Tesla Facing Sales Slowdown as the $7,500 Federal EV Tax Credit Ends Jan 1

author: Eric Walz   

Over the past decade, the federal government and a number of states began offering financial incentives to promote the adoption of electric vehicles and plug-in hybrids. These incentives including a federal EV tax credit of up to $7,500 on the purchase of a qualifying vehicle, which essentially lowered the up-front costs of plug-in or fully-electric vehicles. Now that the enticing tax credit is being phased out for Tesla, sales of its vehicles might slowdown.

For electric automaker Tesla, which debuted its first electric Model S in 2012, the credit became an important part of the vehicle's final cost, enticing customers looking to purchase the pricey electric Model S with a hefty tax break. California residents were able to combine the federal tax credit with the state's own incentive of $2,500, further boosting Tesla sales in the state.

The U.S. Department of Energy's EV tax credit is available to each automaker until sales of 200,000 qualifying EVs have been made in the United States. After reaching that number the credit begins to phase out for that manufacturer. Tesla reached sales of 200,000 electric vehicles in July, in part from finally ramping up production of the long awaited Model 3, the company first mass-market electric car.

Now that Tesla has reached sales of 200,000 electric vehicles, the $7,500 credit is being cut in half to $3,750 beginning Jan 1, before eventually being phased out completely a year from now. Tesla CEO Elon Musk has pushed to deliver cars before year end. Musk even offered to deliver cars directly to customers homes or offices, instead having them drive to a Tesla showroom to take delivery.

Tesla Enlisted the Help of Current Owners

In another attempt to get customers to take delivery of their new Model 3 sedans right before the end of Q3, Musk cleverly enlisted the help of current Tesla owners, asking for volunteers via Twitter to help new owners familiarize themselves with their new electric cars at the time of pickup. Many current owners were more than happy to share their knowledge of Tesla vehicles with new owners.

"We're complementary to the Tesla employees," Omar Sultan, a Tesla customer who volunteered at a Tesla store near Rocklin, California, told Bloomberg in September. "A lot of people getting the Model 3 are buying an electric car for the first time, and they have a lot of questions about charging that we're happy to answer."

Where's My Car?

One issue facing Tesla is that some customers who ordered their cars months ago have still not been told when their cars will be delivered. In October, Musk said that customers who ordered a by Oct 15 would have their cars delivered by year end.

Customers who take delivery of their cars between January 1st and June 30th, 2019, will only be eligible for a $3,750 tax credit. For customers taking delivery between July 1st and December 31st, 2019, the tax credit falls to $1,875.

Customers taking delivery of Tesla vehicles after Jan 1, 2020 are not eligible for any federal tax credits, unless the Trump administration extends the program, something that seems increasingly unlikely.

Individuals purchasing an electric vehicle may still take advantage of any state incentives, such as California's $2,500 tax credit. California remains the biggest market for electric vehicles in the U.S.

However, for those owners who might change their minds about purchasing a Tesla with the tax credit being halved this week, Musk promised to cover the tax difference in a post this week on Twitter, as the company ramps up efforts to deliver cars to new customers before the deadline.

"If Tesla committed delivery & customer made good faith efforts to receive before year end, Tesla will cover the tax credit difference," Musk wrote in a response to a Twitter user who apparently ordered their car before December.

Automakers Pressuring Congress

In November, Tesla joined forces with General Motors and Nissan in an effort to persuade Congress to extend the EV tax credit. The three automakers, along with a group of other companies working on EV charging infrastructure established the EV Drive Coalition.

The organization planned to push Congress to reform the system and eliminate the manufacturer cap but nothing has materialized yet.

Tesla argued that it is now at a disadvantage going forward. As a pioneer in the electric vehicle space, Musk claims his company is at a disadvantage as global automakers including Volkswagen, Audi and Jaguar release their first fully-electric models, giving Tesla some serious competition for the first time in its brief history.

Most of these new electric models from Tesla rivals will be eligible for the full $7,500 federal tax credit.

Tesla said it was "doing everything" to ensure those who ordered a vehicle as late as Dec. 20 could take deliveries by Dec 31. Tesla had over 3,000 Model 3s ready for delivery in the U.S. as of Sunday, the website Electrek reported on Monday, citing people familiar with the matter.

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.