Tesla Model 3's Built in China Will Be Eligible for New Energy Vehicle Subsidies

author: FutureCar Staff    

A China-built Tesla Model 3 (Photo: Xinhua)

The federal income tax credit of up to $7,500 has been a popular incentive for consumers in the U.S. looking to purchase an electric vehicle when the program began on Jan 1, 2010. Now Tesla Model 3's built at the automaker's new Shanghai gigafactory will receive state subsidies in China.

Tesla announced on Friday its Chinese-built Model 3 cars would receive state subsidies, a move that will help boost Tesla's push into China, the world's biggest market for EVs and an important market for the California-based electric automaker.

Previously China's industry ministry said Tesla's Model 3 cars, being built at the automaker's $2 billion Shanghai factory were only on a list of vehicles recommended for subsidies for new energy vehicles (NEVs) and now the Model 3 has been officially confirmed by China's Ministry of Industry and Information Technology.

China's government defines NEVs as fully-electric, plug-in-hybrid and hydrogen fuel cell models and the government wants consumers to buy more of them.

China plans to be the world leader in EV sales and aims for an aggressive target of one quarter of all vehicle sales by 2025. In 2018, the total number of NEVs sold was around 4.6%. Two versions of the Model 3 will be eligible for the state NEV subsidies, according to China's Ministry of Industry and Information Technology.

It's still not clear how much of a subsidy the Tesla Model 3 would receive. The China-built Model 3 starts at 355,800 yuan ($50,550), according to Tesla's website.

In August, China's Ministry of Industry and Information Technology said Tesla models will also be exempt from a 10% purchase tax.

The federal EV tax credit for Tesla in the U.S. expires on Jan 1, 2020, so the subsidies in China are welcome now that the company's Shanghai factory is gearing up for production.

In the U.S., the federal EV tax credit was made available for qualifying vehicles purchased from Jan 1, 2010. At the time, sales of plug-in-hybrid and fully-electric models were still a very small percentage of overall vehicle sales in the U.S. and the federal tax credit was designed to help boost sales and incentivize consumers to purchase a lower emissions vehicle. 

The full tax credit is only available to each vehicle manufacturer until sales reach 200,000 qualified EVs have been sold in U.S. After reaching sales of 200,000 qualifying EVs, which Tesla already achieved in July 2018, the credit begins to phase out. The tax credit is halved every six months once sales limit is reached.

When Tesla introduced the Model S in 2012, it became one of the most desirable electric models and the electric sedan was eligible for the full $7,500 credit, which helped the company advertise its vehicles with a lower price and entice buyers.

Now that the company has exceeded the 200,000 vehicle limit, consumers purchasing a Tesla vehicle will no longer eligible for the federal tax credit. However buyers can still take advantage of any state or local incentives.

China is an important market for Tesla in order to reach sustained profitability and its vehicles remain popular with Chinese consumers. 

Tesla is aiming for a production rate of 1,000 vehicles per week by the end of the year with deliveries to customers before the Chinese New Year on Jan 25, 2020. After that, production will ramp up to around 250,000 vehicles per year or 4,800 per week.

Tesla also plans to build the upcoming Model Y crossover in China. In March, Tesla CEO Elon Musk said the Model Y will be built in the U.S. and at its new Shanghai factory. The China-made Model Y will likely be eligible for state subsidies as well.

FutureCar Staff