Tesla To Benefit From Bill Expanding Federal Electric Vehicles Tax Credits

Tesla Inc. will likely see a welcome spike in sales with the expected approval of a bipartisan bill before Congress granting makers of electric vehicles (EVs) an additional tax credit over and above the ones they already enjoy.

A bipartisan group of lawmakers Wednesday said they intend to introduce a bill to expand federal tax credits for buyers of EVs in a huge boost for the growing EV market. The bill will also extend the hydrogen fuel cell credit through 2028.

Under the existing incentive, the $7,500 tax credit for buyers of EVs phases out over 15 months once an EV maker sells 200,000 electric cars. This meant the tax credit for Tesla buyers was cut in half to $3,750 on Jan. 1 when its total EV sales reached 200,000. General Motors’ tax credit was also cut in half starting April 1.

The “Driving America Forward Act” (DAFA) will grant each EV maker a $7,000 tax credit for an additional 400,000 vehicles after it exceeds the first 200,000 vehicles. DaFA will also shorten the phase-out schedule to nine months. The credits are paid directly to consumers, who can write them off on their tax returns.

Tesla shares rose 1.6 percent in morning trading Wednesday on the news before finally cooling down to $278.06 at the closing bell. The stock opened at $276.74 and hit a high of $278.38.

Senators Gary Peters (D-MI), Lamar Alexander (R-TX) and Susan Collins (R-ME), and Rep. Dan Kildee (D-MI) signed on to the bill.

Industry analysts concur DAFA will be a big deal for the EV industry.

“This would be a major shot in the arm for Tesla as this could be a much needed potential catalyst for demand in the U.S.” said Dan Ives, an analyst at Wedbush Securities.

“Ultimately, while there are still hurdles to get this legislation passed, it would result in an additional 40,000 Tesla vehicles sold domestically in 2019 based on our estimates. After a tornado of bad news the last few months this would finally be a positive data point for Musk & Co.”

Analysts noted DAFA is a compromise among Republicans that want to end the tax credit and Democrats that want to expand it.

Sen. Debbie Stabenow (D-MI), one of the sponsors of the legislation, said at a time when climate change is having a real effect on Michigan, “today’s legislation is something we can do now to reduce emissions and combat carbon pollution in a statement. Our bill will help create American jobs and cement Michigan’s status as an advanced manufacturing hub.”

Stabenow said she aims to pass the bill as soon as possible.