Federal Tax Credit Drives Electric Vehicle Adoption

April 2, 2019 | | Financing

In a promising sign for the adoption of electric vehicles, some manufacturers are hitting the federal tax credit cap. American taxpayers who purchase a qualified plug-in electric vehicle are eligible to claim a federal tax credit from $2,500 to $7,500, depending on the vehicle’s battery capacity—yet which make and model is qualified depends on how many electric vehicles a manufacturer has sold. That’s because the tax credit is available until a manufacturer has sold 200,000 electric vehicles. Once that cap is reached, the credit ramps down for the following quarters of the year and then phases out completely (see figure 1).

Figure 1: Section 30D tax credit phases out after 200,000 EV sales cap is reached

When the tax credit was originally enacted in 2008 with a cap of 250,000 vehicle sales for the entire economy, selling hundreds of thousands of electric vehicles was a distant sales goal for auto manufacturers. When the credit was expanded to a 200,000 cap per auto manufacturer in 2009, the market options were much more limited than they are today. Since then, the electric vehicle market has expanded significantly, and many auto manufacturers are providing options with features that were unheard of a decade ago. The last time Drive Electric MN wrote on the tax credit in 2016, no manufacturers had sold the 200,000 vehicles and triggered the phase-out. As of 2019, two manufacturers have crossed the threshold.

Tesla and General Motors have both reached the sales cap, and the tax credit earned from purchasing a vehicle from either of these manufacturers has begun to decline. Here’s how the credit is phasing out for Tesla and GM:

  • Tesla hit the cap in July of 2018 due to the popularity of its Model 3, Model S, and Model X, and the phase-out is already underway. Tesla vehicles acquired between January 1 and June 30 of 2019 will qualify for a tax credit of $3,750. For vehicles acquired between July 1 to December 31 of 2019, they will qualify for $1,875. After that, taxpayers will not be able to claim credits for purchasing a Tesla.
  • General Motors hit the cap in late 2018, thanks to the success of their Bolt BEV and Volt PHEV models. General Motors vehicles acquired between April 1 and October 31 of 2019 will qualify for a tax credit of $3,750. From October 1 through March 31 of 2020, the credit will be $1,875. Beyond March 2020, General Motors vehicles will not qualify for a tax credit.

Nissan is the next closest company to reaching the threshold, but they’re still 70,000 vehicles away.

For a detailed breakdown of the credit and a state by state analysis of benefits, check out this Edmunds article. Visit the IRS website for detailed information on qualified vehicles, including up-to-date information on the tax credit amount and details on tax credit phaseouts for manufacturers that have hit the cap.

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