By on June 25, 2018

2018 Chevrolet Bolt - Image: Chevrolet

Should Tesla hit its vaunted 5,000-Model-3s-per-week production target at the end of this month (a figure that means nothing if it can’t be sustained over the long term), the electric automaker faces another hurdle: the impending phase-out of the $7,500 federal EV tax credit.

While Tesla isn’t the only automaker staring down the barrel of this incentive loss, it’ll be the first to cross that line. Estimates place the phase-out point in July, though the taps only begin turning off two quarters after the automaker hits the 200,000 plug-in vehicles mark. Unlike some of its its electric rivals, however, the impact on Tesla won’t be as painful.

That buffer is a higher retail price than most of its competitors, even for the lesser Model 3. Also helping Tesla is the brand’s curious reputation as being the only builder of “pure” electric vehicles — ie, vehicles not tainted by the existence of internal combustion vehicles in the brand’s portfolio.

Many buyers who preach the EV gospel online will only be seen driving a Tesla, regardless of the fact that a Chevrolet Bolt or Nissan Leaf also boasts zero tailpipe emissions. A curious thing.

According to Automotive News, Tesla had sold an estimated 193,344 vehicles in the U.S. by the end of March 2018, placing its tax credit cut-off sometime next month. This means the available federal credit drops by half for buyers starting January 1st, 2019. After a half-year with $3,750 dangling in front of buyers’ faces, the credit halves again before its elimination six months later.

2018 Nissan Leaf

General Motors, which sold an estimated 181,062 plug-in vehicles by the end of March, should hit the phase-out mark early next year. Nissan, which had 120,119 plug-ins under its belt at the end of March, should become the third automaker to see its credits cut off, followed by Ford. Depending on your attitude towards the use of tax dollars, the phase-out will either be met with cheers or jeers.

The staggered nature of automakers hitting the phase-out point means late adopters of electric and plug-in powertrains stand to benefit from being last, at least on the low end of the price scale.

“The groundbreakers, the people who forged ahead and got these products out there first, could be at a significant disadvantage now,” Rebecca Lindland, executive analyst at Kelly Blue Book, told Automotive News. “I don’t think it’s fair to reward a company that hasn’t been as innovative with an incentive that begins when someone else’s ends.”

Plug-in vehicles of all types currently make up about 1.2 percent of the U.S. auto market, with IHS Automotive predicting we’ll only see 10 percent market coverage in 2025. A 2016 study by Gil Tal, a researcher at UC-Davis, found that 29 percent of plug-in vehicles bought between 2010 and 2014 wouldn’t have left the dealer lot had it not been for the tax credit. Of those vehicles, Chevrolet’s Volt stood out as a vehicle significantly impacted by the incentive. 40 percent of Volt buyers claim they wouldn’t have bought one had Uncle Sam not given the MSRP a haircut. In contrast, only 14 percent of Tesla buyers said the incentive swayed them at all.

Currently, the all-electric Chevrolet Bolt stickers for $37,495, while the Model 3 starts at $44,000 and climbs upward in a hurry. Tesla isn’t expected to start building the base, $35k version in any large numbers until the beginning of next year. Yes, Teslas remain status-boosting accessories for well-off (or at least financially comfortable) brand loyalists and enthusiasts, regardless of what Elon Musk promises for the future. A reduced or eliminated financial incentive matters less.

It’s no wonder GM lobbied the Trump administration to extend the federal tax credit. Once the Bolt loses its government incentive, the closest comparable model in terms of range and sticker price — sold by an automaker with remaining credits —  stands to look a lot more enticing. In this case, that vehicle would be the longer-ranged Nissan Leaf, due out at the end of the year.

“Will it make some consumers look at a brand that still has the tax credit eligible? Absolutely,” said Rachel Shue, an automotive consultant with IHS Markit. “But are some consumers going to return to the place where they bought their first EV because of new and exciting products? Absolutely as well.”

It’s not just the disappearing government incentive that stands to shake up the retail and lease price of electric vehicles. As production costs dip further and buyer demand rises, manufacturers will be encouraged to actually try and make money from the sale of EVs, or at least stem the loss. Tyson Jominy, director and head of automotive consulting at J.D. Power and Associates, nicely illustrated this in a weekend Twitter thread.

[Image: General Motors, Nissan]

Get the latest TTAC e-Newsletter!

44 Comments on “Tax Credit Blues: Automakers Grimly Await a Looming Phase-out...”


  • avatar
    FreedMike

    I think I’ll sit this thread out except to say one thing: Teslas aren’t going to stop selling without the tax credit.

