2018 Tesla Model 3 Will Have to Succeed Without Federal Tax Rebate

Every battery electric vehicle that leaves a showroom floor sold to a private individual is eligible for a federal tax rebate granted to its owner by the U.S. tax code. The part of the tax code that covers this is called IRC 30D. The idea behind the law was to provide purchase-day support to EV buyers and manufacturers. It augments many other incentives automakers and buyers enjoy, but it has a limit. Each automaker gets to build about 200,000 vehicles that qualify.

This may seem like a huge number given that most EVs sell at a rate of just a thousand or so per month, but Tesla’s Model S and Model X success is cutting deeply into this 200K limit. The automaker is already at about 70,000, leaving just 130,000 vehicles left. Tesla says that its Model 3 may not be available in any volume for at least a year. During that time, Tesla will build and sell many more Model S cars and Model X Crossover/Minivans.

Tesla had announced over 180,000 Model 3 reservations as of this week. So clearly, the 200,000 limit will come into play. After the limit is reached, the program has a quick glide-down with lower incentives, and then it ends. Unless it doesn’t. Congress could act, or possibly a government agency could step in and supplement the plan or extend it. That did not happen with hybrids.

Not all buyers qualify for the tax deduction. One has to have enough of tax liability to qualify for the deduction, and you don't get the extra money back if you don't. This, coupled with California moving to eliminate its state incentive for wealthy buyers means that the Tesla Model 3 will not enjoy the same taxpayer support that prior Tesla Models have. It will be interesting to see how desirable affordable EVs do in a more free market environment than we now have.