You Tell Us: Do Tesla Electric Cars Deserve The Same Tax Credits As Cheaper Plug-ins?

At a starting cash price of $71,050 — more than three-times the $22,995 entry-level price of Mitsubishi’s all-electric 2014 i-Miev hatchback — the Tesla Model S is sleek, sexy and desirable. If the sub six-second 0-60 time of the base model 60 kilowatt-hour Model S or the 4.2 second 0-60 time of the Model S P85 doesn’t get you, more than 200 miles of range per charge most certainly will, along with a centre console which owes more of its heritage to the age of the tablet computer than Detroit.

Should Tesla owners get the same tax credits and rebates as other EV owners?

Should Tesla owners get the same tax credits and rebates as other EV owners?

Yet despite their disparity in price, buying either brand new in the U.S. entitles you to $7,500 in Federal tax credits, provided of course you earn enough to amass a tax bill of more than $7,500, that is.  Unlike new legislation being proposed in the state of California to set a maximum income cap on those applying for up to $2,500 in purchase rebates under California’s own clean vehicle rebate program, Federal tax credits for electric cars are income agnostic.

Figures from the California Centre for Sustainable Energy — which runs and issues payments under CVRP program — suggest that more than half of Californian Tesla owners live in households with a total annual income of more than $300,000 per year.  With that in mind, is it fair that those who buy a high-end luxury plug-in car get the same rebates as an entry-level budget EV?

No, implies Christoper deMorro in a recent post on Gas2 (via Clean Technica) entitled “Tesla Owner Tax Rebates Could Total $1.5 Billion.”

With a little-known 200,000 limit per manufacturer on the number of electric cars eligible for the $7,500 Federal tax rebate for electric vehicle purchases, deMorro argues that the Model S’ starting price — more than double the average U.S. new car price — means that those wealthy enough to buy the Model S without a tax break are poised to take a total of $1.5 billion in Federal Tax rebates before Tesla hits the required 200,000 vehicle output needed for the IRS to restrict tax credits to Tesla owners.

While we agree with the notion that incentives really should only go to those who need them, something the State of California is on the brink of bringing to law, the there are a few key points missing from deMorro’s argument we feel it’s important to note.

How do you decide which cars are eligible and which aren't?

Should some cars be eligible and others not?

First of all, the Federal Tax Credits for Electric Vehicles program he refers to treats every vehicle in the same way. Along with a set of regulations requiring the vehicle to be 100% plug-in from new; have a motor vehicle weight rating of no more than 14,000 pounds; a battery which can be recharged from an external source of electricity and a battery pack larger than 4 kilowatt-hours in size, the rules credit phase out are the same for every vehicle.

As the IRS details, the amount of credit which can be claimed by a taxpayer wills tart to decrease “at the beginning of the second calendar quarter after the manufacturer produces 200,000 eligible plug-in vehicles as counted from January 1, 2010.” In other words, once the manufacturer makes its 200,000th plug-in vehicle, the amount of rebates available will drop, and it’s the same for every automaker.

That means the IRS is prepared to write-off up to $1.5 billion in credits for every plug-in car produced, not just expensive ones — and the total number of rebates available to Nissan LEAF owners or Mitsubishi i-Miev owners is technically the same as those available to Tesla owners.

The second point we’d like you to think about is the fact that not everyone who buys an electric car is wealthy. While nearly four-fifths of Californians claiming its own state incentive for electric vehicles had a total annual household income of $100,000 per year, there are those who buy an electric car who earn far less.

That’s true for Tesla owners as well as those who buy cheaper electric vehicles too. We’ve heard of people who have cashed in part of their 401k retirement fund to help buy a Model S, for example, scrimping and saving to be able to afford the base-model 60 kilowatt-hour model.

Is income contingency the only, fair way of ensuring incentives go to those who need them?

Is income contingency the only, fair way of ensuring incentives go to those who need them?

Others we’ve encountered have saved in other ways, forgoing family holidays or perhaps working overtime to be able to scrimp together enough funds for their dream car. While the minority, it could easily be argued that these owners deserve the tax credit, no matter what.

Of course, deMorro’s headline is meant to grab the reader’s attention — and it does. But perhaps the bigger question, and one he fails to ask, is at what point should electric car incentives be withdrawn completely?

When it was first put in place, the price of even an everyday electric vehicle like the Nissan LEAF was far above the affordability for most buyers. Since then the sticker price of cars like the Nissan LEAF, Chevrolet Volt and Mitsubishi i-Miev have dramatically dropped. The Mitsubishi i-Miev for example, initially went on sale for $29,125 before destination charges and incentives.  Now it’s available for just under $23,000 before incentives, a difference almost as big as the $7,5000 Federal Tax Credit.

