After the House Ways and Means Committee introduced its tax bill, Bloomberg reported on a provision that sent Tesla's share prices tumbling - Republicans are seeking to cancel the $7,500 subsidy available to those purchasing electric cars.
The proposed repeal poses risk to the more mainstream consumers Chief Executive Officer Elon Musk’s is pursuing with the Model 3 sedan, which starts at $35,000.
Since the start of 2010, the EV tax credit has been $2,500 for a plug-in vehicle with at least 5kWh battery capacity. Every extra kWh nets another $417 up to a maximum of $7,500, although you would need at least that amount in income tax liability—the IRS won't cut you a check to make up the full amount. It was never meant to be permanent; once an automaker sells 200,000 qualifying vehicles (starting from January 1, 2010) its eligibility is phased out over a matter of months.
Tesla is first in line to reach the 200,000 car limit, but with recent setbacks in production of its Model 3, the possible end to government-led incentives will be less than helpful.
It’ll be “interesting to see churn on the deposit base of Model 3 holders, especially as the timing to receive the car is elongated,” Jeffrey Osborne, a Cowen & Co. analyst, wrote in a note to clients. “What does time and the lack of a tax credit do to demand elasticity?”