Electric Vehicle Tax Credit May End Sooner Than Planned – Why It Might Not Mean the End of EVs

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The Electric vehicle fanbase is in an uproar over a possible end to a special tax credit. Why they should look at the numbers before hitting the panic button.

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The electric vehicle advocacy media became amped up this week when lawmakers made it known in a tax bill summary that the electric vehicle tax credit may be eliminated after the 2017 tax year. At first blush, that seems like a terrible blow to future electric vehicle sales. But is it? Not by our math.

The federal tax credit applies to all manner of electric vehicles and its value is dependant upon the battery capacity of a given electric vehicle. The October sales champ, the Chevy Bolt, earns the full $7,500 tax credit, as does its stable-mate, the Chevy Volt, also a top seller. Other popular EVs, like the Toyota Prius Prime Plug-in hybrid electric vehicle, have a lower credit. In the case of the Prime, it is $4,502. The credit can be used by any person who purchases a new electric vehicle and whose tax situation allows for the credit to be applied.

There’s a fairly narrow window of people who get 100 percent of the federal tax credit: You’d have to earn enough to have $7,500 to actually deduct, but not so much that the alternative minimum tax kicks in and eliminates that tax filer’s ability to apply more credits and deductions. It applies mostly to those shopping for mainstream vehicles priced in the $30Ks, like the Prius Prime, Volt, and Bolt, but has less importance to those shopping for a $150,000 Tesla Model S. When a new EV is leased, the credit is used by the automaker to reduce the lease costs and any buyer can benefit.

The law that created the electric vehicle tax credit set limits on the number of vehicles that an automaker could produce and still have its models apply. The limit was set at 200,000 U.S.-sold electric vehicles. Once the limit is reached, the tax credit on that brand’s models does not immediately end, but rather, begins to phase out over a year or so. The most talked-about electric vehicle now in production is the Tesla Model 3. Tesla is holding deposits and reservations for a half-million Model 3s right now. Assuming Elon Musk’s timeline for its delivery is anywhere near accurate (stop laughing), the Model 3 alone will total 200,000 units delivered by Q3 of 2018. That is less than a year from right now. Adding in the already-sold Tesla Model S and Model X vehicles, plus the ongoing sales of those models and Tesla will hit the maximum of 200,000 sometime in the next six months or so.

This isn’t news to folks who track EV sales closely. Inside EVs is a leading expert in EV sales. The publication long ago began a quest to wheedle out the Tesla sales figures each month. Tesla opts not to provide this information until forced to do so by SEC regulations, so Inside EVs uses vehicle registration data from key states to guesstimate the Tesla sales of each model each month. Nobody has a better understanding of Tesla sales than Inside EVs and they predicted Tesla would hit 200,000 EVs sold in the U.S. by Q2 or Q3 of next year (four to seven months from the time of this story). With the ramp-down of the credit over the subsequent four quarters. The expectation has always been that the tax credit would begin to drop to half its value by Q3 or Q4 of next year and be gone entirely for Tesla models by Q3 of 2019. A similar story in Clean Technica reached that same conclusion.

This may be a surprise to those following EVs from a distance, but the top-selling EV in America in October was not a Tesla model. Rather, it was the Chevy Bolt, which had sales of nearly 3,000 units. In fact, the Bolt outsold the combined total of all of Tesla’s three models, the Model S, Model X, and Model 3 last month.  The Bolt has now seen three consecutive months of sales above 2,000 units and has seen an increase in sales every month for the past seven. Right now, the Bolt is the hottest-selling EV in America and the Chevy Volt is close behind. Chevy is on track to break 40,000 EV units sold this year and has already sold approximately 122,000 EVs in prior years. Like Tesla, Chevrolet will also hit the 200,000 unit mark in the coming year. And like Tesla, Chevrolet’s EVs would begin to lose the federal tax credit eligibility in 2018 and by 2019 no longer be eligible for any federal credits after the gradual reduction was completed.

Without a doubt, the taxpayer-funded $7,500 tax credit has been a major factor in bringing electric vehicles to maturity. Now heading into the eighth year of modern electric vehicles in America, the tax credit, along with the thousands in rebates and credits states have kicked in, helped to give electric vehicles the toe-hold in the marketplace they needed and allowed automakers time to design cost-saving technologies. That was always the intent of the financial support for these plug-in green vehicles. If stopping the tax credits in the ninth year of modern EVs rather than the tenth is cause for panic, we are just not seeing it. Particularly when one considers that this is just one of the many price supports EVs and their buyers currently enjoy.

Others disagree. Automotive News quoted Xavier Mosquet, senior partner at consultant Boston Consulting Group, who said the early elimination of the federal tax credit will, “…stop any electric vehicle market in the U.S., apart from sales of the highly expensive Tesla Model S.” Mosquet added, “There’s no Tesla 3, no Bolt, no Leaf in a market without incentives.” If Mosquet is correct, those models were doomed to die in late 2018 or early 2019 anyway. We have a more positive viewpoint. Given the slow pace of change in Washington, our reading of the tea leaves is that not much will change in the coming few months. If that is the case, the federal electric vehicle tax credit program will begin to wind down on its own, as has been the plan all along.