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Electric Sticker Shock: The Electric Vehicle Federal Tax Rebate Winds Down, and Mass Market EV Models Face a Quandary

After all the auto makers went through earlier this year to save the federal $7500 EV tax credit to make their EVs affordable, they’re back at square one again, this time because they’re reaching the production goals set in the law that created the credit.
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Between the higher prices they cost, the extra home charging equipment they need, and the reluctance or reticence we all have about purchasing them, buying an electric car nowadays does present its challenges. As if the car purchasing process isn’t complicated enough, the prices of some of the most popular EV models presently offered are about to become more painfully expensive unless Congress does something about it.
- $7500 credit ser to expire soon for GM and Tesla
- Consumers have other choice options with other makers and the states
- Since Tesla willl no longer be eligible they’ve slashed prices to help buyers
- Democrats sent a bill to extend the credit and raise the caps on production

After all the auto makers went through earlier this year to save the federal $7500 EV tax credit to make their EVs affordable as Washington snaked a tax cut bill to passage and signature, they’re back at square one again, this time because they’re reaching the production goals set in the law that created the credit. This won’t kill the electric car, again, but it certainly will throw a monkey wrench into the car industry’s plans and projections.

Congress passed the Energy Improvement and Extension Act of 2008 to give consumers a $7500 tax credit if they purchased a new electric vehicle. Earlier this year Congress contemplated killing the credit, so in desperation utility companies lobbied Congress with car makers to extend the rebate. Congress voted to extend the expiration of that law, but car makers are now making enough electric cars to satisfy the conditions of the law. Here’s the problem that will cause popular mass market models like the Chevy Bolt and Tesla Model 3 to skyrocket unless something is done.

The provision in the law requires that once a manufacturer reaches a goal of 200,000 EV units produced of the tax rebated electric vehicle, the $7500 credit comes to an end scaling down to zero.

According to Automotive News, both Tesla and GM are on the verge of that 200K mark. While Bolt buyers still have time up to early 2019 to take advantage of the tax rebate, Tesla is somewhere at the 193,000 mark and is scheduled to surpass 200K as soon as this year in July. Coming in as the next closest are Nissan and Ford with around 120,000 and 108,000 units respectively, and aren't expected to reach 200,000 for several years.

This still isn’t as close to where we’re supposed to be with the total number of electric cars on the road. In 2011 President Obama wanted the US to be the first country with 1 million electric vehicles on the road by 2015. China will probably beat us to it if not already. We’re somewhere around over a half million produced on the road so far, and won’t reach that 2015 target until next year.

EV buyers still have purchasing and rebate options available elsewhere. Overall buyers do have some time before the fed incentives are halved to $3,750, then halved again to $1,875 before the fed rebate is eliminated completely.

EV buyers also need to consider that some states are still offering rebates as well that certainly help with a way lower EV price, but will now instead offset a price increase from no fed credit. From Energysage.com here’s a list of states and localities that are still offering EV tax incentives as of 2018.

What is most frustrating about this rebate rollback is there were people on the Tesla Model 3 reservation list that placed their expectations and held out hope for the bread and butter Model 3 version that probably will never materialize until later into the car’s production cycle, if ever. That could now be years away. That rebate could have made a stripped Model 3 with a MSRP of $35,000 much cheaper.

This was another promise that Tesla couldn’t deliver: the $35,000 Model 3. Between production delays and the company burning through operational cash like it’s going out of style, a cheap Model 3 would have cost the car maker money instead of turning a profit per unit. That’s why the average Model 3 now coming off the line is about $49,000, and why Tesla decided to move the car in the opposite direction by starting production of the high performance variants of the car.

And in the end it was the affluent well healed early adopters who mostly took advantage of the rebate and benefited the most from it. Now that these EVs are becoming palatable to working and middle class consumers who need a rebate more than early adopters to afford them, there soon will be no more fed rebate left. And at $7500 more, a $55-60K electric car puts the Model 3 not at, but closer to a price point of her flagship big sister the Model S, and when you think of it, other imported luxury cars that working class can’t afford as much.

Also see: Mercedes PHEV Move Only Prolongs an Inevitable Problem. What do you think the Congress should do about the EV Tax Credit?


