This afternoon, Elon Musk will get on the phone with Tesla’s investors. He will field their questions about Model 3 production numbers, cash flow, the possibility of profitability, maybe even where he sleeps. And perhaps someone will ask him the question he has never answered: How many cars, exactly, has Tesla sold in the United States?
With all the problems Tesla is wrangling—chief among them a long struggle through “production hell”—a regional breakdown of sales figures (something Tesla has never provided) may seem irrelevant. But it might also prove vital to this young company’s future. Whenever Tesla sells its 200,000th vehicle on American shores, it loses a valuable tool: the $7,500 tax credit the federal government gives to anyone who buys an electric car.
The timing—Tesla has already confirmed it will hit the 200,000 mark sometime in 2018—is unfortunate. After years of selling luxury cars, Tesla has shifted its focus to the Model 3, a $35,000 sedan aimed at buyers for whom an extra $7,500 might make a major difference. And now, buyers interested in swapping gasoline for electricity have more choices than ever, thanks to an influx of EVs from Jaguar, Volkswagen, Porsche, Ford, Volvo’s Polestar, and others, all of which will still qualify for the federal free money.
General Motors, too, is approaching the 200,000 threshold, after a few years of selling cars like the Chevy Bolt EV and plug-in hybrid Volt. The Detroit giant hasn’t said when it will top out, but it’s going to happen sooner or later. History says this could be a problem. When Georgia abruptly axed a $5,000 tax credit for electric car buyers (to go with the federal money), in July 2015, sales fell 90 percent.
The tax credit came to life in 2008, as part of the Energy Improvement and Extension Act, a tool to close the price gap between EVs and cheaper gasoline cars. Come April 15, anyone who bought a new electric or plug-in hybrid vehicle that year, with a battery of a certain size, gets to take $7,500 off the amount they owe the federal government.
When the sales clock hits 200,000, the tax credit doesn’t make like Cinderella’s chariot. Every car Tesla sells for the rest of that quarter, and the following quarter, qualifies its buyer for the full $7,500. For the following six months, the rebate drops by half, to $3,750. For the six months after that, it halves again, to $1,875. Then it goes away altogether. So depending on how many Model 3s Tesla can crank out in the next year, it can ensure at least some of its customers enjoy a bit of federal largesse.
If they’re being clever, the automakers will make sure they sell that inauspicious car at just the right time. If Tesla hits the number of June 30, at the end of the second quarter, then buyers of its cars only have until the end of September to secure the full credit. If it makes the sale on July 1, buyers enjoy the $7,500 until the end of the year. No surprise, then, that Tesla forums are full of speculation that Musk is delaying some US sales by inviting Model 3 reservation holders in Canada to go ahead and make their purchase official.
Electric vehicle advocates and manufacturers, meanwhile, would like the feds to ease up on the 200,000 limit. “We feel tax credits should be expanded so our customers continue to receive the benefit going forward,” GM CEO Mary Barra said in a speech in March. Some have proposed including a cap on income, or on the price of a vehicle, so that all the money doesn’t end up back in the pockets of the wealthiest car buyers. But given that President Trump’s Environmental Protection Agency is working to slash fuel efficiency standards, more money for green cars seems unlikely.
In retrospect, the program may have given away too much, too soon. “The incentives which are most successful early on are those that offer time, convenience, access, and privilege,” says longtime electric vehicle advocate Chelsea Sexton. Things like carpool lane access, reserved parking, and the ego of going eco are more likely to sway the wealthy car buyers going for a Tesla Model S, or Cadillac ELR. The credit should have been saved for the price-sensitive mass market buyers.
Even early buyers of cheaper cars like the Nissan Leaf were probably buying because to soothe their environmental consciences, not to count pennies or cut gas bills. That’s not to say all these buyers didn’t gratefully take the credit, of course. And the money helped out people leasing cars like the VW e-Golf and Fiat 500e— where the credit would be factored in, and used to offer super low monthly rates.
Even without the credit, though, Tesla shouldn’t have a problem drumming up sales. It never has. Going forward, buyers looking for batteries may well be happy to pay a premium to get a Model 3 instead of a Nissan Leaf or Chevy Bolt. “That’s not unlike what people have done for Apple for years,” says Sexton. Tesla has also used its head start in this market to build an international network of roadside charging stations, something other manufacturers are still working out partnerships to provide.
As EV sales steadily rise, one automaker after another will have to learn to sell its vehicles without emphasizing the federal give-back. “It’s important for them to start building in different values to their marketing now,” says Sexton. Electric cars are clean, fast, and fun. They don’t need to be sold as the cheap alternative. Musk, after all, has long said his goal is to build not the best electric car in the world, but the best car, full stop. As long as he can keep the things coming off the assembly line, what’s one more hurdle to clear?
Tesla vs. the World