The clock is ticking for Tesla Inc. customers looking for incentives on their purchase.
The $7,500 federal tax credit for electric vehicles is set to start phasing out for the Model S, Model X, and Model 3 after Dec. 31, according to the company’s website. The automaker is the first to trigger the reduced incentive in the U.S.
Under a federal law, tax credits are available for the first 200,000 EVs sold by an automaker. It is then reduced by 50 percent every six months until it is phased out.
While tax credits have helped boost electric vehicle demand in the U.S., they remain only 1.1 percent of the market. The federal government support was designed to decline once manufacturers reach higher production levels and reduce costs.
Two quarters after a company reaches the 200,000 sales mark in the U.S., the incentive is cut in half to $3,750. Two quarters later, the credit amount is reduced by half again, and it’s eliminated half a year later.
A Tesla spokesman said the company delivered its 200,000th vehicle in the U.S. this month, so the full $7,500 tax credit will remain in place until Dec. 31. After that, the incentive starts ratcheting down and will be eliminated at the end of 2019, assuming there’s no change to the program.
Tesla increased second-quarter deliveries to Canada and had a significant number of vehicles in transit at the end of June, which may have reflected an effort to delay reaching the 200,000 level to “game the tax credit,” Loup Ventures analyst Gene Munster speculated on July 2.
“The good news is that there will be increased demand in the short term once consumers realize the credit will disappear,” Munster wrote. “On the other hand, future demand has been pulled to the present, so Tesla may face a headwind in 2019.”
The Model S sedan and Model X crossover can each cost more than $100,000. The Model 3, billed as a more affordable car with a starting price of $35,000, is currently delivered only in more expensive versions. Tesla CEO Elon Musk said June 5 that the lower-priced version will probably start being sold around the end of this year.
Bloomberg and Reuters contributed to this report.