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Comments

Seeing how the people getting the tax credit are already rich how is it going to impact anything?
Congress should slowly reduce the EV Tax Credit every year so it's phased out by 2025. As the technology advances, there will be less need for a government subsidy. But to suddenly turn it off will drive up the price and hurt adoption of the technology.
Actually the incentive does not stop immediately. But $7500 in sent to continues for the quarter that they reach 200000 units and continues for 2 quarters afterwards. Furthermore the next 2 quarters only drop down to 50% of the incentive.
Please do away with the “rich man’s” rebate for expensive new electric vehicles. To use EV US Federal Income Tax rebate, a person has to have taxable income over $75,000.00
Not completely true. A majority of electric car buyers, approximately 80%, lease the car instead of buying. In that case the leasing company gets the $7500 tax incentive and should reduce the monthly lease appropriately. Leasing is frequently recommended since the technology is changing so quickly.
Guy thanks so much for this very good point that I sometimes assume my readers know. The lease company gets the credit, but passes to the lease signer. Folks like it was 100 years ago, people leased electric cars back then for the same reasons now. Please don’t ever purchase an electric car. LEASE
I don't agree that leasing is the only option for electric cars. There are some definite advantages, especially for subsidized vehicles, and for new vehicles that use unproven technology, and for those people who regularly get a new car every 2-3 years. But there are hidden costs and fees in car leases, and if you drive past the allotted mileage the extra costs can ruin the advantages mentioned above. I leased my first two volts, and had to stop driving them with months left on the lease because the mileage charges would be too costly. I then bought my current Volt and Cadillac ELR used, with the heavy depreciation gone.
Dean, glad you like your Volt and ELR. I like both vehicles. My point is that with rapid technology advances, there is generally a stronger interest in turning over EVs sooner than normal. The electric range may double in three years, and the charging speed double as well. For many, if not most, these are pretty impactful improves. A second reason is that many people may not be able to take advantage of the tax incentive, plus it may take as long as a year after the purchase to receive the benefit. All that being said, I did not take my own recommendation. We purchased our EVs, and I think we regret it. Leasing would have been better. Do as I say, not as I do...
Yeah Guy, leasing is definitely one of those deals that if your car owning needs match the benefits of a lease then it can be a great deal. I had not thought about the battery range and charging speed doubling. These advancements have not trickled down to PHEVs yet, but the greater depreciation of cars with leading-edge technologies definitely showed a benefit of leases for those cars when buying new. It does make them better purchases as used cars.
“ I leased my first two volts, and had to stop driving them with months left on the lease because the mileage charges would be too costly.” Sounds more that you didn’t carefully read the fine print or You didn’t negotiate the lease terms or You didn’t have a good estimate of how much driving you were going to do, that with even the second car you went over the mileage. I stand by what I tell my readers that they listen to me. NEVER PURCHASE AN ELECTRIC CAR. NEVER. Even 100 years ago they leased electric cars more than bought them. Even Henry Ford of all people leased his wife’s electric over the years, to trade it in every so often to get her a new one. Nobody wants to be stuck with bad batteries while the purchase warranty runs out. Then your stuck. With a lease at worse you drop the keys at the end of the lease and walk away . . . I’ve learned my own lesson with my gas car that I won’t purchase a new car ever again period. . Under warranty and 65,000 miles I needed an engine rebuild. Unless I’d email BMW in Munich to address and complain that luckily they were responsive, BMW NA would have left me at the curb. I’m a BMW man tried and true, but my faith in the brand was severely shaken. But I learned my lesson: my car will be the last new purchase I’ll ever make. The next new or CPO will be leased. FOREVER. Until death us do part.
You are right Al. It was my 1st (and 2nd) lease, and I was not familiar with how much the over-mileage costs would be, and importantly how much I was driving. The first Volt had a 30K mileage cap, and the later second one I negotiated with 45K miles, but it ends up that I drive about 20K miles a year, so I ran out of mileage on both Volts before the end of the 3 year lease. I did not have any warranty-covered problems with either car. I did have a transmission bearing fail on the current Volt (which I bought) at 65K miles, but it was covered under warranty.
