Tesla EV Credit, Going, Going, G…

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Tesla’s good fortune at being the top-selling electric car maker in the U.S. also means that the $7,500 federal EV credit that has helped fuel its sales success is about to start fading away.

The company sold its 200,000th qualified car in July, and that triggered the EV credit phase-out.

The timing means that many who have been waiting for the base Tesla Model 3 to arrive – the version advertised as a $35,000 car before incentives – won’t be able to get the full $7,500 credit. Tesla has been selling only pricier versions of the Model 3 so far, with the base trim not expected until sometime in the first half of 2019

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Tesla buyers through Dec. 31 still get the full $7,500 EV credit if they otherwise qualify, but Teslas sold from January through June, 2019, will only fetch a $3,750 income tax credit. Those sold from July through the end of the year will come with a maximum tax credit of just $1,875. After that, Tesla buyers will have to pay full price, less any applicable state and/or local incentives.

EV tax credit
The federal tax credit for Tesla buyers will begin fading away in January.

A pair of bills in Congress would reinstate the full $7,500 EV credit by eliminating the present sales cap of 200,000 plug-in electric vehicles per manufacturer, but they are still in committee and stand little chance of passage without GOP backing.

The Way it Is

Under present rules, automakers’ EVs can bring their buyers (but not lessees) a federal income tax credit of up to $7,500 for the tax year in which they were purchased. For leases, the credit goes to the leasing entity that owns the car, and typically is factored into the lease cost to reduce monthly payments.

The credit for buyers can only offset taxes owed for the year, so there’s no refund and no carryover. If an EV buyer’s federal tax liability is $7,500 or more she gets the full credit. But a taxpayer with a bill of only $5,000, for instance, would only get a $5,000 credit.

Plug-in hybrid credits come in a variety of sizes, based on the vehicle’s battery capacity. But they are part of each manufacturer’s 200,000 cap and their credits phase out the same way as full EV credits. Fuel-cell electric vehicles don’t qualify for the federal tax credit.

After the 200,000 plug-in car sales cap is reached, full credit eligibility for that manufacturer’s EVs continues for one more quarter. Then it is cut by 50 percent – to $3,750 for EVs – for the next two quarters, and by half again for two more quarters. After that, no federal credit.

Next to Go

General Motors is expected to trigger its 200,000 cap by the end of this year or early early next, thanks to combined sales of its Chevrolet Volt and Cadillac ELR and CT6 PHEVs, along with Chevy Spark and Bolt EVs.

Nissan, whose Leaf EV was the first mass produced battery EV to hit the market  in the U.S. – at the end of 2009 – also is expected to trigger its  tax credit phase-out sometime in the first half of 2019.

Other automakers are far behind in sales, so have a while to go.

Extension Effort

The first bill that would extend the federal credit is HR 6274, the Electric Credit Access Ready at Sale Act of 2018 (Electric CARS of 2018).

It was introduced in June and was followed by a Senate version, S 3449, in September.

Both bills would extend the credit for all manufacturers through 2028 and allow it to be applied against the price of the car at the time of the sale – effectively making it an instant rebate instead of a year-end tax credit. The Senate version also would permit unused portions of the maximum applicable credit to be carried over to subsequent tax years if the buyer chose not to apply the full amount at the time of sale.

The House measure was introduced by Vermont Democrat Peter Welch and has 17 co-sponsors, all Democrats. It is sitting in the House Ways and Means committee.

The Senate version was introduced by Oregon Democrat Jeff Merkely and has nine co-sponsors – eight Democrats and Vermont’s Bernie Sanders, an independent. It is awaiting action in the Senate Finance committee.

Both measures also would extend the federal tax credit for business and home EV charging equipment through 2028.

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