U.S. sales of Nissan’s Leaf EV tiptoed past the 100,000 mark last month, the second plug-in vehicle to do so. Chevrolet’s Volt surpassed 100,000 sales in June. With the federal tax credit for PEVs scheduled to start phasing out as a manufacturer’s sales of qualified vehicles hits the 200,000 mark, that means the two most popular plug-ins are now more than halfway to losing critical purchase incentives.
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On the upside, the sales figures are good news for Nissan and GM and help show that public acceptance of EVs and plug-in hybrids continues to grow, albeit slowly.
Given that it has taken almost six years for the Leaf and Volt to hit the halfway mark, the end isn’t coming soon. But it is a good time to start thinking about how important the availability of incentives such as the federal tax credit will be to future PEV buyers.
One telltale will be the drop-out rate, if there is any, among the 400,000 or so consumers who’ve placed deposits on Tesla’s upcoming $35,000 (base price) Model 3 EV.
Tesla, which doesn’t release sales data by country, is thought to be nearly at – if not already over – the 100,000 mark with combined Roadster, Model S and Model X sales in the U.S.
With S and X sales continuing at a healthy pace and no Model 3s due to hit the market much before the end of 2017, it is likely that only the first 50,000 or so Model 3 buyers will be able to take full advantage of the federal credit. The pace of reservation cancellations at that point will say a lot about the importance of such incentives.
For the uninitiated (that’s most of us) the federal credit for PEVs is for a maximum of $7,500 against federal income taxes for the year in which the car is purchased.
Buyers can use the credit to zero out their federal income tax bill for that year, but there are no refunds. If you only owe $5,000 that year, that’s all the credit you can claim.
Once a manufacturer sells 200,000 qualified plug-in vehicles, the phase-out period begins. The credit remains at 100 percent for the first quarter after the cutoff is reached, then is reduced by 50 percent for vehicles sold in the next two quarters and by 75 percent in the fourth and fifth quarters, at which point it disappears.
That means that even without Model S and X sales speeding up the incentive’s demise – which they will – Tesla would have to build and sell all 400,000 reserved Model 3s within about 18 months of the car’s introduction for all buyers to get at least some benefit from the federal tax credit program.
The pace is about to quicken for GM and Nissan as well. GM is about to launch the Chevrolet Bolt, a $37,495 (base price) EV with 238 miles of range, and Nissan is believed to be readying a second-generation Leaf with a range of 200 miles or more. Sales of those new vehicles will reduce the time it will take the companies to hit the 200,000 mark for cumulative PEV sales and the phasing out of their tax incentives.