Tesla to gain access to $ 7,000 tax credit on another 400,000 electric cars in the US with new incentive reform

Tesla and GM will once again gain access to $ 7,000 in tax credit on 400,000 more electric cars in the U.S. with the new proposed reform of the federal EV incentive program.

EV federal tax credit

The U.S. federal government has a tax program that encourages buyers of electric vehicles dating back to the Bush era, and it was expanded during the Obama administration.

This will give $ 7,500 tax credits to every buyer of new electric vehicles.

However, the government has set a limit of 200,000 deliveries of electric vehicles in the US for each car manufacturer.

Once they reach the threshold, it will result in a phasing-out period that will remove access to any federal tax credit for buyers of electric vehicles from U.S. manufacturers.

Tesla was the first manufacturer to reach the threshold in 2018.

The program succeeds early in accelerating EV sales, but it is considered flawed as both Tesla and GM have reached the threshold – and now they find their EVs less competitive in the US against foreign car manufacturers who have not reached their threshold and buyers still have access to the tax credit for their electric vehicles.

Therefore, the program punishes car manufacturers who were early in the transition to electric vehicles.

EV tax credit reform

While the Democrats took over the White House and Senate during the most recent US election, we expected them to bring reforms back to the EV incentives to rectify the situation.

This is something that has been attempted several times during the Trump administration, but it has always been closed by Republicans, although some of them supported the efforts.

Democrats have now officially introduced the bill, the Growing Renewable Energy and Efficiency Now Act (GREEN), to reform federal EV tax incentives, including tax programs to help renewable energy.

Here is the relevant part of the bill for electric cars:

The provision extends the qualified electric propulsion credit under section 30D to apply a new transition period for vehicle sales from a manufacturer between 200,000 and 600,000 electric vehicles (EVs), under which the credit is reduced by $ 500. The provision replaces the current phase-out period (starting with 200,000 vehicles) with a phase-out period starting in the second calendar quarter after reaching the threshold of 600,000 vehicles. At the beginning of the new phasing-out period, the credit is reduced by 50% for one quarter and terminated thereafter. For manufacturers who pass the threshold of 200,000 vehicles before the entry into force of this bill, the number of vehicles sold between 200,000 and those sold on the date of entry into force is excluded to determine when the threshold of 600,000 vehicles is reached. word.

In short, carmakers that have already met the threshold have access to a new $ 7,000 tax credit for 400,000 additional electric vehicles until a new phase-out period begins again.

While the bill must go through the legislative process, it is likely to be passed, as Democrats now own the House, Senate and White House.

Electrekthey take

This particular reform has been proposed before. This is not the ideal tax credit reform, and I can see better implementations, such as removing the per cap per manufacturer and instead having a total operating limit to encourage car manufacturers to bring EVs to the US faster, but it is certainly better than nothing.

This would be especially good for Tesla and GM, whose EV buyers have not had access to the tax credit for some time.

However, this is not ideal for the business in the short term, as buyers will expect to have access to the credit in the near future, and they can postpone buying until then, as it does not look like the new $ 7,000 tax. credit is going to be retroactive.

This could be a problem for Tesla in the coming months.

---

Subscribe to Electrek on YouTube for exclusive videos and subscribe to the podcast.