The Truth About the Model 3

Hundreds of thousands of fans have been waiting excitedly for Tesla’s Model 3, touted by the automaker as the ‘affordable’ EV for the masses. But is it? The backstory is a bit more complicated with plenty of food for thought.

When Tesla began selling its long-awaited $35,000 Model 3 early this year, there was no doubt a collective sigh of relief on the part of Tesla fans who had waited three years for this to happen.

This price tag is important since the Model 3 has been widely-promoted as a $35,000 ‘everyman’s electric vehicle’ affordable to the masses, even as the cheapest models available were uplevel, higher content variants initially priced at $49,000. That cost moved down to $46,000 and ultimately $43,000 before Tesla made the leap to its latest $35,000, slightly decontented base model. At that price it’s doubtful that Tesla makes a profit, and in fact it wasn’t long ago when Tesla CEO Elon Musk said the company would lose money on the Model 3 at that price point.

Still, the promised base model is here and we can celebrate that. But it’s not an entirely happy story for some – no doubt many, many thousands – who were expecting something more.

When the Model 3 was introduced in April 2016, anticipation had been building a long time already for an affordable long-range electric car from Tesla. For fans of the marque who couldn’t pony up the substantial bucks for a premium-priced Model S or Model X, the $35,000 Model 3 was their answer. The problem is, a great many buyers understandably assumed that the bottom-line cost would be much lower.

Until recently, 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 all-electric Tesla Model 3 they could acquire for a very approachable, conventional vehicle-like price as low as net $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.

There were an estimated 200,000 reservations for the Model 3 within a day of its unveiling accompanied by $200 million or so in deposits, a number that has continued to grow to surpass 400,000 reservations over time. Deliveries of higher-priced, uplevel Model 3s began in mid-2017, with qualified buyers enjoying the generous $7,500 tax credit. However, it has taken so long to get to a deliverable $35,000 Model 3 that the federal tax credit for Teslas has been a reduced $3,750 for the first half of 2019, then $1,875 for the second half, then at year’s end…done.

Why is this happening? To its credit, Tesla has cumulatively sold over 200,000 electric vehicles (Models S, X, and 3). This number triggers a federal tax credit phase-out according to a predefined schedule set for all makers of electric vehicles. The federal incentive’s strategy is that once an automaker has momentum for its electric vehicles by achieving greater than a 200,000 sales volume, there is no further need for a subsidy.

To 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.’