2018 Tesla Model 3
Toward the end of last year, electric-car shoppers began to think about a U.S. market without the $7,500 federal tax credit for their purchases of plug-in vehicles.
While the tax credit ended up surviving the massive tax-cut bill passed in December, some automakers are still about to face the end of the incentive.
As designed and implemented in the Energy Independence and Security Act of 2007, signed into law by President George W. Bush, buyers can take the full benefit for the first 200,000 vehicles any particular carmaker sells.
Then the tax credit starts to drop. And every automaker has been fully aware of this 200,000 limit since before it sold its first modern electric car.
It's also no secret that the three makers that have sold the most qualifying EVs are getting closer and closer to the 200,000 limit.
So what happens when they hit the limit? We asked the three makers—General Motors, Nissan, and Tesla—who are nearing the limit.
2015 Nissan Leaf in front of John Hancock Tower, Boston [photo: John Briggs]
Only one agreed to comment. Nissan told Green Car Reports it's not in any way worried about what happens when the tax credit starts to dwindle.
How electric-car buyers respond is an open question, said Brian Maragno, Nissan's director of EV marketing and sales strategy.
But the company was "very mindful of that timing" when the first 2011 Nissan Leaf was launched, he said, and the credits' sunset was built into the company's product plan.
"Vehicle programs aren't built off a year-by-year type of internal business plan," he said. "The life cycles are five years, or in the case of the first Leaf, seven years."
"So we built our planning around that volume and then we built our cost modeling and forecasting relative to investment, relative to scale, relative to technological advancements both on the manufacturing side and on the actual technology: the battery, the motor and all those things."
"The long and the short of it is that we planned for it. We put ourselves in the position that, by the time the tax credit goes away, we have programs in place so that, essentially, we don't need the tax credit to sell the vehicle."
2018 Chevrolet Bolt EV
GM and Tesla both declined to comment for this article.
Before we go any further, let's note what happens when an automaker sells its 200,000th qualifying plug-in vehicle in the U.S. and the credit starts to go away.
For the rest of that calendar quarter and the one following, everything continues as normal, with buyers of that make still able to get up to $7,500.
Then, in the next two quarters, the tax credit amount drops to 50 percent of its original value.
In the following two quarters, it drops again, this time to just 25 percent. After that, buyers of cars from this manufacturer gets no federal tax credit assistance.
Exactly when Tesla, Nissan, or General Motors will reach the limit remains subject to speculation. But Sam Abuelsamid, a senior analyst at Navigant Research, thinks GM could be up first.
2018 Tesla Model 3
He suggested GM could cross the line perhaps in the third or fourth quarter of 2018, having sold approximately 165,000 Volts, Bolts and Spark EVs through the end of 2017.
Up next is probably Tesla, with 161,000 electric cars sold in the U.S. through 2017. "When they hit 200,000 will depend a lot on how many Model 3s they manage to deliver," he said.
"I think sometime in Q3 is more likely," he said. After Abuelsamid spoke to us, Tesla pushed back its 5,000-cars-a-week production goal for the Model 3 from the end of this March to the end of June.
Nissan, with just under 115,000 EVs sold at end of 2017, is more likely to hit 200,000 in the first or second quarter of 2019, he said.
With Nissan looking at around 12 months before the clock really starts ticking, Maragno said, all is calm. He would not divulge Nissan's exact plans, but he said the company has options.
"Does [the end of the credit] mean the cost of the vehicle goes down exactly $7,500? It could, but I can't get into that right now. There are other things that we can do to make all the vehicles attractive in the marketplace."
2018 Nissan Leaf
"The bottom line is we have the flexibility and we have the foresight on how to manage after the tax credit, because we've been planning for it all along."
Abuelsamid said each automaker has its own version of this long-term planning:
2018 Nissan Leaf ProPilot Assist
In the end, Maragno said, the price of a plug-in electric vehicle is going to be less important than what the buyer gets for the money.
We can already see this in the way Nissan has been promoting the second-generation Leaf, with a focus on its ProPilot Assist lane-centering technology and other features.
"The key thing is that it's not just about the price," he said. "So the capability of the vehicles, the technology, and performance of the cars ... if those things meet the market, it's not a one-to-one trade-off because the car itself is not stagnant."