Hi Dean. Thanks for your comment. I should qualify what I said that sometimes we forget what the article was that started the discussion. When I mean never buy a electric car, I mean don’t buy new if you can avoid it. Now if the car is old, and you found an example for sale at a great price like Tyler Hoover did with that Model S on that piece I wrote, then of course. And Ive learned from friends that leases truly can be negotiated, especially if you come back as a regular customer, to avoid these problems. Based on your first experience Dean, a good car salesman would have looked out for you to make sure you either had good terms starting, or amend the terms before turning in. By the way, we’re not done with the Volt issue. It is being cancelled, its just that there’s a procedure GM goes through before it actually does. So I was technically wrong but . . . But once the announcement’s made that the car is going to committee, its already DOA. Ive been so busy Ive haven’t time to finish collecting my evidence. But I respect your position. Stay tuned. Thanks Dean! Good man!
After owning a couple, I’d buy another if there wasn’t a tax credit. My wife and I just cant imagine owning gas cars again.
Same for our family. All 4 won't go back to gas cars.
I bought my used Tesla and didn't get any tax credit. Not a fan of government subsidies for anything, really. (I know, the argument is always that, "Hey ... they already pay so much to oil companies!" But how about we make an effort to stop that AND other ones?) If you seriously can't afford an EV without that $7,000 credit or what-not? Then you really just can't afford the car, IMO.
Be careful with this. This skirts right into the heart of politics. Car companies are seriously lamenting after raising car prices the last 10:years, too quickly in their assessment, NOT consumer advocacy, because they’ve just realized they’ve lost a whole demographic of working class people who can no longer afford a new car. The car companies are scared! They lost millennials and the working class! We are becoming a third world country when the people who make the cars can no longer afford to buy them. You take care of the working class first then everybody else, not the other way around, that was Henry Ford’s business and community model! And it’s the same people in Washington oppose mándates and subsidies who created this situation. Do you know why FCA Chrysler has barely come out with a new vehicle, that it clings to 10 year old cars in its lineup? Because they know if they spend that kind of money on development their customer base will no longer be able to afford them! When they go out of business and soon, that’s when working class people can’t buy a Dodge Avenger!
I agree with the comment about the tax rebates being valuable for non-rich people. The first EV car that I got was a Chevy Volt because with the tax incentives the lease price dropped in half. Which meant that I could afford to have a plug-in hybrid for the monthly price of a Honda Civic. Even though the plug-in hybrid market is not huge today, it probably would not have survived if there were not the incentive plans. With the current administration I am not sure if the federal support plan will be revived or extended, but I think that EV support is a wise investment, because low oil prices could turn around tomorrow, and without economical alternatives it could potentially cost us 10X as much as these subsidies that grow the EV market.
Rich or not, most early adopters who purchased an EV spent money for home charging stations and took a depreciation hit on trades that far outweighed the tax credit. If they had not done that, we wouldn't have the second generation EVs we have today. I've always argued the tax credits were the wrong type. Instead of giving tax credits to EV buyers, the money should have been given to businesses installing charging stations at their locations. This would eliminate range anxiety and boost sales by default. In the end, a deal is a deal and fair is fair. Let the subsidies die as intended. The folks who are getting on the band wagon from now on will lose out. Tough. I've been leasing EVs for a long time and will continue to until the technology reaches some kind of plateau.
I disagree about the idea that money should have gone to businesses to install chargers. Commercial chargers were installed at a relatively huge cost ($10K-15K), and they were painfully slow at either 110V (Type 1- providing 3miles of range per hour) or (Type 2 - 7 miles of range added per hour). Even now faster chargers only work for some new cars, and there is more than one standard for fast charging. Most EV owners(or leasees) charge at home or work anyway, and type two chargers for home have dropped down to a couple hundred dollars. With the EV tax credit, everyone who leased their cars got the benefit, because the lenders got the tax credit, and in turn cut the monthly lease price in half. The majority of the first Volts and Leafs were leased.
