As Tesla Tax Credits Expire, So Does Dream of Model 3 for the Masses

Without the federal tax credit, Tesla Model 3 will cost the same as other small luxury sedans. | Tesla

Would you consider the Audi A4 ($36,000) or BMW 3-Series ($34,900) mass-market vehicles? If not, we have bad news about the Tesla Model 3.

Now that Tesla has reached 200,000 sales, only buyers who take delivery of their Model 3 by December 2018 will get to claim the full $7,500 federal EV tax credit. Everyone else will claim a fraction of that starting next year.

The exact date — early 2019 — is important because that’s when Tesla’s base ($36,000) Model 3 sedans will begin reaching customers. In brief, we’ve reached the end of the promises and/or dreams about the “affordable, high-volume” electric car Elon Musk once touted.

Tesla Model 3 will cost exactly what other small luxury sedans cost, while offering a range of 220 miles.

The tax credits have begun to phase out.

While the math and timeline can get complicated, the short answer is Tesla reached 200,000 cumulative sales in the U.S. right around the start of the July.

That leaves the third and fourth quarters of 2018 for buyers to claim the $7,500 EV credit on their taxes. (If you dig into the weeds deep enough, you’ll learn the credits may phase out as soon as early December.)

From January through June 2019, Tesla buyers will be able to claim half that amount ($3,750) on the purchase of a vehicle. For the last six months of the year, one quarter ($1,875) will remain, Tesla posted on its website.

As Tesla keeps pushing back the delivery date for the base Model 3 ($35,000 before destination fee), even a $33,000-$35,000 Tesla seems like a long-shot.

The Model 3 math

Overhead shot of Model 3 in red and gray
Tesla Model 3 | Tesla

At the start of July, you could see this notice on Tesla’s Model 3 ordering page: “Standard Battery available in 6-9 months.” That puts deliveries anywhere from mid-January to mid-April 2019.

Unfortunately for folks in this boat, Tesla has never met any of its previous timetables for the base model. (Originally, early reservation holders were to get their $35,000 Model 3s in late 2017 or early 2018.)

So that makes the best-case scenario look like this for base-model hopefuls:

  • $35,000 + $1,000 destination fee + tax ? $3,750 = $32,250 + tax

If Tesla pushes the date past June, it will look like this:

  • $35,000 + $1,000 destination fee + tax ? $1,875 = $34,125 + tax

While incentives available in some EV-friendly states will push the price lower, most Model 3 buyers will spend well over $30,000 on this car — and that’s before they add anything.

Model 3 is another luxury sedan from Tesla.

With pricing beginning at $50,000 for every car Tesla has produced, Model 3 has only competed with high-end luxury sedans so far. The automaker’s finance team tacitly admitted that when it bragged about its sales performance.

“Model 3 is already on the cusp of becoming the best-selling mid-sized premium sedan,” it said in its Q1 shareholder letter. That segment includes the Mercedes CLA Class ($32,700) and C Class ($40,250) as well as the BMW 3 Series and Audi A4, both of which start below $37,000.

In other words, Tesla never produced a mass-market car. Amazingly, early buyers have shrugged off the many quality issues as they configured Model 3s costing more than $60,000.

Affordable cars don’t start above $30,000; they start around $20,000. The sooner everyone acknowledges Tesla is a luxury car company incapable of delivering a mass-market EV, the better.

If you want an affordable EV, options from Nissan, Chevy, and Honda are already in dealerships in 2018.