especially as it is the first car company to hit this threshold?

The answer appears straightforward: they are going to continue to outsell every other car in their categories and many cars below their categories. They are just better and more desirable vehicles.

First off, they have 420,000 net backorders for the Tesla Model 3. That’s 420,000 people who have put down $1,000 just to get in line. A few tens of thousands cancelled over the past year, but a bunch more people have stepped up. Now that the Model 3 is shipping and people are seeing how positive the reviews are, commitment is firming up.

Every car delivered before the end of 2018 gets the full tax credit. At the current rate plus targets for the S, X, and 3, they will deliver about 164,000 cars by the end of the year. About 130,000 will be Tesla Model 3s, mostly the higher priced variants. They have already delivered about 64,000. They’ll have cut their backlog of Model 3 pre-orders to about 236,000, barring more people getting in line.

For the first six months of 2019, each car will receive half of the credit. They’ll ship in the range of 225,000 cars, with about 175,000 being Tesla Model 3s. People on the waiting list will look at the extra $3,750 and they’ll either decide to go for the car of their dreams and find the money, or they’ll cut back on options. A lot more of the Model 3s will be the $35,000 variant, many with no add-ons. Tesla will have cut their backlog of Model 3s to about 60,000, barring additional pre-orders. It’s unlikely that anyone considering the higher priced Models S or X will consider the $3,750 to be any sort of deal breaker. If they do, they’ll buy a higher specification Model 3 instead.

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For the last six months of 2019, each car will receive a one-quarter credit, $1,875. Tesla will ship another 200,000 cars or so. More of the Model 3s will be the base $35,000 model.

There will be so many awe- and envy-inspiring Tesla Model 3s on roads everywhere that an enormous number of people will be getting rides in their friends’ and acquaintances’ cars. Those test rides will lead to more sales.

Meanwhile, other manufacturers will start hitting the 200,000 cap and start seeing diminishment of their credits (unless the legislation is extended).

GM is closest with 186,685 electric cars (including PHEVs) sold in the USA. It is selling about 2,600 Chevy Volts and Chevy Bolts a month, so could very well hit 200,000 this year — well, it expects it will. That means GM would be behind Tesla in terms of losing tax credits by perhaps about 6 months. That means the Chevy Bolt will still be a good electric car if an inferior but cheaper competitor to the base Tesla Model 3. It won’t be cutting into Tesla Model 3 sales but to other non-electric car sales. It’s worth pointing out that the reason the Chevy Bolt hasn’t been selling more in the USA is largely because Chevy isn’t building more and is committing itself to the market.

Nissan is next closest at 122,635 EVs. It only sells the Nissan Leaf, and the company is currently only selling a little over 1,100 a month. LEAF buyers will continue to get the full tax credits for a couple of years, but Nissan will undoubtedly bring more EVs to market. As the LEAF is inferior to both the Bolt and the Model 3 and it’s in the same price range, its sales may just fall off the table.

After that, we have the companies which will be a long time getting the full rebate: Ford, Toyota, and BMW. They all have big plans to bring a lot more plug-in electric vehicles to market, but they don’t have a lot now. And Tesla is kicking BMW’s butt all over the table, with the Model 3 already outselling the BMW 2, 3, 4, and 5 Series combined and the Model S selling double the combination of the BMW 6 and 7 series. Similarly, the Model X is 30–40% more expensive than the BMW X5 and X6 and is still selling strongly in comparison to BMW’s offerings.

The Tesla Model 3 is already the 8th highest selling car — period — in the USA, outselling a ton of cars in the $10,000 to $26,000 range. People are going to continue to buy as many as Tesla can make because there is huge pent-up demand for the things. The Tesla Model 3 has long range, is sexy, is fun, is sporty, and is high tech. Why not buy it if you’re searching for a car in that price range?


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Michael Barnard

is a climate futurist, strategist and author. He spends his time projecting scenarios for decarbonization 40-80 years into the future. He assists multi-billion dollar investment funds and firms, executives, Boards and startups to pick wisely today. He is founder and Chief Strategist of TFIE Strategy Inc and a member of the Advisory Board of electric aviation startup FLIMAX. He hosts the Redefining Energy - Tech podcast (https://shorturl.at/tuEF5) , a part of the award-winning Redefining Energy team.

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