Tesla Model 3 production may factor in US tax credits
Once Tesla sells its 200,000th car in America, the federal tax credits it receives per car will end, affecting the retail price, putting pressure on the automaker’s ability to honour the $35,000 price tag for its newly-released Model 3, which already received 325k pre-orders. Given the potentially long delay on Model 3 deliveries (not expected until at least 2017), Model 3 buyers could miss out on the $7.5k tax credit for electric vehicles altogether as Tesla may have already had its full allocation. However, according to Auto News, “eagle-eyed customers and analysts noticed a loophole in the IRS rules for the credit: The $7,500 credit for electric-drive vehicles isn't cut until the end of the quarter after the one in which a company hits its limit of 200,000 cars delivered in the United States. So, the reasoning goes, Tesla could intentionally hit its limit on the first day of a quarter, then deliver a wave of vehicles to American customers over the next six months before the credit begins to disappear.” Elon Musk was asked about this potential loophole on Twitter, and certainly didn’t discount it as a possibility, answering: “We always try to maximize customer happiness even if that means a revenue shortfall in a quarter," and when asked if Model S and Model X may exhaust remaining credits he responded “"Our production ramp plan should enable large numbers of [new customers] to receive the credit."

Despite expectations by the 325,000 Tesla Model 3 buyers that put down preorder deposits they would get $10,000 in federal and state rebates, it appears that all of them will get stiffed.

Breitbart News reported the $325 million in deposits Tesla Motors Inc. picked up during its first week of preorders for their $35,000 Model 3. The company will not start deliveries until at least late 2017 — but the early cash rescued the company from a precarious negative working capital crisis.

According to the company’s recently released annual report, Tesla was cash flow insolvent because they had a working capital (= current assets – current liabilities) deficit of -$24.7 million. Without Tesla already holding $283.4 million in customer deposits, their insolvency would have ballooned to a negative -$301.8 million.

Tesla cars may be sexy, but the company has been losing $19,810 on each car it sells and hemorrhages $51,344 in negative cash flow on each vehicle they build.

One of the main reasons Tesla Model S and Model X customers from California were willing to give the financially dicey company cash deposits is they expected to gained the right to get $7,500 in federal cash rebates and another $2,500 in California state cash rebates when their $100,000 luxury vehicles were delivered a year later.

With an entry selling price of $35,000, the 100,000 middle-class Californians that put down a $1,000 deposit for a Model 3 expected the $10,000 in government cash would more than pay for the down payment to finance the car.

But the $7,500 federal tax credit for electric vehicles is capped at a maximum of 200,000 units sold for any U.S. manufacturer. According to the Tesla Motors Club website, the company has already delivered 67,000 Model S and Model X vehicles, plans to deliver at least 80,000 vehicles this year, and another 150,000 in 2017. That means that all the federal credits will be long gone before the first “3” is delivered.

The $2,500 California state rebates are still available for “3” buyers. But the Legislature and the Governor agreed last week to cap customer eligibility for rebates to single filers earning less than $250,000 a year, head-of-household filers making less than $340,000, and joint filers with combined incomes less than $500,000.

Patrick Min, senior analyst at the automotive company ALG, told the Los Angeles Times: “Buyers shouldn’t be counting on either the federal or the state-level incentives as part of their financial calculations in purchasing the vehicle.”

Tesla founder and CEO Elon Musk has built a basket of vehicle, rocket, solar and battery companies that all lose money around $4.9 billion in government subsidies, according to the Los Angeles Times. But there is no guarantee new subsidies will be available in the future.