    • 0 avatar
      gasser

      I agree that Teslas won’t stop selling, but I have several friends who signed up for the model 3, figuring the cost of the vehicle using the tax credit in their cost calculations. Since the advertised $35K model 3 has failed to materialize, and the tax credit is decreasing, I think many, many deposits will be cancelled, once the news of falling tax credits is widely publicized.

      • 0 avatar
        krhodes1

        This has certainly been the case at my office. Several people who had deposits down have canceled once the realization that they absolutely were not getting a Model 3 for effectively $27K sank in. No way can a bunch of relative young’uns living around Boston afford more than that on a car even if they don’t have to pay for gas.

        • 0 avatar
          civicjohn

          I just wish some institutional shareholder would hold their feet to the fire and get a semi-honest read on existing reservations. But, that probably won’t ever happen.

      • 0 avatar
        Vulpine

        @Gasser: Depending on their position in line, once Tesla crosses that mark, your friends should have a total of 9 months to receive at least some tax credit and possibly a year, considering how Tesla is attempting to game that roll-down. This does assume that the credit isn’t re-instated, which seems a distinct possibility though isn’t guaranteed.

    • 0 avatar
      28-Cars-Later

      I agree Freed, although I suspect the other models EV will see even more decline.

    • 0 avatar
      TW5

      The issue is that demand subsidies tend to be captured by producers (counter-intuitively); therefore, the elimination of the subsidies usually puts downward pressure on prices and profits.

      Tesla could be unaffected because of their unique position, but the rest of the manufacturers and their investors are losing their place at the federal trough.

      • 0 avatar
        28-Cars-Later

        I will be interested to see if the mfgs follow suit on price decreases (and probable per unit losses) or simply accept theoretically profitable low volume production.

    • 0 avatar
      Maymar

      I’ll tell you this much – we recently had a regime change in Ontario to a populist business-friendly/environmentally-apathetic (depending on which side of the aisle you’re on) premier, and in the week or so leading up to the election, Tesla delivered a ton of Model 3’s in the Toronto area. They even rented out a portion of a local convention centre to use as delivery space. I think the general consensus was they were going to get as many of those units delivered in case the local tax credits ($14k/unit currently, I believe) dried up.

      • 0 avatar
        civicjohn

        @Maymar, I had been reading that with the recent election it was potentially going to be a situation where the pretty generous tax credits were going to go away.

        Do you have any further details?

        • 0 avatar
          Maymar

          Sorry if I wasn’t clear, yes, that’s basically what I meant – eliminating or heavily reducing the tax credits seems fairly likely with Doug Ford in office (if not his first priority), and Tesla seems to have planned accordingly, by getting as many deliveries through in Ontario before any legislation can go through that might cause some deals to cancel.

    • 0 avatar
      arthurk45

      What is going to hit Tesla sales is a combination of superior models from the professional automakers, which even as we sit, with none in the showrooms as of yet, have alreadysurpoassed Tesla’s aging an often dopey technology ($68000 to repar a small dent in a fender?) bateries that have a strong tendency to ignite , sometimes for no reason at all, an Autopilot in which there is nothing automatic about it,and which has proven it is a lethal system which must be banned. Tesla’s battery charging network is already being challenged by an open non-proprietary CCS worldwide standard system that can rechareg twice as fast as Tesla Superchargers, and which will vastly outnumber Tesla chargers, since it will have to support 40 times more electric models.Even battery cooling is poor for Tesla’s,which quickly lose power as theri batteries,motors and controllers overheat. Tha was a crazy remark by Rebecca Lindland. pparently she doesn’t know much about the EV business – Tesla has been receiving enormous amounts of money from other automakers who were not producing EVs.What’s the virtue in that? Tesla has not advanced the technology of the electric car – their cars are unreliable, ridiculously expensive and complicated.

  • avatar
    SCE to AUX

    Probably more significant is depreciation, and the fraction of EVs that are leased – so it’s important to parse the EV market a bit.

    Tesla has several advantages at this point: their cars are purchased, not leased, they retain higher resale value, have a higher transaction price, their battery degradation is the lowest in the industry, they have 2/3 of the BEV market share, their cars look and perform the best, they are vertically integrated for battery production, and they have a subset of cult followers.

    It does not help Nissan that nearly all Leafs are leased (indicated low confidence in their technology), resale values after 3 years are in the 25-35% range (even after subsidies), their batteries degrade a lot, and their cars still look dorky.

    Can’t say much about the Bolt – it’s a decent car with great range, but it’s still a penalty box.

    • 0 avatar
      geozinger

      Tesla vs. legacy producers: Don’t you think Tesla has to go “all-in”, while the other auto mfrs have their other lineups to fall back on?

      I was curious to see if Leaf 2.0 would have gained more capability, but it appears we’re still in “baby steps” mode. Agreed, the Bolt is a good car (horrible name, though), maybe GM will break some molds and roll out a full-sized BEV Cadillac sedan to challenge Tesla (and others). But I’m not holding my breath waiting for it.

