California Considers Tossing Tesla A Lifeline As Federal Tax Credits Run Out

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Chris White Tech Reporter
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California lawmakers are considering a piece of legislation that would bail out Tesla once the electric vehicle company’s trove of federal tax credits begin running out.

The hefty $7,500 federal tax credits that Tesla customers receive for buying the company’s stable of electric vehicles could run out some time in 2018, but California Democrats are hoping to extend state credits to those looking to purchase electric vehicles.

Federal tax credits for Tesla vehicles are slated to phase out once the Silicon Valley company produces and sells 200,000 electric cars. California’s proposal is a $3 billion incentive program and would reduce the price of an electric vehicle by as much as $10,000.

Tesla is nearly 80,000 cars away from hitting the cutoff point, so customers that are counting on a $7,500 rebate to lower the sticker price might be forced to fork over more money for the Model 3 than they initially thought.

The highly vaunted Model 3 sedan, which was unveiled July 30, is expected to start at $35,000 before incentives or options but could increase if customers waiting on backorder prefer a model with a larger battery. Tesla produced roughly 85,000 vehicles in 2016 and plans to make half a million in 2018.

The bulk of Tesla’s Model S fleet were sold in California in 2015, according to Edmunds, a group that researchers automotive sales in the U.S. California citizens made up nearly 50 percent of Tesla’s customers that year. The next nine states made up nearly 33 percent, while the remaining 40 states combined were below 22 percent of Tesla’s overall market.

Activists have touted the program, which was proposed by Democratic Assemblyman Phil Ting. Some say that the idea could help stanch some of the bleeding Tesla and other electric vehicles would almost certainly suffer after the federal tax credits runs dry.

“The conditions are right for a tipping point to occur but with uncertainty about the state’s purchase rebates and the prospect of federal tax incentives expiring, it could tip in the wrong way,” Max Baumhefner, an attorney with the Natural Resources Defense Council’s clean vehicles program, told reporters in June.

Data shows that the elimination of the tax credit could be a death knell for Tesla, especially considering the company’s inability to mass produce vehicles at the scale of its larger competitors.

A July 10 data analysis from the Wall Street Journal shows that there were no new Tesla Model S sedans and Model X SUVs registered in Hong Kong the month after that country revoked the tax credit.

There were 2,939 Tesla vehicles registered in March before the April 1 redaction of the credit, according to the WSJ, and nearly 3,700 entering the department’s books for the first quarter of 2017. The end of the tax break was announced in February.

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