(Photo : Youtube/CNBC) Tesla on tax break from US government

Both Tesla and GM are set to get access to tax credit amounting to $7,000 on 400,000 electric cars in the United States. This is all due to the proposed reform of the federal EV incentive program.

Tesla on federal tax credit

The federal government in the United States has a tax program that gives incentive for buyers of electric cars that goes way back from President Bush's term, and during President Obama's administration, it was expanded. This expansion will give $7,000 in tax credits to every buyer of electric cars.

But the US government has put a cap of 200,000 delivers of electric cars in the country for each automaker. After the automakers reached that threshold, it would automatically trigger a phase-out period that would then remove access to federal tax credit for buyers of electric cars from the manufacturers in the country.

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Back in 2018, Tesla was the first automaker to hit the 200,000 threshold. The program was able to successfully help accelerate electronic vehicle sales, but it was seen as flawed since both GM and Tesla have hit the quoted threshold and now they find their electric vehicles less competitive in the United States against foreign automakers that have not hit their threshold and buyers can still have tax credit for their purchase.

This means that the program punishes automakers that were early in the manufacture of electric vehicles.

Tax credit reform

Automakers and buyers are expecting that the White House and the Senate would bring back the tax credit reforms in the electric vehicle incentives now that the Democrats have taken over.

During the Trump administration, there were attempts to push through with this program, but unfortunately it didn't persevere.

The bill have now been officially introduced by the new administration, the Growing Renewable Energy and Efficiency Now or GREEN Act, in order to reform the federal EV tax incentives and to reform other tax programs to help renewable energy.

Tesla, GM and other automakers that have met the threshold already would get a new $7,000 tax credit for a higher threshold of 400,000 electric vehicles until a new phase-out period begins again, according to Electrek.

The bill still needs to go through the legislative process, it is likely to be adopted by the new administration thus pushing for higher threshold.

In 2019, Tesla became to first automaker to lose access to $7,500 federal tax credit made to spur the adoption of electric vehicles, according to Wired. On January 1, 2019, the customers qualified for only a $3,750 credit and in 2020, the credit disappeared entirely.

Tesla then announced at the time that it reduced the price of all of its car by $2,000. That does not cover the shortfall unfortunately, but for some buyers it worked better than the full credit, according to CNBC.

Now getting tax credit of $7,500 is not always the same thing as buying a vehicle for $7,500 less than its market price. Claiming a tax credit depends on having a tax bill, to have $7,500 in federal tax, a buyer must first make more than $52,000 a year.

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Written by Sieeka Khan

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