Yet in terms of equality of buying, the majority of plug-in owners are still reasonably well-off and those who really could benefit from electric cars — lower-income families with older, low-mpg vehicles — are often unable to even afford something like a base-model i-Miev.

It’s a difficult topic, but one we think the electric car and Transport Evolved communities need to discuss.

So you tell us: should Tesla owners get the same incentives as those who buy less expensive cars? Should we even still have plug-in car incentives, or are they an essential carrot to encourage people to dump the pump for good?

Leave your thoughts in the Comments below.


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  • Michael Thwaite

    I don’t think that there should be any kind of means testing or capping of the amount based on the value of the car – every car that saves gasoline deserves credit. However, are there people that can unfairly take advantage of the credit? People that buy a string of EVs to take advantage of the credit? Maybe but wold that matter if more cars are now on the road?

    • vdiv

      Only if I knew of anyone so “guilty” of buying a string of EVs… ;)nnnnThe question is what is the purpose of the tax credit? Is it some form of economic equality and wealth redistribution by progressive tax philosophy? Do clean air and energy independence recognize economic boundaries? Would we be better off if the rich were driving multiple gas guzzlers instead of multiple EVs? And if we are to draw arbitrary lines where should they be, $500k, $200k, $80k, $50k, $30k and why? Wouldn’t other forms of taxes such as sales and consumption tax be a more effective way to seek some nebulous and subjective fairness?nnnnWe should not forget that the Model S owners pay more in sales and property taxes (where applicable). For example my Volt ($45k when new) earned me a $1,200 property tax bill for the first year. I was rather happy actually that it rapidly depreciated so that I “only” had to pay $800 or so the second year. A Model S worth double that would have incurred more than double the property tax (the first $20k of the value get a “generous” discount from the state), I estimate around $3,000 for the first year alone.

      • Dennis Pascual

        Just got my registration for my 2013 Model S and it IS higher than any of my other vehicles. The VLF portion is the one that does “depreciate” and I can see that the the State of California will be receiving approximately 20% of the $2,500 Rebate back…nnnI own multiple EVs, however, the second one was acquired as a second owner, and thus ineligible for ANY of the tax incentives. Prior to having multiple EVs, I did have multiple “gas guzzlers” in my garage, so the incentives do help.

  • Serge Simard

    It is about the cars, not the drivers ….nnTax the ICE cars to incentivize EVs.

  • Jens S

    No matter if rich a$$hole$ get the tax rebate, we all benefit. nnIn order for all of us to get practical electric cars at an affordable price as soon as possible, we need to get the EV industry launched and we need to get the production volume up.nnIf you take away the tax incentive from the rich or from luxury EVs, sales would no doubt be lower, and your future affordable EV would be more expensive for you, or at least you must wait longer for prices to fall.nnThats the way I see it.

  • Surya

    The incentives should be based on the income of the buyer, not on the value of the car.

  • Bruce Moore

    Is that a Mitsubishi Outlander PHEV in the picture titled “Should some cars be eligible and others not?”?

  • Esl1999 .

    There are 2 ways this could have been done better. n1. If it takes more than one year to recoup that $7,500, than so be it. It wont matter about your income, you are still entitled to the full amount.n2. My personal choice. The money should go to the dealers. The bill of sale would shows that they’ve deducted the $7,500 from the price of the car.nThe whole point of this is to get ANY type of petroleum burning car off the road, and Tesla helps remove some of the worst offenders.

    • WeaponZero

      What if a company does not have dealers?

      • Esl1999 .

        Then it would be the manufacturer. Whoever sells the car.

  • Esl1999 .

    Nikki, why don’t you do an article on why the Mitsubishi I-Miev has missed the mark, and why the Leaf and Model S got it right. Maybe, design, capability and packaging of the car could be far more critical to the buyer than tax credits.

    • Hey there. nnnBecause primarily, this isn’t a site for just one car. There are so many different would-be electric car buyers out there. And so many different sets of needs. There’s no such thing as a silver-bullet car. 😉

      • vdiv

        psst! Remember Justin Bieber’s chrome plated Karma? That looked like a silver bullet 😉

      • HOWEVER… I can see lots of automakers missing the design, specs etc boat. 😉

        • Esl1999 .

          I don’t care if cars are powered by thoughts of good will. I just want people to move away from the notion of making mediocre cars and then needing tax hand outs as a way to motivate buyers.

      • Esl1999 .

        By the way, I could have easily asked, “Prius vs. Insight: During the 2000’s, why was one embraced and the other ignored?”

