New bill to remove limit for $7.5k electric vehicle federal tax credit introduced as Tesla hits threshold

Tesla is likely going to be the first automaker to hit the 200,000th electric car delivery threshold in the US this quarter, which will initiate a one-year-long phase-out period to eventually remove access to the $7,500 federal tax credit for Tesla buyers.

But a new bill to remove the controversial 200,000 delivery threshold has now been introduced in Congress.

In the US, like in several other countries around the world, the federal government has long been offering an incentive for car buyers to buy electric vehicles in order to represent the value those vehicles have for the environment over gas-powered vehicles.

But the structure of the EV incentive in the US is unlike anywhere else in the world.

First of all, it takes the form of a $7,500 tax credit and not a direct discount on the purchase of an EV.

Secondly, most countries have a cap on the incentive in the form of a deadline or a limit of the total amount of money allocated to the incentive program, but the US instead implemented a limit of 200,000 vehicles per manufacturer before a phase-out period takes place.

The result is that it eventually ends up penalizing automakers who were first movers and invested more into electric vehicles since their customers will not have access to the incentives while automakers who were late to market with EVs end up with a competitive advantage.

It just so happens that the two first automakers to hit the threshold are likely going to be American automakers, Tesla and GM. Therefore, the U.S. federal government might end up having an EV incentive program that directly disadvantages the two biggest American electric automakers.

For that reason, there was an effort launched earlier this year to remove the threshold.

Now a new bill to officially remove the threshold has been introduced to Congress last week.

Rep. Peter Welch (D-VT) unveiled the bill H.R.6274 on Friday. He said about the effort via pluginsites.org:

“Transportation is the single largest contributor to greenhouse emissions in the United States. It is urgent that we transition to cleaner, more efficient modes of transportation. My legislation will make electric vehicles and their charging stations more affordable, while saving Vermonters money at the gas pump and reducing their environmental footprint. We are in a race for the winner of the technology for electric vehicles and this credit is going to help spur that.”

The new legislation is also far greater reaching than just removing the delivery threshold, which it replaces with a ten-year limit. It also will change the credit to a direct rebate instead of having to wait for your next income tax return and it revives the federal tax credit for charging stations.

The latest action on the bill is listed as “going to the House Committee on Ways and Means.” A Senate version is also expected to soon be introduced.

Unless the law is changed, Tesla is expected to be the first automaker to hit the threshold with deliveries this quarter – making the $7,500 credit available to buyers who take delivery this year.

Next year, Tesla buyers will see the credit cut in half for 6 months and then cut in half again for the second half of the year.

Electrek’s Take

I am completely on board with removing the delivery threshold since I think it unfairly disadvantages companies for being early adopters of the technology and taking the bigger risk by investing heavily in it before anyone else.

That said, I think they might be pushing it a little too far with the changes.

A ten-year limit is too long and probably unnecessary at the pace electric vehicles are improving in terms of cost.

It’s not that I don’t think EV buyers deserve it. As long as the cost of carbon emissions is not properly accounted for in some way, polluting products are going to be unfairly priced compared to non-polluting solutions.

Therefore, it might still make sense to incentivize EV sales 10 years from now.

But from a standpoint of trying to pass this new legislation, I think replacing the delivery threshold with a 10-year long period is going to be too ambitious to pass.

Hopefully, it’s a negotiation strategy and they end up conceding to 5 years in order to get it to pass, which I think would make a lot more sense.

5 years from now, battery cost will have likely dropped by another 20-30%, making electric vehicles competitive in virtually all transportation segments.

Though even with some concessions, I don’t know what the chances will be of this new legislation passing.

What do you think? Let us know in the comment section below.