Lifestyle
Model 3 Buyers May Miss Out On Federal Tax Credits
By the time Tesla starts building its entry level Model 3 cars, the federal tax credit may have long since expired.
Model 3 buyers may not be able to take advantage of the $7,500 federal tax credit for electric vehicles, for two reasons. First, the federal credit under Internal Revenue Code Section 30D (IRC 30D) begins to decrease once a manufacturer reaches 200,000 qualifying EV sales in the US.
Second, the $35,000 price tag of the Model 3 (before incentives) will appeal to mass market buyers who may not necessarily fall into the same high income bracket as those that purchase the Model S and Model X. As Evan Niu of The Motley Fool explains, “The $7,500 credit can only be applied if the customer has a tax liability of $7,500 or more, and any unused portion is not refundable and can not be carried forward”. This means any person taking home $50,000 a year or less may not have a large enough tax liability to qualify for the full $7,500 federal tax credit.
Let’s take a closer look at both of these factors.
The Incredible Shrinking Tax Credit
Congress, in its infinite wisdom, enacted the federal tax credit to give manufacturers an incentive to sell electric cars. It is a pump priming strategy that was meant to have a relatively short shelf life at 200,000 vehicles sold.
Tesla does not break down its sales numbers by country, but in its most recent letter to shareholders it said it sold 42,000 Model S sedans in America in 2014 and 2015. Elon Musk says the company will deliver between 80,000 and 90,000 cars this year. Assuming half of those go to US customers and adding in estimated sales in 2012 and 2013, Tesla could approach that 200,000 mark in calendar year 2018.
Pictured above: Tesla Store grand opening in Hingham, MA via Rob M
After that, the EV incentive program enters into a “phase out period” at which point the tax credits are cut to 50% and 25% of the original $7,500 credit over the next 6 to 12 months, respectively, until the plan is eventually phased out in its entirety. Based on Tesla’s sales figures and projected growth rate, analysts expect that to happen for Tesla in 2018.
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IRC 30D states:
The qualified plug-in electric drive motor vehicle credit phases out for a manufacturer’s vehicles over the one-year period beginning with the second calendar quarter after the calendar quarter in which at least 200,000 qualifying vehicles manufactured by that manufacturer have been sold for use in the United States (determined on a cumulative basis for sales after December 31, 2009) (“phase-out period”).
Qualifying vehicles manufactured by that manufacturer are eligible for 50 percent of the credit if acquired in the first two quarters of the phase-out period and 25 percent of the credit if acquired in the third or fourth quarter of the phase-out period. Vehicles manufactured by that manufacturer are not eligible for a credit if acquired after the phase-out period.
The critical factor in determining whether Model 3 buyers will be able to take advantage of the full tax credit will be timing. For every month the Model 3 gets delayed, more Model S and Model X cars will be sold, getting the company closer to that 200,000 phase out period.
The Demographics of Model 3 Buyers
It seems fairly obvious that someone looking for a $35,000 Model 3 will be in a different socio-economic status than a person looking to purchase a Model S P90D. The way the federal tax credit is set up, if a person only owes $5,000 to the IRS for the year in which a qualifying car is purchased, the credit is limited to $5,000. Any excess is lost. The taxpayer cannot carry over any unused portion to a subsequent tax year.
Other Considerations
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Several other factors will make that $35,000 Model 3 a rare bird indeed. Tesla has already indicated it will build the cars with the most options first. This is normal procedure for the company. For instance, manufacturing on the Founders Edition and Signature Series Model X began first followed by P90D production cars. It may be a while yet before any entry level 70D Model X cars get built.
Similarly, the first Model 3 cars will likely have the largest battery available (70 kWh? 90 kWh?). If dual motors are offered, the first cars will have those as well. Panoramic roof, upgraded interiors, premium sound systems, Autopilot activation, and a host of other extra cost options will push many cars close to $60,000. Even with the full federal tax credit, a fully loaded Model 3 will cost far more than $35,000.
It could easily be a year or more after the Model 3 is introduced before any entry level $35,000 Model 3 is available. By then, the federal tax credit will likely be long since used up.
Related Model 3 News
Firmware
Tesla unlocks in-car web conferencing to extend Google Meet, Teams and beyond
Tesla’s Summer Update lets owners join Google Meet, Teams, and Discord calls via cabin camera.
Tesla’s 2026 Summer Update, which just began rolling out to customer vehicles, now links the built-in web browser with the in-cabin camera feed and microphone input, thereby letting owners join video calls on nearly any browser-based service instead of just Zoom.
The change appears in Tesla’s own release notes for software version 2026.26 under “Web Browser,” which states that the vehicle can now use its interior camera and cabin microphone when a website requests access, with permission granted the same way a desktop browser handles it. As NotATeslaApp notes, this feature opens the door to Google Meet, Microsoft Teams, Discord, and other webcam-enabled sites to activate the in-car cabin-facing camera. The feed automatically crops and zooms to center the driver in frame.