      • Richard Goldsmith

        Silver Bullet! Great name for a car. I bet there has been one sometime in history. 😉

  • Joseph Dubeau

    I would simply get rid of the sales tax which more than the state’s 2,500 incentive. nThe Federal government needs to do more to encourage U.S. manufacturing. nIncreasing incentive from 7,500 to 10,0000 would create more electric car leases. nnHas anybody asked the question, what will happen to electric car sales when the State/Federal incentives run out?

  • RedmondChad

    Like anything else, the answer depends on what the point of the tax credit is. And I think the word “deserve” frames the question incorrectly. There is a serious problem with the federal tax credit (see my last paragraph), but it’s not that it applies to Teslas.nnThe PEV tax credit is not a social engineering program designed to help poor people buy nicer cars. The point is to switch us from gas to electricity, so we can buy a cheap domestic resource instead of an expensive foreign resource to propel our cars. While there are personal benefits to this, the tax credit is only there because of the strategic economic and national security benefits, as well as all the avoided costs of pollution mitigation. There are enormous social benefits to less petroleum consumption so it is a good investment to seed the market. The cost of the credit is tiny compared to the benefits.nnnFor all of us to get these social benefits, it doesn’t matter WHO buys the cars; it only matters that they displace as much petroleum as possible. For that purpose, one could ask if the i-MiEV is “deserving”: a Tesla gets the exact same credit, and yet it is typically driven over twice as many miles. And it typically (though not always) replaces a larger vehicle that consumes more petroleum. The typical Tesla displaces much more gasoline than most other EVs on the market, so it very much “deserves” the credit.nnnThere is still the valid question of whether we are giving the credit to people that would buy the car without it. Note, however, the question is not whether they need it to “afford” the car; the question is whether they need it to BUY the car. Just because you can afford something doesn’t mean you will buy it; I could afford the Hummer when it came out, but I didn’t buy one. Affording is not the goal; buying is. I would not have purchased my Tesla Roadster without the federal tax credit, even though by many measures I could “afford” it. Tesla sure needed buyers at that time (July 2009), and there were no other EVs on the market. The tax credit worked.nnnAverage household incomes for EV buyers are high regardless of make; given the far lower purchase cost, it’s just as easy to argue that LEAF owners don’t “need” the tax credit – if you assume affordability is the goal. But it’s not.nnnI’ve heard the argument that, well, if those Tesla buyers will only buy with the tax credit, then if the tax credit is only on LEAFs, they will buy a LEAF instead of a Tesla. That is obviously true for some people. However, the Tesla can haul much more and go much farther – for people with big families and/or one car, the LEAF may not suit their needs. It’s unfortunate that we are subsidizing a really nice car like the Tesla – appearances are indeed bad – but the fact is that it has relevant capabilities that no other car has. Transitioning off petroleum will be slower if people don’t buy Teslas. It is very much in our interest to apply the tax credit to them.nnnSome EV buyers (no matter the brand) need the credit to make the purchase. Some EV buyers would make the purchase without the credit. It is valid to ask if the credit is needed at all (and from surveys so far, it is in general, though not for everybody), how much it should be, how long it should last, etc. And it is a good idea to ask if there’s a way to reduce payments to people that would have made the purchase without the incentive. The problem is, you can’t begin to tell the answer to that with an income test. It depends on personal motivations, and you can never tell those objectively. All incentives – even the buy 3 get one free incentive on toothpaste – unfortunately work this way; some people that don’t need them get them. That is unfortunate, but really can’t be avoided. They still work to increase sales, that’s why we have them.nnnAnybody concerned about helping the poor afford EVs would be far better served by figuring out how to solve a far more significant problem: the fact that the federal tax credit is, well, a tax credit. You can’t take it unless you have at least $7,500 in tax liability! I retired before I bought my last EV, and I was unable to take the tax credit. (Not that I’m complaining; I could afford it and obviously purchased without it; it is just an illustration). For the poor, not being able to take an incentive that the rich can is killer. We should focus on fixing THAT problem.

  • WeaponZero

    I have a better solution, disqualify compliance cars from the tax credit. The goal of the tax credit is to get interest in EVs and have EVs grow. Compliance cars do the opposite of that.

    • Dennis Pascual

      The tax credit is for purchasers of EVs. Whether the car is a compliance car or not speaks to the MINIMUMS that the Air Resources Board has thrust upon a car manufacturer to build before they are penalized for not building. So, the tax credit does not really help or hinder “compliance”. Nissan, BMW,and Mitsubishi should be commended for building MORE Pure EVs than the minimum required of them. (in fact, I believe that Mitsubishi isn’t even required to build any at this time (I recall that it is graduated depending on the volume of vehicles SOLD in California.))nnnnChevy gets partial kudos for the Volt, but definitely acting like a “compliance” manufacturer with the awesome Spark EV.