Point taken, and I agree, not a big fan of charger rebate. See my comment steps above about mandates. Hindsight is always 20/20. But bottom line if we had done it the home charger way, it would’ve helped, but not even to abate the upcoming public charging station shortage crisis. Most Model 3 owners are apartment/condo dwellers, which is another reason they couldn’t do free charging for them. Look, we need to get middle and working class into these cars if this is going to work, and gas car prices alone are too expensive for them, let alone EVs. They have enough problems taking out a 96 month loan for an SUV. Some are still recovering from the mortgage crisis! They need help and this is the best option they have.
I am not sure that having an apartment or condo would be a deal killer for charging at home. Most parking spots have lights, which means that 110V is available, and I think that there are several incentive programs available for installing public chargers that property owners could benefit from and provide 220V chargers at their apartment/condos. For the rare times that I did use a public charger the problem was not as much availability, as speed. Around here most public parking garages and even shopping malls have level 2 chargers, and Chargepoint and others offer realtime charging station status maps that show the current availability of nearby chargers. And that solution totally makes sense for Tesla Superchargers, and fast DC chargers that give you an extra 80-150 miles of driving in 30 minutes, as opposed to me adding an extra 2-4 miles of range in that same time. As far as getting lower-middle income people into EVs goes, there are now a glut of off-lease Leafs, Volts, BMW i3s, Fiat 500Es and other electric cars that originally cost $$25K-45K and now can be bought for between $5K-$12K for low mileage used models. Power to the people!
Like everything else about EVs 5 years ago apartment living was a deal killer for many properties with tenants who wanted charging stations. I tried when I was on the Model S list. I believe it was Houston Texas that started a program that gave building owners incentives to install stations. Here in LA it probably would still be difficult for my building manager to install a station in a crowded garage and parking lot. And it’s the same dynamic with Level 2 chargers. I hear they’re crap.
I used to manage building maintenance for UPS and although you would have to work out the permits and wiring to provide a 220V outlet in a garage or parking spot it should be a fairly easy proposition for most places. The actual cost of electricity is minimal. I am not sure what you mean by Level 2 chargers are crap. Do you mean that they are too slow to be useful, or unreliable? I have had the same level 2 charger for 6 years and I haven't had a single problem with it. And current level 2 chargers cost much less, are more convenient, and are easier to install than earlier models. You can now find basic level 2 chargers for $159 on Amazon.
Crap as in too slow.
The Federal Tax Credit is not open to everyone. In order to get the federal credit you have to have sufficient income to have a $7,500 tax liability in the year you place the vehicle in service. It is nonrefundable meaning it cannot take your tax liability below 0 and you cannot divide the credit over multiple years. It is use it or lose it. To say that you have to be rich to take it is not fair in my opinion either though. I took it for the 2017 tax year and you would need an income of somewhere around $60,000 (very rough estimate) to take the full credit. I would not call that rich by any means.
They should modify it by combining the remaining tax credit pools that are currently allocated to individual manufacturers and make it a shared pool. That way you don’t have manufactures having to complete against cars that are effectively $7,500 cheaper, since that would obviously be a severe handicap.
The trick is that initially it was costing twice as much to create and build EVs and PHEVs than regular cars, and consumers were most likely not going to pay the difference. The manufacturers got tax credits for building the EVs, and consumers got their price incentives as well.
Fine, get rid of tax credit AND all the subsidies to fossil fuel industry. Then tack on a few thousand dollars tax to every new fossil fuel vehicle to help offset some of the damage they subject the rest of us to.
This will become a viable option down the road when gas and EVs switch roles. Similar to a gas guzzler tax, you’ll pay a fossil fuel tax if you insist on buying a gasoline car, the few left that’ll be made to custom order.
It is Sunsetting exactly as intended years ago when passed. After 200,000 unit sales, it steps down and then down again. Toyota experienced this ratchet years ago and yet the Prius continues to sell. Subsidies generally support products that should not be consumed (Oil) or provide profits that would not normally flow to the producer (sugar). EV subsidies function as intended which was to jump start sales and allow some producers time to work out kinks (GM, Nissan, BMW, VW, etc) while others thrashed about. Any brand that relies on indefinite subsidies while others get their act together not a producer worthy of my hard earned tax dollars.

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