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Tesla tax credits are running out

Like many folks who purchased a Model 3 sedan (plus options) earlier this year, the sticker price hovered in the $56,000 range. Pricey for some, accessible for others, but none complained when $7,500 was knocked off lowering the price to the high $40,000s. This popular, federal tax credit has been offered to Americans when purchasing electric vehicles (EVs) to incentivize the purchase. Buttheres a catch. Theres always a catch

The full tax credit is only available on the first 200,000 cars that Tesla, in this case, sells in the U.S. Two quarters later, that credit is reduced. The Tesla threshold was hit in July, so cars delivered on or after January 1st will now feature just a $3,750 credit. This will be halved once again on July 1st and then by 2020 there will be no credit.

Some analysts believe this phaseout will hinder Teslas ability to reach a wider group of potential car buyers. Musk and company have long promised a Model 3 that would cost in the mid-$30,000 range, but that doesnt look likely in the short-term. Musk has certainly been keen on incentivizing his base, tweeting the $7,500 reminder and even saying Tesla would reimburse folks the $3,750difference if for some reason they tried to purchase in time to get the $7,500 credit but didnt make it.

Most Tesla owners are well-off and the halving of the credit in the short-term should not sway many to navigate away from purchasing. In 2017 Tesla sold 101,000 vehicles and in the first three quarters of 2018 they delivered over 154,000. Model 3 sedans accounted for over half of those sales which helped Tesla to post a third-quarter profit of $312 million, its largest ever.

Tesla is not alone in this tax-credit phaseout. GM is expected to surpass the 200,000 sales mark which will affect future sales of the Chevy Volt and Chevy Bolt. Audi and Mercedes on the other end will come into 2019 able to take full advantage of the tax credit ontheir new models. The Audi E-Tron that we wrote on earlier is expected to compete directly with the Model X at a starting price of $75,000.

Tax credits to spur behavior are old business. The government wants more electric cars and giving people incentives to buy them is their business. Only time will tell if it was truly government money well spent.

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