As tax credits expire, the cost of buying a Tesla increases

Due to federal guidelines, Tesla will be phasing out the $7,500 tax credit provided to consumers that purchase a new electric car. Triggered by Tesla recently hitting a benchmark of selling 200,000 automobiles in the United States, the full $7,500 tax credit will only be available to Tesla customers who take possession of a new Model S, X, or 3 prior to the end of 2018.

At the start of 2019, the tax credit is cut in half. Anyone that takes possession of a Tesla between January 1 and June 30, 2019, will receive a $3,750 tax credit. On July 1, 2019, the tax credit is cut by 50 percent again and falls to $1,875 for new Tesla owners prior to the end of 2019. As of 2020, the federal tax credit for Tesla purchases is officially over.

This could cause some consumers that have already ordered Tesla’s $35,000 Model 3 to rethink their purchase decision. Tesla has previously stated the company plans to deliver more expensive iterations of the Model 3 prior to fulfilling orders for the base model. It’s possible some of those base Model 3 orders won’t be fulfilled until after the tax credit falls by 50 percent or more.

The electric car tax credit was originally created during the Obama administration, specifically to encourage Americans to purchase more electric automobiles. Regarding the structure, the tax credit starts at $2,500 and increases up to $7,500 based on the quality of the battery in the automobile.

While Tesla is the first American automaker to reach the 200,000 mark, General Motors is in a close second with roughly 184,000 electric automobiles sold. Nissan and Ford have both sold over 100,000 electric cars in the United States as well. Of course, this could serve as a strategic advantage for automakers that haven’t hit the 200,000-unit milestone yet. Those companies will be able to continue to offer the tax credit while Tesla will lose that additional consumer benefit.

Interestingly, there are a number of states that offer credits and rebates in addition to the federal credit. For instance, Colorado offers a $5,000 tax credit with the purchase of a new electric car. Other states, such as Arizona, offer discounts on yearly vehicle registration, unlimited use of carpool lanes, and reduced rates when charging your vehicle.

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