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Tesla’s $7,500 EV Federal Tax Credits to End

We knew it would happen eventually

After hitting 200,000 sales, Tesla will have to start rolling back federal tax credits on its electric vehicles starting next year.

Tesla will continue to offer the full $7,500 tax credit through the end of the year. Starting January 1, 2019, customers will only be eligible for $3,750, and that number drops to $1,875 on July 1 of that year. By the start of 2020, the federal tax credits will have run their course, unless they somehow get extended. The credits apply to those who purchase a new Tesla Model S, Model 3, or Model X.

Under the tax credit initiative created during the Obama administration, customers of new plug-in vehicles can claim between $2,500 and $7,500 depending on the size of the car and its battery capacity. Each manufacturer can sell 200,000 EVs in the U.S. before they have to phase out the credits, which are gradually reduced by 50 percent every six months once the 200,000 mark is hit. Of course, a number of states also offer rebates or tax credits for new electric cars, in addition to other perks such as carpool lane access and free municipal parking.

It’s unclear how the end of the tax credits will affect customer interest. The Model S and Model X already command a pretty penny to begin with. The Model 3 is deemed more affordable with an expected starting price of $35,000, although prices climb quickly with options and we have yet to see the base model CEO Elon Musk promised.

Chevrolet will be in the same boat as Tesla pretty soon. As we reported earlier, the brand is expected to pass the 200,000 mark later this year, so you might want to buy that Bolt sometime soon if you’re in the market. But like Tesla, GM isn’t deterred by the tax credit situation. The automaker will introduce two new EVs based on the Bolt next year. By 2023, GM’s lineup should include at least 20 all-electric vehicles.

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