New Bill Proposed to Remove Sales Limits on the $7500 Federal Tax Credit for EVs

author: Eric Walz   

To promote the sales of electric vehicles, the U.S. Department of Energy offered a financial incentive in form of a EV tax credit up to $7,500 on the purchase of a qualifying electric vehicle. The tax credit went into effect on January 1, 2010. The tax credit offered a substantial incentive for those thinking about purchasing an electric vehicle.

However, the tax credit is only available to buyers until 200,000 qualified EVs have been sold in the United States by each individual manufacturer, at which point the credit begins to phase out for that manufacturer.

Currently, no automakers have been phased out yet, but Tesla hit sales of 200,000 units in July and might become first automaker to lose access to the popular incentive, unless of course the program is updated.

A new bill introduced by Senator Dean Heller (R) of Nevada is hoping to keep electric car sales on the upward swing. The bill would extend the EV tax credits until 2022.

The minimum credit amount is $2,500, and the credit may be up to $7,500, based on each electric vehicle's battery capacity and other factors.

Bill Would Benefit Tesla

Reuters received a copy of the bill and said it would do away with the current law's model of capping the tax credits after 200,000 EVs are sold. Since Tesla has already hit this milestone, the bill would likely benefit the struggling auto maker.

The bill would also benefit General Motors. The company expects to hit the 200,000 mark soon, bolstered by sales of the popular Chevy Bolt EV.

The current law gives EV buyers a $7,500 tax credit until a manufacturer sells 200,000 qualifying vehicles. Upon reaches that threshold, that credit is reduced by 50 percent for an additional six month period. After those six months are up, the credit will finally goes down to $1,875 for a final six months before disappearing for good.

For a financially strapped automaker like Tesla, the tax credit is an important selling tool, as the company's Model S and X vehicles sell upwards of $80,000 or more.

Hellers' home state of Nevada is the location of massive Tesla's Gigafactory, where it produces batteries for all of its vehicles and its Powerwall energy storage systems. The factory employs over 3,000 workers.

Nevada governor Brian Sandoval is also hoping the state will be home to the "Nevada Electric Highway", the first EV highway system in America. The goal of the project is to install EV charging infrastructure at cost-effective and strategic locations along U.S. Highways 95 and 93, which traverses the lower half of the state near Las Vegas.

Divided Support in Washington

Heller is at odds with Senate Environment and Public Works Committee chair John Barrasso, who proposed legislation that would end tax credits for EVs and instead tax sales on electric cars to fund much needed highway repairs.

The bill is just a proposal at this point and still faces some hurdles in Washington. The bill will have to go through committee hearings before it can be brought to the Senate floor for a vote. However, Senate Majority Leader Mitch McConnell now wants sweeping tax cuts to help offset the growing federal deficit. If Heller's bill is presented on the Senate floor it will likely meet some resistance.

If the bill doesn't pass, only Tesla models delivered to customers by the end of 2018 will qualify for the $7,500 credit. Cars sold and delivered after January 1 would qualify for a credit of $3,750, half that amount. For deliveries in the second half of 2019 the tax credit falls to $1,875.

The reduction in the tax comes just as Tesla is ramping up production of the Model 3. For customers waiting for their Model 3's since last year, losing access to the tax credit is even more frustrating, as Tesla CEO Elon Musk had promised to deliver their cars much sooner.

Eric Walz

Originally hailing from New Jersey, Eric is a automotive & technology reporter covering the high-tech industry here in Silicon Valley. He has over 15 years of automotive experience and a bachelors degree in computer science. These skills, combined with technical writing and news reporting, allows him to fully understand and identify new and innovative technologies in the auto industry and beyond. He has worked at Uber on self-driving cars and as a technical writer, helping people to understand and work with technology.