Report Suggests US Incomes Would Tank If Tesla’s Tax Credits Increase

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Chris White Tech Reporter
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Household incomes will sink by several billion dollars over the next two years if lawmakers remove a cap on electric vehicle tax credits, according to a report Monday from a New York-based economic consulting firm.

Total personal income of all U.S. households will fall by $7 billion in 2020 and $12 billion if lawmakers allow automakers to receive credits for electric vehicles in perpetuity. That translates to $50 to $70 per household per year between 2020 and 2035,  a report from NERA Economic Consulting noted.

The net present value reduction in personal income between 2020 and 2035 of all U.S. households, according to the report, would be about $95 billion or about $610 per household. An expected increase in electricity prices due to an uptick in electric vehicle production account for the bulk of the income decline.

“Consumers also face negative effects for having to fund the Federal Government’s tax credit program indirectly…we assume that utilities will invest in EV infrastructure and regulators will allow utilities to recover their costs plus a rate of return through a fixed charge on customer’s bills,” the report notes. “Hence, consumers have less net income to spend on goods and services.”

NERA’s study comes shortly after Democratic Rep. Peter Welch of Vermont introduced the Electric CARS Act of 2018 in June. Welch’s bill, which is currently meandering its way through Congressional committees, would lift the current 200,000 EV cap per manufacturer.

Tesla is poisoned to benefit if Welch’s bill becomes law. The 15-year-old automaker hits its cap in July, meaning the company will likely begin running out of the tax credits necessary to keep the electric vehicle market alive.

Tax credits for Tesla’s major vehicles will be reduced 50 percent every six months until it is completely phased out. The change gives rivals such as Mercedes-Benz, BMW AG and Audi AG the upper hand, as they bring electric models to the market with a full tax credit in place.

The $7,500 tax credit will drop starting Jan 1, 2019, to $3,750 around mid-year, according to Tesla’s website. GM is entering a similar stage — it is expected to hit the 200,000 vehicle point with sales of its Chevrolet Bolt EV, among other vehicles. (RELATED: Government Tax Credits Are Running Out For Musk As Tesla Hits The 200k Vehicle Mark)

Phasing out the tax credits would still likely harm Tesla. Data shows the elimination of the tax credit could be a possible death knell for Tesla, especially considering the company’s inability to mass produce vehicles at the scale of its larger competitors.

A data analysis conducted by The Wall Street Journal in July 2017 shows 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 of that year before the April 1 redaction of the credit, according to TheWSJ, and nearly 3,700 entering the department’s books for the first quarter of 2017.

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