Tesla Buyers Hear Clock Ticking as $7,500 Credit Phases Out

July 12, 2018, 6:49 PM UTC

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

The $7,500 federal tax credit for electric vehicles is set to start phasing out for the Model S, Model X, and Model 3 after Dec. 31, according to the company’s website. The Palo Alto, California-based carmaker is the first to trigger the reduced incentive in the U.S.

While tax credits have helped boost electric vehicle demand in the U.S., they remain only 1.1 percent 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 U.S., 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 spokesman confirmed that the company delivered its 200,000th vehicle in the U.S. this month, so the full $7,500 tax credit will remain in place until Dec. 31. After that, the incentive starts ratcheting down and will be eliminated at the end of 2019, assuming there’s no change to the program.

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 realize 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.”

Musk denied slowing U.S. deliveries, saying he wasn’t tracking the number, only pushing to increase production.

“It wasn’t like, ‘Hey, let’s just hold back here,”’ Musk said in a July 8 interview. “We had pedals to the metal for production and delivery to the max. I would say that the one thing we did not do is, we did not pay expedited fees at the end of quarter just to get cars delivered. But there was definitely no intentional slowdown in anything.”

The Model S sedan and Model X sport utility vehicle 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. Chief Executive Officer Elon Musk said June 5 that the lower-priced version will probably start being sold around the end of this year.