It’s rough timing for Tesla. Just as Elon Musk’s automaker has started to hit its stride—churning out Model 3s, outselling Audi and Cadillac, making a profit—the federal tax credit that can knock $7,500 off the price of its electric cars is expiring.That credit, established in 2008, starts to phase out once a manufacturer sells 200,000…
That credit, established in 2008, starts to phase out once a manufacturer sells 200,000 fully or plug-in electric vehicles in the US. Tesla hit that milestone in July, boosted by the recent ramp-up of Model 3 production. Starting in January, Tesla buyers will only be eligible for half the credit ($3,750). From June until the end of the year, that drops to $1,875. Come 2020, it goes to zero. After years of selling the Volt and Leaf, General Motors and Nissan are rapidly approaching the threshold as well.
To reclaim their slice of federal largesse, the three automakers are joining forces. Along with a bunch of companies building charging networks and working on electric commercial vehicles, they have formed the EV Drive Coalition. The organization will push Congress to reform the system and eliminate the manufacturer cap. Not doing so, they argue, would punish automakers—especially homegrown Tesla and GM—for leading the electric charge, while EV newcomers like Jaguar, Audi, and Volkswagen still get the benefit.
Congress created the $7,500 credit a decade ago as a way to jumpstart EV sales. It included the cap to put an end date on the program, based on the thinking that by the time a company had sold 200,000 of the things, it should have figured out how to close the price gap between them and gas-powered cars. Tesla, GM, and Nissan have narrowed the difference, but cars powered by internal combustion remain cheaper. The EV Drive Coalition says the federal help shouldn’t go away just yet, but hasn’t said much about how it thinks that should go.
“So far it’s hard to say what they’re asking beyond ‘lift the cap and give us more free money,’” says longtime EV advocate Chelsea Sexton. She sees this as an opportunity for loftier ambitions. “I encourage not just lifting the cap, but pooling the credits.” One big pot, with a finite number of credits, could inventive automakers to speed up development to grab their share of the cash, rather than sit back. Sexton also suggests requiring that a car be available nationwide to qualify, to not just reward automakers who create “compliance cars” for states that have adopted California’s zero-emission vehicle requirements.
A qualifier like a minimum range could encourage innovation, and a cap on price could direct money toward the people who’ll benefit the most from it. A long-held criticism of the current scheme is that buyers of Teslas at $100,000 gets the same $7,500 as someone who stretches to buy a $37,500 Chevrolet Bolt EV when they could get a gas-powered Chevy Cruze for under $25,000 with all the options.
Even before the birth of this alliance, Nevada senator Dean Heller had proposed lifting the cap for now, but ending the credit altogether by 2022. (Tesla’s battery-building Gigafactory is near Reno and a major employer.) But Heller lost his bid for reelection. Meanwhile, Senator John Barrasso of Wyoming wants to kill the credit (and charge EVs a road usage fee). That would even the playing field for Tesla, GM, and Nissan, but they’d rather everyone get the money than nobody.
In the meantime, Tesla may get one benefit from the phaseout: It could encourage buyers who’ve been holding out for the $35,000 Model 3 to make the purchase now, while the car starts at $45,000, to ensure they get the credit. For a young automaker trying to prove its third quarter profits weren’t an anomaly, all help is appreciated. But Elon Musk wants to keep his company alive in the long run.
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