    • 0 avatar
      civicjohn

      SCE,

      According to EM, they are trying to put a Model 3 lease program in place, and S and X lease programs are already in place, just visit the website. It’s not the best thing from a balance sheet perspective, but they need that option for reservation holders.

      What I did not know is that Tesla has tax credits in the state of Nevada, and most recently MGM casinos were a buyer of those credits.

      https://www.usnews.com/news/best-states/nevada/articles/2017-12-21/tesla-tax-breaks-topped-150m-in-nevada-in-fy2017

    • 0 avatar
      krhodes1

      The subsidy tax credit means that a Leaf has nearly 33% depreciation just by not being a new car, then they depreciate somewhat normally from there. If you put a $7500 tax credit on a Honda Accord you would see exactly the same effect.

      Their lease rate is crazy high because Nissan leases them crazy cheap. My now Tesla-owning buddy started out with a lease because he was able to get it for something well under $200/mo with not a cent upfront for three years. That is a cap cost of something like $15K and a 0% interest rate. You would have to be insane not to lease at that price. And I hate leasing as a general rule.

  • avatar
    healthy skeptic

    This puts me in an interesting dilemma. My Model 3 res spot has already come up, so it’s now basically an open invitation to order anytime. Although I could afford the car right now, my plan was to wait a year or two, until my financial situation improved further, and the car presumably improved as well. (More feature, better build quality, issues ironed out.)

    However, the tax phase-out effectively penalizes me for continuing to save money, since it will raise the price of the car even as I save.

    Speaking of which, am I the only one here on TTAC who still has a Model 3 res? Seems like a lot of folks have already cancelled.

  • avatar
    Clueless Economist

    I predict the average purchase price of EV cars will decrease by $7500 when the subsidy goes away.

  • avatar
    28-Cars-Later

    Toyota’s hybrid strategy looks even better.

    • 0 avatar
      HuskyHawk

      Absolutely. EVs are a poor fit for most of the U.S. market. That isn’t going to change.

      • 0 avatar
        28-Cars-Later

        Very much agreed, I have argued as such for some time.

        • 0 avatar
          krhodes1

          I think electrics are and will be an increasingly important part of the automotive landscape, but they simply are not the second coming of Jesus, and won’t be anytime soon baring some sort of break though in battery tech (which I am not holding my breath for).

          If they fit your use case, I think they can be great. As I have said on here many times, if I still had a daily commute I would probably have the cheapest electric I could get my hands on to do it in. But currently the savings on operating expenses RARELY makes sense when you look at the increase in purchasing costs and the little inconveniences that inevitably will crop up.

    • 0 avatar
      TW5

      Yeah, prior to the oil price collapse and the corresponding CUV sales explosion, mild hybrid systems were the way to go. The new Civic makes 32/42 with the 1.5T four-cylinder, which is 36mpg combined. To reach CAFE 2025 targets, Honda merely needs a 10%-15% boost in city fuel economy, and a few credits for LED headlamps and eco-refrigerant, and they are set. Economy passenger cars don’t need a lot of hybrid propulsion. In fact, Toyota surmised they could get the Corolla and other cars in compliance just by using the new Atkinson VVTi technology on their four-cylinder engines. Maybe that will happen.

      Unfortunately for the manufacturers, consumers are gravitating towards CUVs at a much faster rate than anticipated. Meeting the standards with CUVs is going to be more tricky because the combined mileage targets for light trucks exceed the hwy fuel economy of most CUVs. Stronger hybrid systems will be necessary, particularly since CUVs are heavier and many consumers also expect AWD.

      The oil price collapse of 2014 has rearranged the auto landscape, and it’s putting a lot of pressure on the manufacturers, especially with sales of non-compliant vehicles booming like Wrangler, 4Runner, etc. Congress needs to tap the brakes on CAFE 2025, and see if they can come up with a less intrusive system.

  • avatar
    "scarey"

    Didn’t I read that you can get a Honda (Insight ?) hybrid for $23,000 ? That sounds like the way to go in electric vehicles.

    • 0 avatar
      dwford

      Correct. Hybrids, not even plug in hybrids, are the way to go right now. Prices have come down much closer to regular cars, and you don’t need to worry about charging infrastructure.

      • 0 avatar
        sportyaccordy

        I wonder if this will push car companies to make more aggressive normal hybrids. Most have a battery size of ~1kWh and weak motors. Would be great to double that battery and the motor power without killing fuel economy. I imagine cost is the main reason they don’t do this… however all the mainstream hybrids are a little too weaksauce for me.