      • WeaponZero

        The problem with compliance cars is this, as you said the manufacturer only makes the car available in California only. This hurts the adoption of EVs, it does very little if all the EVs get stuck to California only. The point of the initiative is to get more people interested and aware of EVs, if the EVs are tied down to california that defeats a lot of the effectiveness.nnnThe federal tax credit at least should say a stature that to receive the tax credit, the car needs to be available for sale in at least 25 states. Otherwise, all the federal tax credits will end up in California because that is where most of EVs are sold due to CARB.nnnI give kudos to all manufacturers who sell their car nationally.

        • Dennis Pascual

          I don’t particularly think that Compliance Cars hurt EV adoption. The fact of the matter is the generation of EVs that are the GM EV-1 and its contemporaries were all compliance cars. This did not stop Tesla from making the Roadster and eventually the Model S.nnnBy tying in the Federal Tax Credit to being available in at least 25 states will not force car manufacturers from delivering vehicles to hit the MINIMUM required by California. What would force car manufacturers would be to have a FEDERAL law requiring a MINIMUM number to be sold in all US territories. However, I doubt that the political will is there to do that.

          • WeaponZero

            I am not saying they hurt adoption, I am saying they are not taking full advantage of it. As you said, in California the car companies have to hit those numbers one way or the other with or without the federal incentive. I am saying it would be more efficient to offer the tax credits to non-compliance cars which might make it harder for manufacturers who make compliance cars to compete with non-compliance cars in california forcing them to make the car available in at least 25 states, even if they don’t advertise it there, the cars would at least be available.nnnI heard plenty of people for example interested in the RAV4 EV, an SUV that is an UV with ok range. But they could not buy it outside california, Toyota went as far as threatening people if they left california their warranty was void. That doesn’t help EV adoption at all.

  • Richard Goldsmith

    I totally agree with Michael. Anyone avoiding using petrol/gas/diesel etc. should be encouraged and benefit, even if it then is used by someone else, the benefit is created by reduction of fossil fuel demand. I like the stance they took in Norway where non-electric miles are made much more expensive too :- switch or drive less they are saying, and they still have a bucket load of North Sea Oil left as far as I know. Very responsible action I think.

  • James Cooke

    The thing to remember is that the only way that many people will ever be able to afford an EV is if there is a decent supply of good vehicles in the second hand market. So every time an EV is sold with an incentive lowering its price, another EV will be on the second hand market in the future, that much cheaper and therefore more affordable to the “average joe”. The point of the incentive is surely to encourage the nascent EV market in general, not subsidise cars for any one section of society, either rich or poor.

    • Dennis Pascual

      Well said. We purchased our Roadster in the secondary market directly from Tesla. It’s a 2008 vehicle and was discounted to reflect its age and condition.

  • With EV incentives being based on the income of the buyer, not on the value of the car, we shouldn’t see any difference in incentives between PEVs and FCEVs? ;)nnAs EV numbers accumulate to the 1st million EVs (since 2010), I’m expecting incentives to phase out. It would help the EV community is the phase out happened over 2-3 years vs. a sharp cutoff. (eg: the $2500 CA credit ran dry, creating some of confusion before incentive was extended). At current rate of sale growth, it’s looking like both Nissan and Tesla will exceed 200,000 US EVs delivered in 2018. This will increase demand from compliance EV manufactures provide their prices reflect governoment incentivized and not market prices of the higher volume PEV leaders.nnOne area incentives are lacking is for public DCFC infrastructure as currently there is none (as Federial tax incentives expired Dec 31, 2013). More importantly incentives are for DCFC stations that provide multi-charging points to ensuee redundancy should stuff fail. The quality and reliability is very important as early PEV markets are becoming established. The effects of matching amount of infrastructure with the pace of PEV adoption help propel adoption at a faster pace.nFYI: I believe so far for US in 2014, more private DCFC charging points have been installed than public DCFC charging points. n

    • WeaponZero

      That is actually how the federal incentives work. The 7.5k is regardless of the price of the car or income of the buyer(though he would have to owe enough taxes to take full advantage of it, though leasing is another option where the lease company takes the tax credit).nnnWhen 200k cars are sold by a manufacturer, the tax credit comes to an end for that manufacturer. But it does not just disappear, it ends up shrinking every quarter till it eventually hits 0.

  • Robert Stelling

    The tax credit is to entice people to buy electrics. In my case, it allowed me to buy a better electric. It does not matter that it costs 4 times more than the i-Miev. It is probably ten times the better car. But I fulfilled the letter: I could have bought a Mercedes, BMW, Porsche, but the tax credit (which I could not claim entirely because I don’t make enough!) helped the decision to buy electric.