12/24/2019 | 1 MINUTE READ

Hopes Fizzle for Expanded EV Credits in U.S.

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Congress has balked at expanding a long-running tax credit for buyers of electric cars in the U.S. It's bad news for Tesla and General Motors.

Congress has balked at expanding a long-running tax credit for buyers of electric cars in the U.S. 

The program’s two biggest beneficiaries are General Motors and Tesla. Each company has sold more than 200,000 EVs through the program, which bestows buyers with tax deductions as great at $7,500 when they buy an all-electric vehicle. Hybrids qualify for lesser breaks indexed to their range in electric-only mode.

Full Squeeze Ahead

But that good news means bad news for both manufacturers. That’s because the incentive starts shrinking to zero as soon as a manufacturer surpasses the 200,000-unit sales mark for its electrified. GM and Tesla are the only two companies to reach that volume and trigger the phase-out.

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For Tesla, the countdown began last January, when its maximum tax break fell to $3,750. The cap dropped to $1,875 in June and will vanish completely next month. GM began the same four-quarter countdown in April, meaning it will run out of credits at the end of March.

Both carmakers lobbied Congress in hopes of tripling eligibility to cover the sale of 600,000 electrified vehicles. But last week Congress rejected any such expansion.

The Trump administration is no fan of broader EV incentives either. It argues that the primary beneficiaries of the program to date have been relatively well-to-do consumers who can afford an EV that costs two or three times as much as the average piston-powered car.

Bad News for the Pioneers

All of this is terrible news for Tesla and GM, whose pioneering efforts are turning into a hefty disadvantage compared to other EV sellers.

It’s not just the eventual threat of EV startups, which will be able to offer customers maximum tax breaks when they begin launching vehicles a year or so from now.

The bigger and immediate threat comes from the likes of Audi, BMW, Daimler, Jaguar, Hyundai-Kia and Volkswagen. All those companies are beginning to roll out their own EVs in the American market. Like the startups, these producers are years away from reaching the 200,000-sale cap.

Starting in 2020, Tesla and GM will face a U.S. market in which not some but literally all their competitors will offer something they can’t: a government-sponsored price discount worth as much as $7,500 per car.

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