In WSJ Editorial On Killing The Electric Car Tax Credit, Tesla Catches A Major Break
Wall Street Journal's Editorial Board published a generally sound and good article on the (up to) $7,500 electric car tax credit on October 10: Killing the Electric Car Credit?
However, the article contains a major error that significantly weakens the much stronger argument that the WSJ could have made. The error is in regards to this sentence: "The credit is capped at the first 200,000 vehicles that each manufacturer sells, and Tesla may reach its limit for customer tax credits some time next year."
The issue with this critical sentence is this: The credit is not capped at the first 200,000 vehicles. If it were, the program actually wouldn't be all that catastrophic. Tesla (TSLA), General Motors (GM) and Nissan (OTCPK:NSANY) each have delivered over 100,000 eligible cars in the U.S., so they are more than half-way to the 200,000 point.
Here's the disaster, and it's not about the first 200,000 cars. The disaster is that there is no 200,000 limit. The 200,000 mark only triggers a six-quarter phase-out period, during which time the quantity of eligible cars is unlimited.
Yes, you heard that right: Unlimited.
For up to six full quarters following the first 200,000 units, automakers under current law can sell an unlimited number of cars eligible for the Federal electric car tax credit. The first two quarters, the amount is up to $7,500. The next two quarters, up to $3,750 - and then the final two quarters, up to $1,875...
During that six-quarter period, the EV tax credit would be a giant sucking sound on the U.S. federal Treasury, given its unlimited exposure at that point...