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Despite Push from U.S. Automakers, Bill to Extend EV Tax Credit is Not Expected to Be Included in Year-End Budget Deal

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【Summary】It looks as though time is running out on a bill to extend the federal electric vehicle tax credit. Automakers, including General Motors and Tesla, as well as congressional aides, said they do not expect the U.S. Congress will extend a $7,500 tax credit for electric vehicles in a year-end spending bill expected to be released later today.

FutureCar Staff    Dec 16, 2019 2:45 PM PT
Despite Push from U.S. Automakers, Bill to Extend EV Tax Credit is Not Expected to Be Included in Year-End Budget Deal

It looks as though time is running out on a bill to extend the federal electric vehicle tax credit. 

Automakers, including General Motors and Tesla, as well as congressional aides told Reuters they do not expect the U.S. Congress will extend a $7,500 tax credit for electric vehicles in a year-end spending bill expected to be released later today.

In April, a bipartisan group of U.S. lawmakers introduced legislation to expand the electric vehicle tax credit to include another 400,000 vehicles per manufacturer, on top of the current cap of 200,000 vehicles. 

The bill called the "Driving America Forward Act" would grant each automaker a $7,000 tax credit for an additional 400,000 vehicles on top of the existing 200,000 vehicles already eligible for tax credits up to $7,500.

The bill was sponsored by Democratic Senators Debbie Stabenow and Gary Peters, Republican Senators Lamar Alexander and Susan Collins, as well as Democratic Representative Dan Kildee. 

However, Senator Debbie Stabenow said on Monday the EV proposal is facing opposition from the White House, although her office said she is still pushing for it.

The Obama administration approved the federal EV tax credit for the purchase of a qualifying electric vehicles in 2009 and it took effect for EVs and hybrid vehicles purchased from Jan 1, 2010. 

The EV tax credit for purchasing a qualifying electric vehicle, including plug-in hybrids, was designed to encourage the adoption of electric and plug-in hybrid (PHEV) vehicles in the U.S.  

At the time, President Obama declared a goal of reaching 1 million plug-in vehicles sold by 2015. The tax credit can also be combined with state and local incentives, which many EV owners took advantage of, especially in California. California residents were able to combine the federal credit with an additional $2,500 state incentive, which helped Tesla to sell more electric cars in California.

Tesla at a Disadvantage Without the Tax Credit

The full tax credit of up to $7,500 is good until each automaker reaches sales of 200,000 qualifying vehicles. The tax credit is halved two calendar quarters after reaching sales of 200,000 vehicles to $3,750, then halved again six months later to $1,875 before being eliminated entirely. 

For Tesla, the tax credit goes away entirely  beginning Jan 1, 2020 since its reached 200,000 vehicle limit in July 2018 after the launch of the mass-market Model 3 sedan. GM also hit the 200,000 vehicle limit in 2018, boosted by sales on the Chevy Bolt EV.

Both General Motors and Tesla have been pushing for the credit to be extended beyond 200,000 vehicles per manufacturer. The two automakers are the only ones that have sold in excess of 200,000 qualifying battery-powered vehicles.

For electric automaker Tesla, which debuted its fully-electric Model S in 2012, the credit became an important way to reduce the vehicle's overall cost. Tesla enticed customers by included EV tax credit in the advertised price of its vehicles on its website. When combined with California's $2,500 credit, Tesla as able to advertise its cars online with the $10,000 credit already factored in.

As a pioneer in the electric vehicle space, Tesla's chief executive Elon Musk now claims his company is at a disadvantage as global automakers including Volkswagen, Porsche and Ford release their first fully-electric models in the U.S., giving Tesla some formidable competition for the first time. Musk's argument holds weight.

All of Tesla's competitors can take advantage of the full $7,500 EV tax credit, while Tesla is being left out.

For GM, the EV tax credit will end entirely in April 2020.

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