The Truth About Tesla’s $35K Model 3

ron-cogan-capitol-hillTesla is now selling its long-awaited $35,000 Model 3. That’s good news for loads of Tesla fans who have been waiting nearly three years for this day. But it’s not as happy a story for some – no doubt many, many thousands – who were expecting something more.

It’s easy to understand. When the Model 3 was introduced in April 2016, anticipation had been building for a long time already for an affordable, ‘everyman’s’ Model 3 at the much-hyped cost of $35,000. The problem is, a great many buyers were under the understandable impression that the bottom-line cost would be much lower than that.

At the time, the federal tax credit for a Tesla was $7,500. Add in state incentives that could vary from $1,000 to $5,000 or more, and buyers were looking at an advanced Tesla Model 3 that could be acquire for a very reasonable, conventional vehicle-like price of as little as $25,000. While the cost of a typical Tesla has always been beyond the reach of most buyers, a bottom line transaction of 25 grand was considered do-able by many potential car buyers.

It has taken so long to get to this point that the federal tax credit for Teslas is now a reduced $3,750 because, to its credit,  the automaker has sold over 200,000 electric vehicles. Those tax credits are lowered according to a specific schedule and then phased out, as they are for all electric vehicle manufacturers, since their purpose is to provide incentives to encourage electric car purchases and spur sales. The strategy is that once an automaker has momentum for its electric vehicles – and Tesla surely has momentum – there is no further need for a subsidy, and the vehicles must stand on their own in the marketplace.

The federal subsidy for Tesla buyers is $1,875 during the last six months of this year, and then disappears entirely. As always, there are very vocal perspectives on what this will mean, from plummeting Tesla sales to even greater momentum despite a lack of federal subsidies. Who is right? We’ll know soon enough.

teslas-in-showroomTo those who lament the loss of federal EV subsidies and feel it unfair, consider this: The program was never intended to last forever, but rather help more environment-friendly electric vehicles gain traction in a market that has been dominated by internal combustion for well over a century.

Tesla surpassed 200,000 electric car sales and has achieved impressive momentum. Its electric Model 3 became the best-selling luxury car in the U.S last year. By all measures, for Tesla the federal tax subsidy’s story is ‘mission accomplished.’

 

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