Tesla's Federal Tax Credit Gets Halved in January

Cars and Drivers

Published: July 12, 2018 12:35 pm

Last Updated: January 11, 2020 9:06 pm

Electric carmaker Tesla Inc. (NASDAQ: TSLA) hit a milestone this month. The company sold its 200,000th vehicle, an achievement that is both sweet and bitter.

The milestone sale means that the $7,500 federal tax credit a Tesla buyer now receives will be cut to $3,750 beginning January 1, 2019, and cut again on July 1, 2019, to $1,875. On January 1, 2020, the credit disappears for Tesla buyers.

The tax credits were included in the federal stimulus bill of 2009 and provided for a credit of between $2,500 to $7,500 on the first 200,000 all-electric or plug-in electric hybrids sold by a given manufacturer. The law went into effect in 2010 and was not repealed—to nearly everyone’s surprise—in the December 2017 tax bill.

Tesla, Nissan and General Motors are the only carmakers who had sold more than 100,000 qualifying vehicles by the beginning of this year (the Toyota Prius, the best-selling hybrid, does not count).

Tesla did not actually announce the milestone, but the company did change the incentives page on its website to indicate that the federal tax credit will wind down. The page also lists state tax credits or rebates to buyers.

The loss of the tax credit may not be a huge deal to affluent buyers of the Model S, which can cost north of $100,000, or the Model X, which begins at around $79,000. But the company’s make-or-break vehicle, the Model 3, is priced at around $35,000, and the eventual loss of the tax credit could have a negative impact on the 400,000 or so orders Tesla has received for the car. GM’s Chevy Bolt is priced at about the same level as the Model 3, and the full $7,500 credit is likely to be available to Chevy buyers at least through next year.

When the state of Georgia ended its state tax credit of $5,000 for buyers of an electric vehicle, sales plunged 90% over the next six months, according to a December report at USA Today.

Tesla stock traded down about 1.4% in the noon hour Thursday, at $314.60 in a 52-week range of $244.59 to $389.61. The stock’s 12-month price target is $290.32.

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