Tesla Electric Vehicles Are About To Get Much More Expensive - Better Act Fast

Those shopping for electric vehicles should take careful note of the upcoming change to the federal tax deduction on electric vehicles for some important models. Tesla's vehicles now make up the bulk of the electric vehicle market. Sadly, many EVs are not working out. Affordable EVs are failing in the marketplace and sales have dropped to below 2,000 units per month for even the "top-selling" affordable EV models. As the federal tax deductions phase out for some models, this downward sales trend for EVs trend will likely only worsen.

Tesla Tax Deduction Change Deadline and Timeline
Every Tesla vehicle becomes more expensive on Monday, July 1st, 2019. That is exactly one week away. Tesla's website has the exact information you need, but the upshot of the change is that the federal tax deduction available drops from $3,750 to $1,875. That change means that those who wait until shortly after the deadline next Monday will effectively be paying $1,875 more for the same car.

Federal EV Tax Deduction Information
The federal tax deduction started out at $7,500 per vehicle many years ago. The idea was that taxpayers would support the development of affordable EV models by subsidizing the cost of the vehicles via this deduction. The EV drivetrain is the real cost problem. In particular, the batteries that electric vehicles use.

One aspect of the subsidies provided to automakers by the U.S. government is the federal tax deduction that started in the model year 2010. The tax deduction was related to battery size and applies to every battery-electric vehicle. Other types of EVs, like plug-in hybrids and extended range EVs have other lower deductions.

Why Are There EV Tax Deductions
The plan was to provide this consumer-facing subsidy for the first couple hundred thousand EVs a manufacturer produced to allow the automaker to effectively sell the vehicle at a higher price than its gas-using peers. In Tesla's case, it worked like a charm. Tesla has always boasted that its vehicles had extensive pre-orders, and in the case of its Model 3, up to 400,000 pre-orders. In the past two calendar years, the majority of vehicles sold that were eligible for the federal tax deduction were high-priced Teslas.

Tesla's Sales Determined Its Timeline For Deductions
Now that Tesla has succeeded in selling the set limit for full subsidies, the tax credit is stepping down in quarterly increments. The coming deadline will drop the tax deduction for anyone who takes receipt July 1st or later. We doubt that Tesla's premium/performance/luxury models will suffer any great drop in sales related to this phase-out of the tax deduction.

With prices as high $140,000 for some trims of some models, the remaining tax deduction is peanuts. However, for those who are stretching their budget to buy a $45,000 Model 3, paying an added $1,875 may be a penalty they would prefer to avoid. Which they can do by driving home a Tesla this week.

One last note: If you are in Massachusetts and shopping for an EV under $50K, be aware that the state rebate also goes away on Monday. For a Tesla shopper in Massachusetts considering a base Model 3, that means the hit could be as much as $3,375.

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You can view the timeline for other EV models with declining federal tax deductions at the EPA's website. See you in the next story titled: If You Plan To Buy An Electric Vehicle In This Key State You Better Act Fast.

John Goreham tweets at @johngoreham. Please send him news tips and follow us at @TorqueNewsAuto