Captive Finance The Key To Tesla Selling EVs To 81 Million Households In The USA

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In this article, I will explain how many households don’t have access to the US EV tax credit and some possible solutions.

81 Million (63% Of Households) In US Not Eligible For Full $7,500 Tax Credit

I’ve been writing a lot recently about how affordable electric cars are going to be soon. I wrote this article on how Tesla was likely to be very aggressive with price cuts (because Elon said in a recent appearance on Twitter spaces that he preferred volume over margins and profits). In the article, I mentioned that the price (after tax credits) could be as low as $35,000, or even $30,000 for the Tesla Model 3 RWD and the Tesla Model Y RWD (presently not available in the US).

I also wrote this article about how the Chevy Bolt is available today for as little as $19,995 after tax credits. I received a lot of comments on both articles that this is great but that I need to realize that not everyone is eligible for the entire tax credit. I knew that, but then I figured I should do some work to qualify how many people we are talking about. I have an MBA in investment finance and tax from 30 years ago, and still remember how to research taxes in the US.


I found that the IRS publishes pretty detailed statistics on US taxpayers. I found by downloading the tax data from November that about 48 million out of 129 million households in the US would likely pay more than $7,500 in taxes and be eligible for the full credit. So, in one sense, this isn’t a problem, since EV sales for Q3 of 2022 were only about 200,000 vehicles. Even if sales triple to over 2 million cars a year, that would take 24 years to go through those 48 million households, and maybe even longer since most of those wealthy people will buy more than one vehicle in 24 years. But I think it is a problem for two reasons:

  1. EV sales will grow to far more than 2 million a year in the US, since they will be far more affordable to own than gas and diesel vehicles. They could go to more than 20 million a year in a few years. To get to that level of sales, we will no doubt need to access the 63% of households that pay less than $7,500 in income taxes.
  2. People don’t always fit into neat little boxes. Sometimes people who have a lower income or less tax liability buy new cars, and if we are trying to accelerate the transition to sustainable energy (Tesla’s stated mission), we want to encourage everyone, not just the upper middle class and above, to buy electric cars and trucks. It also sows a lot of resentment and division when some people get a big benefit not available to all.

Captive Finance A Possible Solution

In this recent video, Dennis (one of my favorite YouTubers) describes how many other manufactures can get the $7,500 tax credit and then pass some or all of those savings on to the consumer. He mentions that the leasing company gets the tax credit and that today, Tesla doesn’t pass this credit onto the consumer in the form of a lower rate. I tested this by putting in the pricing for two difference Model Ys, both costing exactly $57,490. One was a 7-seater eligible for the $7,500 tax credit and one was a 5-seater that isn’t eligible. But that difference is for a consumer purchase. As discussed in this article, there is no $55,000 limit for leased vehicles that aren’t SUVs. So, it is also possible that Tesla is receiving the tax credit on its leases and choosing not to pass on that credit to consumers.

If Tesla decided to pass on the savings, it would reduce the monthly payment about $225 a month according to the video. For example, the 2023 Hyundai Kona and Chevy Bolt have lease deals with payments less than $300 a month! Those cars are quite a bit less expensive than the Tesla Model 3 RWD, which has a lease cost of $469 a month.

This is also a way to get around the $55,000 price cap for that Tesla is facing with the Model Y (except for the 7-seat model). I need to mention (as mentioned in the video) that current Tesla leases are not a great deal for a couple reasons. They have low mileage limits, but the bigger issue is that many people dislike that Tesla doesn’t give you the option of buying the car at the end of the lease. This means if Tesla does get Full Self Driving working (it does seem to be taking forever, but Tesla might get it to work eventually), and the value of your car goes up since you can use it to make money as a robotaxi, Tesla gets that increase in value instead of you.


Tesla was asked about this in the Q4 earnings call last night.

Tesla seems to be worried that it is a consumer of cash and would therefore endanger their pile of cash that they might need to avoid bankruptcy in a severe recession. Tesla could alleviate this as other auto companies do by taking out a loan (possibly backed by the leased vehicles). This would allow them to keep a large cash reserve and only endanger themselves if a large number of their customers defaulted on their leases and the value of their vehicles plummeted. I expect once the economy turns the corner and is looking up, Tesla will be willing to take this risk and expand leasing so that many more people can take advantage of the incentives the Inflation Reduction Act has to offer.

Disclosure: I am a shareholder in Tesla [TSLA], BYD [BYDDY], Nio [NIO], XPeng [XPEV], and Hertz [HTZ]. But I offer no investment advice of any sort here.

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Paul Fosse

I have been a software engineer for over 30 years, first developing EDI software, then developing data warehouse systems. Along the way, I've also had the chance to help start a software consulting firm and do portfolio management. In 2010, I took an interest in electric cars because gas was getting expensive. In 2015, I started reading CleanTechnica and took an interest in solar, mainly because it was a threat to my oil and gas investments. Follow me on Twitter @atj721 Tesla investor. Tesla referral code:

Paul Fosse has 232 posts and counting. See all posts by Paul Fosse