  • avatar
    TW5

    Everything that feeds at a trough is slaughtered eventually. I’m not sure what these people were expecting. Maybe they thought if the election had gone differently, they could feed off of the taxpayers in perpetuity. Kind of sick considering how much money or economic benefit they already received during the bailout. That includes foreign automakers whose supplier base was jeopardized by the Great Recession.

    • 0 avatar
      healthy skeptic

      Not necessarily. If “feeding at the trough” gets you through a period needed to become competitve in the free market, you don’t care if the trough goes away after that. EVs and renewable energy may well both end up being examples.

      • 0 avatar
        TW5

        @ healthy skeptic

        Protecting infant industries is important, and demand subsidies aren’t necessarily the wrong prescription, but situational awareness is important. The companies asking for infant industry protection are century-old publicly traded conglomerates that operate in a robust internal-combustion automobile marketplace. Furthermore, the hegemon among the infant upstarts is an automobile company with a market cap as big as GM that has never earned an operating profit!

        These subsidies are not creating a functional marketplace. They are altering reality in a bad way.

    • 0 avatar
      TwoBelugas

      @TW5

      They were absolutely banking on the election turning out ensuring easy extension of the subsidies.

      Recall for a while Tesla was even cagey about the price of the Model S, instead of an MSRP it would give you a figure that counts in all the available subsidies and “potential” savings using an arbitrary gasoline price used with and arbitrary electricity cost where most people found the gas price pessimistic and the electric cost optimistic.

  • avatar
    Zipster

    We need Deadwood to give us an analysis of the relative production costs of electric vs. internal combustion driven vehicles.

  • avatar
    sportyaccordy

    I hope this doesn’t spike the cost of hybrids/PHEVs in the used market. Supply and demand and all that. Gas is climbing and new PHEVs are about to get a lot more expensive. Might be time to make a move.

    • 0 avatar
      28-Cars-Later

      I’m not sure but I believe the hybrids had their incentives end already. However yes I do wonder on supply and demand regarding the existing fresher hybrid supply. My guess is you won’t see a run on them, those who can will buy new, those who can’t but can swing CPO will either do so or more likely IMO go for the CPO Camcord/Civrolla which should be in more supply. In the lower end of the market we may see a spike on the MY09-12 Prii but my guess is those buyers will be put in ex-fleet Hyundai/Kia (seems to be a trend in these parts, protip: don’t buy ex-fleet H/K).

  • avatar
    MoparRocker74

    Good, its about time! Theres no sane reason for big gub-mint to be manipulating whats supposed to be a ‘free market’. Bribe me with my own money to suffer some ugly worthless EV turd, while fleecing me of more of my hard earned cash if I make the ‘wrong choice’? Get outta here with that.

  • avatar
    Carroll Prescott

    Apparently is it okay for a greenie to push their $7,500 onto someone else – you see, that money has to be recovered somewhere – and that way is a perpetual loan from some place to cover the deficit spending. The ultimate cost of that $7,500 is going to be tens of thousands more and that cost will be shoved off onto our grandchildren.

    We need to end all subsidies of all kinds and let the buyers of the products bear the entire burden to pay for their nose in the air.

  • avatar
    mike978

    So Tesla do not sell many vehicles in the US if they expect to only sell 7000 units in Q2. That equates to c. 28,000 a year.

  • avatar

    After all traditional automakers including Porsche and Mercedes switch to electric vehicles Tesla declares that it achieved its goal and forced all traditional automakers to spend tens of billion dollars to switch to electric vehicles and Tesla now is going back to business of making gas powered cars.

  • avatar
    Garrett

    Riddle me this: why are subsidies to protect electric vehicles a good thing, yet tariffs to protect domestic industry are bad.

    It’s really the same practice at the end of the day.

    • 0 avatar
      Vulpine

      Harley Davidson.

      Because of these tariffs, H-D is being forced to waste money building a European motorcycle factory, taking jobs AWAY from Americans.

      That’s why Tariffs are bad. They’re not helping Americans, they’re hurting us.

Read all comments

Back to TopLeave a Reply

You must be logged in to post a comment.

Recent Comments

  • Kendahl: My Infiniti G37S coupe is pushing 14 years old. Excellent condition at 70k miles. I’d be insulted if...
  • slavuta: I already filled mine. thanks for the reminder
  • Corey Lewis: I find I keep things 2-4 years usually before I get bored. I’m only into the third gen SLK, which...
  • 28-Cars-Later: I know we already ruled out the R129, but: https://pittsburgh.craigslist. org/ctd/d/pittsburgh-1992-...
  • Lou_BC: Did you get your Kicks on route 66?

New Car Research

Get a Free Dealer Quote

Who We Are

  • Adam Tonge
  • Bozi Tatarevic
  • Corey Lewis
  • Mark Baruth
  • Ronnie Schreiber