Tesla has offered in-car video calling before, but only through a dedicated Zoom app that launched at the end of 2022, a stripped-down browser preloaded with Zoom’s own web client and gated behind Premium Connectivity. Opening the full browser to any camera-requesting site removes that walled garden. Elon Musk first called video conferencing “definitely a future feature” back in 2020, when the pandemic pushed remote meetings into daily life, so this update effectively finishes something Tesla has been promising for six years.
Tesla Summer Update begins rolling out: a look at the new features
The feature keeps the same restrictions that applied to Zoom on Tesla vehicles. It only works while the car is parked; shifting into Drive disables the camera feed, according to the release notes. It is also limited to vehicles running Tesla’s AMD Ryzen infotainment hardware, meaning older Intel-based Model S and Model X units, along with early Model 3 and Model Y builds, don’t get it.
Turning the browser into a general entry point for the in-cabin camera, rather than routing everything through one local app, widens the number of third-party sites that can ask for access, even though Tesla’s permission prompt.
With the Summer update only days into its rollout, be sure to stay with us on TikTok and X to see the latest video demonstrations.
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Elon Musk escalated his monthslong feud with Christopher Nolan’s The Odyssey this week, pledging that his own AI video tool will produce a competing version before the year is out. Responding to a fan-made, AI-generated clip of the ancient epic, Musk wrote on X, “Before this year ends, Grok Imagine will make a full-length movie of The Odyssey that is historically accurate and true to the art of Homer.”
In June, Musk quoted an xAI-shared trailer built entirely with Grok Imagine Video 1.5, a two-minute-plus reimagining of The Odyssey styled after a 1970s classical Hollywood epic, and predicted “full movies by the end of the year,” as Teslarati reported at the time. That trailer, built from 36 consistent shots by a single creator, was Musk’s proof of concept. This week’s pledge turns that prediction into a specific commitment, tied directly to Homer’s text rather than a generic demo.
Before this year ends, Grok Imagine will make a full-length movie of The Odyssey that is historically accurate and true to the art of Homer https://t.co/bVHzUmY9WN
— Elon Musk (@elonmusk) July 22, 2026
When a fan separately proposed that Musk fund a live-action alternative, to “give Mel Gibson $100 million to film an Odyssey adaptation with painstakingly historically accurate ships, armour, weapons, and casting, with all dialogue taken straight from the original poem and delivered in Homeric Greek,” Musk replied with two words: “I’m down.”
The Grok Imagine pledge lands as the tool’s underlying infrastructure has changed hands. Grok is no longer a standalone product, it folded into SpaceXAI after SpaceX’s acquisition of xAI closed in February, meaning the compute behind any Odyssey production traces back to the same Colossus supercomputers now bundled into SpaceX’s pitch to investors. Musk has separately said SpaceX’s own engineering data is being fed into the next major Grok training run, a two trillion parameter model he’s called the “2T run.”
Whether Grok Imagine can sustain a feature length narrative, rather than a series of impressive individual shots, remains the open question.
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Cybertruck
Tesla Mobile App gets a new feature that wrap fans are going to love
Tesla’s Summer Update removes the USB drive step from customizing your car’s digital wrap design.
Tesla’s latest 2026 Summer Update quietly closes out one of the more tedious steps in personalizing a Tesla’s digital appearance. Uploading a custom wrap design used to require a USB drive. Now it doesn’t.
The feature is listed in Tesla’s release notes as “Send Custom Wraps from Mobile App.” The company described it plainly: “Skip the USB drive and upload a custom wrap of your car from the mobile app. Instructions for creating a custom wrap here: github.com/teslamotors/custom-wraps.”
The digital wrap tool has been around since Tesla’s 2024 Holiday Update, when it launched for Cybertruck owners first, as Teslarati reported at the time. Getting a design onto the car meant formatting a USB drive, creating a folder named exactly “Wraps,” dropping in PNG files sized between 512×512 and 1024×1024 pixels and under 1 MB each, then plugging the drive in and applying the wrap through Toybox. Tesla expanded the tool to other models and renamed it from “Colorizer” to “Paint Shop” with the 2025 Holiday Update, while also adding license plate and window tint customization alongside the wraps.
Custom wraps via mobile app https://t.co/5OydZ26g9p pic.twitter.com/uexU0ZePxu
— Tesla (@Tesla) July 22, 2026
The latest Summer Update removes the USB step from that process. Owners will be able to pull a design from wherever they saved it, whether that’s a download from social media or something built from Tesla’s own GitHub templates, and push it to the car directly through the app.
Tesla reveals 2026 Summer Update with crazy fixes to Nav and more
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It’s a small fix relative to the rest of this latest release, which also included expanded Grok voice commands, automatic navigation that learns regular routes, and self-driving stats inside the mobile app, all detailed in our rundown of the full Summer Update. The USB requirement was one of the more common complaints about Paint Shop since it launched. Tesla did not say when the wrap upload change would reach individual vehicles, only that the broader update is rolling out now in waves.
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