Tesla is Without the Federal EV Tax Credit for the First Time Since the Introduction of the Model S in 2012

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【Summary】For the past seven years, customers were able to take advantage of a generous federal EV tax credit of up to $7,500 on the purchase of a Tesla electric vehicle. However, the tax credit officially expired for Tesla on Dec 31, 2019 after U.S. Congress failed to extend it.

Eric Walz    Feb 08, 2020 11:45 AM PT
Tesla is Without the Federal EV Tax Credit for the First Time Since the Introduction of the Model S in 2012

For the past seven years, Tesla customers were able to take advantage of a generous federal EV tax credit of $7,500 for purchasing one of the company's electric vehicles. Many buyers took advantage of the federal tax credit to offset the purchase of the pricey Model S sedan.

However for Tesla, the EV tax credit expired on Tuesday night at midnight and the electric automaker worked feverishly to deliver as many Tesla models to customers before the looming deadline. 

Tesla began delivering its fully-electric Model S sedan to customers in July, 2012.

Even Tesla CEO Elon Musk worked on New Year's Eve at the automaker's Fremont, California assembly plant, pitching in to help expedite deliveries, according to comments he made on Twitter about how he was spending his New Year's Eve. Musk said he was at Tesla's factory to help with last-day deliveries before the federal EV tax credit expires.

The federal tax credit on electric vehicles was first introduced in 2009 by the Obama administration and went into effect on Jan 1, 2010. It was designed to spur the adoption of electric of plug-in hybrid vehicles in the U.S, encouraging drivers to switch to a fully-electric or plug-in hybrid vehicle (PHEV) by offering a tax break that could be combined with other local incentives.

At the time, President Obama declared a goal of reaching 1 million plug-in vehicles sold in the U.S. by 2015. 

The Federal EV Tax Credit was An Important Marketing Tool for Tesla

When the EV tax credit took effect, Tesla was still a niche electric vehicle startup, delivering a small number of hand-built Tesla Roadsters, the automaker's first offering. 

However, as sales of the electric Model S increased after its introduction in 2012, the tax credit became an important marketing tool for Tesla, serving as an extra incentive to buy one of Tesla's premium electric vehicles. Tesla advertised the price of its vehicles with the $7,500 tax credit already factored in on its website. 

When combined with California's own EV tax credit of up to $2,500, customers looking to purchase a Tesla Model S, Model X or Model 3 in California could get a tax credit of up to $10,000, which helped Tesla establish itself as a formidable competitor to rival automakers selling gas-powered models.

However, the federal EV tax credit is only available for the first 200,000 vehicles sold from each manufacturer. Tesla became the first automaker to reach that limit in July, 2018 after the launch of the mass-market Model 3 sedan.

After a vehicle manufacturer reaches sales of 200,000 qualifying vehicles, the tax credit is halved two calendar quarters later to $3,750, then halved again after two more calendar quarters to $1,875. Six months later the tax credit expires completely, which happened to Tesla on Dec 31, 2019.  

Tesla rival Rival General Motors reached the 200,000 vehicle limit in the final quarter of 2018, boosted by sales of the hybrid Volt sedan and fully-electric Bolt EV. Qualifying GM vehicles are still eligible for a partial tax credit up to $1,875 until July 1, 2020.

Japanese automaker Nissan is likely to become the next automaker to reach the 200,000 vehicle limit, due to steady sales of the Nissan Leaf EV.

Lawmakers Sought an Extension of the EV Tax Credit in 2019

The tax credit was especially welcomed by automakers offering fully-electric models that qualify for the full $7,500 amount, such as General Motors and Tesla.

In April 2019, a bipartisan group of U.S. lawmakers introduced legislation to expand the electric vehicle tax credit to include an additional 400,000 vehicles per manufacturer, on top of the current cap of 200,000 vehicles.  

The bill was dubbed the "Driving America Forward Act" and would have granted each automaker a slightly lower $7,000 tax credit for an additional 400,000 vehicles, on top of the existing 200,000 vehicles already eligible for the tax credit. 

However, the bill failed to gain support and was not included in the year-end spending bill passed by U.S. Congress.

Backers supporting the extension of the EV tax credit blame President Trump for killing the proposal, creating a political feud in Washington between Democrat and Republican politicians.

President Trump even threatened to cut GM's EV tax credit in retaliation for the company's plans to idle four U.S. plants and eliminate thousands of salaried employees in a cost cutting move.

"There has been extreme resistance from the president," said Michigan democratic Senator Debbie Stabenow to Bloomberg last month. 

Many conservatives argue that the federal EV tax credit unfairly benefits affluent California residents who can afford to purchase a more expensive Tesla vehicles, rather than more affordable mass-market EVs. 

Regardless, many agree that the federal EV tax credit has helped to launch the electric vehicle market in the U.S. as it was intended to do, putting Tesla on equal footing with more established global automakers. 

Ironically, now that Tesla has gained a foothold in the U.S. auto industry with its environmentally friendly, fully-electric vehicles, U.S. buyers can no longer take advantage of the federal EV tax credit that was intended to boost the adoption of them.

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