Why you need to act know if want a big tax credit on the Tesla Model 3

Tesla's newly unveiled Model 3 has people lining up around the block for preorders. The latest electric car from Elon Musk is generating tons of excitement, in no small part because of the car's intended audience: Price-conscious, average drivers like you and me.

One of the things that's helped drive Tesla's sales, analysts say, has been a federal tax credit that effectively knocks $7,500 off the sticker price of a Tesla. So some people who buy the Model 3, for instance, will wind up paying only $27,500 instead of the base price of $35,000. That's a great discount.

But not everyone will be able to take advantage of it, and here's why: The tax incentive is set up so that it begins to phase out once a car manufacturer sells its 200,000th electric vehicle in the United States, according to the IRS. After that point, the automaker can continue offering the credit at a gradually falling value for another year before it must completely drop the federal subsidy.

Here's how Tony Lim, an analyst at Kelley Blue Book, explained it to me:

"Once Tesla sells 200,000 vehicles, the next calendar quarter will be the last quarter that new Tesla owners will be eligible for the full tax credit of $7,500. After that, new Tesla owners will be eligible for only 50% of the tax credit, then just 25%, and eventually nothing over a 15 month time frame."

Suppose Tesla sells its 200,000th electric car in February of 2010. By July of 2010, it would no longer be able to offer the full $7,500 credit. Instead, the value would drop to $3,750 - still a great discount, but half as much as before. By the following January, Tesla would only be able to offer new-car buyers a credit of $1,875. And any new cars sold after July of 2011 would get zero tax incentives.

Considering the fevered pace at which drivers have been pre-registering for the Model 3; the rate at which Tesla is delivering vehicles today; and the plan by Tesla not to start manufacturing the Model 3 until next year, we may soon reach the 200,000-vehicle trigger if we haven't already.

Estimates by Inside EVs suggest Tesla has already shipped more than 66,700 cars in the United States. If those numbers are accurate, there may be roughly 133,000 full-value tax credits remaining. During last night's announcement, Musk revealed that Model 3 preorders had surpassed 115,000 - a figure that is likely even higher now. If all those drivers got to claim the $7,500 tax incentive, that leaves some 18,000 credits before triggering the phaseout.

Don't forget that even as Tesla prepares to produce the Model 3, other Teslas are still rolling off the factory floor. Tesla delivered roughly 17,500 vehicles in the fourth quarter alone, according to The Motley Fool.

So as you can see, the window to get the full, $7,500 tax credit is rapidly shrinking. For the credits program to be changed or extended would likely require an act of Congress, analysts say.