HomeGuideTesla's Ingenious Plan for Qualifying Tax Incentives

Tesla’s Ingenious Plan for Qualifying Tax Incentives

The world is heading towards an electric future. Governments around the world are providing assistance to automakers and customers in the form of incentives such as tax credits. These tax credits persuade the customers to buy electric vehicles. Countries like the United States of America, India, China, the European Union, and many others have introduced such credit systems to reduce carbon dioxide the vehicles emit into the atmosphere.

Tesla Tax Credit

Tesla’s Ingenious Plan for Qualifying Tax Incentives

There are various qualification criteria for receiving these incentives while a customer is buying an electric vehicle. The incentives provided by the United States Government will be our focus. When the government rolled out the tax credit scheme it offered a $7500 tax credit to new electric vehicle buyers. A tax bill of $10000 will be reduced to $2500 after the government tax credit. However, if the tax was $5000 then the government would give a benefit of $5000 dollars only. 

Tax credit qualifications

There was another clause in the tax incentives scheme of the Federal government. It was that when the sales of vehicles of any company went beyond 200,000 vehicles in a year, the company wouldn’t be eligible for the government program. Over 50% of all the electric vehicles sold in the United States in 2020 were Teslas. In 2019, Tesla sold around 95,000 cars and in 2020 they sold over 200,000 cars which made them ineligible for the government tax incentives. General Motors also surpassed the 200,000 cars sold limit in March 2021.

New Tax credit law

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The United States Senate wants to help electric vehicles compete against regular gas-guzzling vehicles to protect the environment. Therefore, the Senate Finance Committee decided that it would eliminate the 200,000 limit on sales to qualify for the tax credit. The committee wanted to expand the tax credit program as a part of Oregon Senator Ron Wyden’s Clean Energy for America Act. The Act proposes that the 200,000 limit would phase out when 50% of the cars sold in the United States of America are battery electric vehicles. This would likely be well into the 2030s according to the most optimistic estimates. This act is a part of President Biden’s $2 trillion dollar infrastructure plan which will upgrade America’s infrastructure for the future.

The Clean Energy Act for America will not only keep the $7500 tax credit but also increase it if manufacturers fulfill a few other conditions. If companies make the final assembly of the vehicles in the United States, additional $2500 dollars tax benefit will be given to the buyers. Furthermore, if the vehicles are made with production workers which are part of a labor union then an additional $2500 will be added to the incentives. If all these criteria are fulfilled by the company then the customers would get a Federal tax incentive of $12500 when they purchase a new electric vehicle. 

Tesla has its assembly plants based in the United States thus qualifying it for the incentives. Tesla workers aren’t unionized. Therefore, the company won’t qualify for the full tax credit. General Motors tick marks all the criteria required. Ford Mustang Mach E is produced in Mexico and thus won’t be eligible for tax credits.

Problem in the new Act

A caveat of this new Act is that the incentives won’t include vehicles that start from over $40,000. Most of the Teslas start above $40000 except the Model 3 which starts at $39,900. This makes Tesla ineligible for the Federal tax credit. Tesla has come up with a brilliant plan to circumvent this hurdle.

The Plan

In Canada, due to similar criteria, Tesla offers an extremely limited range Model 3 which brings the cost down to under the limit required by the Canadian authorities. They could roll out the same strategy in the United States. Tesla knows that customers won’t buy a car with a meagre range of 151 kilometers or 94 miles. But this Model will qualify them for the government program. On the Canadian website of Tesla, a checkbox appears if the customer wants a car with this super small range. This offers the customer a chance to redeem the tax credit.

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Once the customers get the car with the tax credit, they can buy additional range via over-the-air updates Tesla is infamous for. The updates will be an add-on purchase for the customer. The company won’t include it in the price of the car, thus making it eligible for the tax credit.

The single motor Cybertruck launched last year is also eligible for the government subsidy. However, this vehicle has not yet started production and has a long way to go. The price of the Cybertruck is likely to start at $29,900. This makes Model 3 the only Tesla currently viable for the new tax credit law. 

These criteria for qualifying for tax credit will help America manufacture its vehicles at home. This will make the United States a leader in electric vehicle manufacturing. The new Act will affect foreign automakers like Volvo, Neo, Mercedes, etc which have no manufacturing footprint in the United States.

Software Updates

Tesla is changing the way things work in the automobile sector. It has proven that a company can succeed despite harsh regulations threatening its sales. The software updates can provide many other services to Tesla owners. It can significantly make the performance of their car better over the internet wirelessly.

Customers can buy autopilot, range extensions, Sentry Mode, and even games to play on the big Center screen. No other automobile company has done this before. Over-the-air updates make the autopilot functionality, car interface, and various other software running the car better.

Tesla can limit the range of their vehicles to decrease the price. This will provide additional benefits for the customers who get tax credits. They can then upgrade their car later with the money they saved by checking a box. The ability to do this is revolutionary for the company as well as the customer. This is truly the future. Customers can also book a Tesla online. Tesla will deliver it to the customer when the car is ready. The pandemic accelerated this innovation. Thus, we can say that there were some benefits of the pandemic.

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Raajas Joshi
An electrical engineer passionate about electric vehicles and sustainable technologies.

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