Tesla and GM are set to regain access to tax credit worth $7,000 on 400,000 more electric cars in the US with new proposed reform of the federal EV incentive program.
EV federal tax credit
The federal government in the US has a tax program that provides incentive for buyers of electric vehicles that dates back from the Bush era, and it was expanded during the Obama administration.
It would give $7,500 in tax credits to every buyer of new electric vehicles.
However, the government put a cap of 200,000 deliveries of electric vehicles in the US for each automaker.
After they reach that threshold, it would trigger a phase-out period that would remove access to any federal tax credit for buyers of electric vehicles from those manufacturers in the US.
Tesla was the first manufacturer to hit the threshold back in 2018.
The program was successful in helping accelerate EV sales early on, but it was seen as flawed since both Tesla and GM have hit the threshold – and now they find their EVs less competitive in the US against foreign automakers that haven’t hit their threshold and buyers still have access to the tax credit for their electric vehicles.
Therefore, the program punishes automakers that were early in the transition to electric vehicles.
EV tax credit reform
With the Democrats taking the White House and the Senate in the latest election in the US, we have been expecting that they would bring back reforms to the EV incentives in order to fix the situation.
It’s something that was attempted a few times during the Trump administration, but it was always shut down by Republicans even though some of them were backing the efforts.
The Democrats have now officially introduced the bill, the Growing Renewable Energy and Efficiency Now (GREEN) Act, to reform the federal EV tax incentives, among other tax programs to help renewable energy.
Here’s the relevant part of the bill for electric cars:
The provision expands the qualified plug-in electric drive motor vehicle credit under Section 30D to apply a new transition period for vehicle sales of a manufacturer between 200,000 and 600,000 electric vehicles (EVs), under which the credit is reduced by $500. The provision replaces the current phaseout period (which begins at 200,000 vehicles) with a phaseout period that instead begins during the second calendar quarter after the 600,000-vehicle threshold is reached. At the start of the new phaseout period, the credit is reduced by 50% for one quarter and terminates thereafter. For manufacturers that pass the 200,000-vehicle threshold before the enactment of this bill, the number of vehicles sold in between 200,000 and those sold on the date of enactment are excluded to determine when the 600,000-vehicle threshold is reached.
In short, automakers that have met the threshold already would have access to a new $7,000 tax credit for 400,000 additional electric vehicles until a new phase-out period starts again.
While the bill needs to go through the legislative process, it is likely to be adopted since the Democrats now hold the House, the Senate, and the White House.
This specific reform has been proposed before. It’s not the ideal reform of the tax credits, and I could see better implementations, like removing the cap per manufacturer and instead having a total industry cap in order to incentivize automakers to bring EVs to the US faster, but it is certainly better than nothing.
It will be especially good for Tesla and GM whose EV buyers haven’t had access to the tax credit for a while now.
However, it is not ideal for those companies in the short term since now buyers are going to be expecting to have access to that credit in the near future, and they might postpone buying until then since it doesn’t look like the new $7,000 tax credit is going to be retroactive.
That could be a problem for Tesla in the coming months.
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