New EV Federal Tax Credit Proposal Could Reintroduce Incentive For Tesla And GM Models: News

Under the current plan, Tesla or GM EVs aren't eligible for federal tax credits at all

New EV Federal Tax Credit Proposal Could Reintroduce Incentive For Tesla And GM Models: News
New federal EV incentives could cut both ways for companies that have already exhausted incentives under the current structure, like Tesla. (Photo: Tesla)

The new GREEN Act could change the game for electric car sales.

This week, Democrats in the U.S. House of Representatives introduced a new plan that could revive the federal tax credit for EV manufacturers. The current $7,500 incentive phases out after an automaker builds 200,000 vehicles, as was the case with Tesla in 2019 and GM last year.

Representative Mike Thompson of California, chairman of the House Ways and Means subcommittee on Select Revenue put forth a bill that would restructure the program moving forward. As CNET Roadshow reports, the actual incentive amount would drop to $7,000. However, the legislation would raise the manufacturing ceiling to 600,000 units, rather than 200,000. Were this bill to actually pass through the House and Senate, it would then restructure the sunset period where automakers would start to lose the credit after reaching that new figure. Instead of gradually dropping the credit over four quarters, the $7,000 incentive would drop by half one quarter after hitting the 600,000 cap. After six months, the new bill would eliminate the credit.

The GREEN Act would prop up pre-owned EV sales as well, allowing personal buyers to claim a $2,500 tax credit so long as the purchase price is under $25,000. Businesses, for their part, could deduct up to 20% on sales over $100,000.

That creates a tax break for companies and local governments as an incentive to adopt more EVs. As electric pickups are readying for launches this year and into 2022, that may help kickstart sale. We’ll have to see whether the bill can navigate both chambers of the U.S. Congress, in which Democrats hold a slim majority.

New EV Federal Tax Credit Proposal Could Reintroduce Incentive For Tesla And GM Models: News

The legislation could cut both ways

For companies like Tesla and GM, the GREEN Act does include language as to how the tax credit reform would work:

The provision expands the qualified plug-in electric drive motor vehicle credit under Section 30D to apply a new transition period for vehicle sales of a manufacturer between 200,000 and 600,000 electric vehicles (EVs), under which the credit is reduced by $500. The provision replaces the current phaseout period (which begins at 200,000 vehicles) with a phaseout period that instead begins during the second calendar quarter after the 600,000-vehicle threshold is reached. At the start of the new phaseout period, the credit is reduced by 50% for one quarter and terminates thereafter. For manufacturers that pass the 200,000-vehicle threshold before the enactment of this bill, the number of vehicles sold in between 200,000 and those sold on the date of enactment are excluded to determine when the 600,000-vehicle threshold is reached.

If enacted, the original 200,000 figure would be deducted from the new cap, while vehicles those automakers built and sold between the time they hit the cap and the passage of this new law would be exempted. So, from the point the bill becomes law, Tesla and GM would benefit from the credit until they build 400,000 more vehicles.

As Electrek points out, the bill could carry a double-edged effect. On one hand, it would incentivize folks to go with a vehicle they want, rather than just thinking about the credit. At least, that would be the case in the short term. However, knowing that this tax credit may come back for Tesla or GM vehicles, people may hold off on buying an EV for awhile. That could cause short-term issues for Tesla’s sales, depending on whether this law actually gains momentum. At the moment, it’s just a proposal, so we’ll have to wait and see what happens in the coming weeks and months.