Will end of tax credit slow Tesla's Model 3?

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With reservations for Tesla's new Model 3 topping 276,000 in less than three days, one key question remains for those who want to get in line: Will they be able to get a $7,500 federal tax credit for purchasing the electric car?

The Plug-In Electric Drive Vehicle Credit was created in 2009 as an incentive to get Americans to buy electric cars. It's offered to the first 200,000 buyers of an electric vehicle in the U.S. from each automaker. After a manufacturer hits that electric vehicle sales number, the credit is phased out.

"We believe Tesla will hit their 200,000th U.S. vehicle during 2018," said Joe Spak, an auto analyst for RBC Capital. "So some Model 3s may still qualify for the credit, but most will not."

Because the U.S. is Tesla's biggest market, the incentive is not a trivial matter. CEO Elon Musk addressed the issue two days after unveiling the Model 3, when he tweeted out, "Our production ramp plan should enable large numbers of non X/S customers to receive the credit."


The question is, how many is a large number? And if the $7,500 tax credit eventually goes away, will it slow demand for the Model 3, which has a starting price of $35,000?

Matt Stover, who tracks the auto industry for Susquehanna International Group, said he doubts the people reserving a Model 3 in 2016 are thinking about a tax credit that is some two or three years away.

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"I think 90 percent of them will still buy the car even after the tax credit goes away," he said.

The initial deposit for a Model 3 is $1,000.

Stover added there's a chance that, when automakers reach the threshold where the federal tax credit is eliminated, it could it be extended or replaced.

"Don't be surprised if some political force puts money in play so there is a compelling reason to buy electric vehicles," he said.

Of course, what happens to the federal EV tax credit over the next couple years also depends on the price of oil, the state of the economy and how successful lobbyists are in either killing or extending incentives created to spur Americans to drive zero-emission vehicles.

Questions? Comments?