Picture: BLOOMBERG
Picture: BLOOMBERG

Southfield — The clock is ticking for Tesla customers looking for incentives on their purchase.

The $7,500 US federal tax credit for electric vehicles (EVs) is set to start phasing out for the Model S, Model X, and Model 3 after December 31, according to the company’s website. The California-based car maker is the first to trigger the reduced incentive in the US.

While tax credits have helped boost EV demand in the US, they remain only 1.1% of the market. The federal government support was designed to decline once manufacturers reach higher production levels and reduce their costs. Two quarters after a company reaches 200,000 sales in the US, the incentive is cut in half to $3,750. Two quarters later, the credit amount is reduced by half again, and it’s eliminated half a year later.

A Tesla spokesperson confirmed that the company delivered its 200,000th vehicle in the US this month, so the full $7,500 tax credit will remain in place until December 31. After that, the incentive starts ratcheting down and will be eliminated at the end of 2019, assuming there’s no change to the programme.

Tesla increased second-quarter deliveries to Canada and had a significant number of vehicles in transit at the end of June, which may have reflected an effort to delay reaching the 200,000 level to "game the tax credit", Loup Ventures analyst Gene Munster speculated on July 2. "The good news is that there will be increased demand in the short term once consumers realise the credit will disappear," Munster wrote. "On the other hand, future demand has been pulled to the present, so Tesla may face a headwind in 2019."

The Model S sedan and Model X SUV can each cost more than $100,000. The Model 3, billed as a more affordable car with a starting price of $35,000, is currently delivered only in more expensive versions. CEO Elon Musk said on June 5 that the lower-priced version will probably start being sold around the end of this year.

Bloomberg

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