The $7,500 federal EV tax credit is in the news this week. It ended for Tesla as of December 31, 2018 and it will end for General Motors on March 31, 2019. That’s because GM recorded more than 200,000 EV sales in the 4th quarter of last year. Once that happens, the full credit continues for the next quarter, then drops to $3,750 for the next 2 quarters. Then it drops to $1,875 for the next two quarters. After that, it is gone completely.
The federal tax credit was created at a time when electric cars were a rarity. It was designed to help manufacturers offset some of the costs associated with developing and manufacturing electric cars. When it first went into effect, many people couldn’t imagine any auto maker actually producing 200,000 electric cars. How the world has changed in a few short years, thanks largely to Tesla.
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To be clear, the federal tax credit is “up to” $7,500. That “up to” part needs some clarification. First, the credit is tied to the size of the battery in the vehicle purchased. To qualify for the full credit, the battery must be larger than about 18 kWh. Cars with smaller batteries get a smaller credit. For a list of all cars sold in the US that qualify for some or all of the credit, visit fueleconomy.gov.
Second, you must owe the federal government $7,500 in income tax for the year in which you claim the credit. If your tax bill is lower, you won’t qualify for the full credit and any unused portion cannot be carried forward to subsequent tax years. The government giveth and the government taketh away.
With all the hoopla about Tesla and its astonishing production numbers in 2018, it’s surprising that GM is close behind in total EV sales. None of its electric cars have inspired as much passion or gotten as much press coverage as the cars from Tesla. But from the lowly Spark EV to the Chevy Volt and Chevy Bolt (even the Cadillac ELR), the General has quietly amassed enough EV sales to pass the 200,000 car limit.
As of April 1, 2019, the tax credit available to buyers of electric cars from GM will be $3,750. On October 1, 2o19, it will drop to $1,875 and on April 1, 2020, it will be eliminated completely. Which makes for an interesting conundrum for politicians in the US. President Tirade has threatened to punish GM for closing several US manufacturing facilities by revoking the tax credit as it applies to its cars. He can’t do that, of course, but his bluster has emboldened electric car opponents who would like to see the program eliminated entirely.
Going forward, there will be new electric cars arriving from Volkswagen, Jaguar, Audi, Porsche, Hyundai, Kia, and others, all of which will be manufactured outside the United States. The only two US manufacturers making competitive electric cars won’t be eligible for any tax credits. Which means every dollar spent on EV tax credits will be going to help foreign corporations. How do you think that will sit with the solons in Washington, DC?
Tesla and GM are busy lobbying Congress to extend and/or enlarge the tax credit program. The oil industry, with the Koch Brothers leading the parade, are advocating for cancelling it completely. Who will win this tussle? That is anyone’s guess, but with the chaotic nature of national politics, the chances that the American people will be the winners when the dust settles are slim.