Buying a Tesla? Don’t Count on That $7,500 Tax Credit

This afternoon, Elon Musk will get on the phone with Tesla’s investors. He will field their questions about Model 3 production numbers, cash flow, the possibility of profitability, maybe even where he sleeps. And perhaps someone will ask him the question he has never answered: How many cars, exactly, has Tesla sold in the United States?

With all the problems Tesla is wrangling—chief among them a long struggle through “production hell”—a regional breakdown of sales figures (something Tesla has never provided) may seem irrelevant. But it might also prove vital to this young company’s future. Whenever Tesla sells its 200,000th vehicle on American shores, it loses a valuable tool: the $7,500 tax credit the federal government gives to anyone who buys an electric car.

The timing—Tesla has already confirmed it will hit the 200,000 mark sometime in 2018—is unfortunate. After years of selling luxury cars, Tesla has shifted its focus to the Model 3, a $35,000 sedan aimed at buyers for whom an extra $7,500 might make a major difference. And now, buyers interested in swapping gasoline for electricity have more choices than ever, thanks to an influx of EVs from Jaguar, Volkswagen, Porsche, Ford, Volvo’s Polestar, and others, all of which will still qualify for the federal free money.

General Motors, too, is approaching the 200,000 threshold, after a few years of selling cars like the Chevy Bolt EV and plug-in hybrid Volt. The Detroit giant hasn’t said when it will top out, but it’s going to happen sooner or later. History says this could be a problem. When Georgia abruptly axed a $5,000 tax credit for electric car buyers (to go with the federal money), in July 2015, sales fell 90 percent.

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The tax credit came to life in 2008, as part of the Energy Improvement and Extension Act, a tool to close the price gap between EVs and cheaper gasoline cars. Come April 15, anyone who bought a new electric or plug-in hybrid vehicle that year, with a battery of a certain size, gets to take $7,500 off the amount they owe the federal government.

When the sales clock hits 200,000, the tax credit doesn’t make like Cinderella’s chariot. Every car Tesla sells for the rest of that quarter, and the following quarter, qualifies its buyer for the full $7,500. For the following six months, the rebate drops by half, to $3,750. For the six months after that, it halves again, to $1,875. Then it goes away altogether. So depending on how many Model 3s Tesla can crank out in the next year, it can ensure at least some of its customers enjoy a bit of federal largesse.

If they’re being clever, the automakers will make sure they sell that inauspicious car at just the right time. If Tesla hits the number on June 30, at the end of the second quarter, then buyers of its cars only have until the end of September to secure the full credit. If it makes the sale on July 1, buyers enjoy the $7,500 until the end of the year. No surprise, then, that Tesla forums are full of speculation that Musk is delaying some US sales by inviting Model 3 reservation holders in Canada to go ahead and make their purchase official.

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