If you’re finding yourself in the mood to buy a shiny new electric Tesla, I’m telling you now that you’re potentially making a huge mistake. While I wouldn’t normally discourage people from switching to an electric car, there is a very good reason why you shouldn’t buy a Tesla right now. Certainly not one of the cheaper models, anyway.
It all comes down to the Clean Vehicle Credit, also known as the federal EV tax credit. Worth up to $7,500, this credit can make a serious dent in the cost of buying an electric car. Eligibility criteria also happens to be changing, allowing drivers to claim the tax credit on cars that are currently ineligible — Tesla included.
That means now is the absolute worst time to buy a Tesla, but the best time to order one is coming very soon.
Tesla buyers can’t claim the EV tax credit… yet
Back in August some changes were made to the federal EV tax credit, which was done as part of the Inflation Reduction Act.
One of the most crucial parts of the change is that the original 200,000 sales cap is now being lifted. So not only will cars stop losing eligibility for being too popular, drivers will be able to claim up to $7,500 off the cost of buying from an automaker that hit the sales cap at sometime in the past.
However there are some conditions here. First up is that all electric cars have to have had final assembly in North America, or those cars won’t be eligible for any tax credits. The second is that cars over $55K and trucks or SUVs over $80K won’t be eligible. The final condition of note is that the sales cap is not being lifted until January 1, 2023.
Tesla does do its final assembly in the United States, but hit the 200,000 sales cap several years ago. This means no Teslas will be eligible for the EV tax credit until January 1 at the earliest. Tesla’s own pricing structure also means only three of its cars will actually be eligible.
Those that are eligible are the standard range Tesla Model 3, which starts at $46,990, and both the Long Range and Performance Tesla Model Y — which start at a respective $65,990 and $69,990. Since the Model Y is an SUV, it means both models should fall into the $80K price cap category — as would the rumored standard range model, which still hasn’t been official confirmed and supposedly has a price tag of around $60K.
What happens if you order a Tesla now?
Tesla wait times are known to be pretty extreme, but we have seen delivery estimates drop over the past several weeks. Right now there is a very real chance you could pick up one of these three cars before the end of the year.
Tesla currently estimates that the Model 3 will arrive between October and December 2022, while the Performance Model Y could arrive even sooner — between September and October. Meanwhile the Long Range Model Y could arrive as early as December, or as late as April.
In each case there are some very good odds that ordering today means your car arrives before the tax credit restrictions are lifted. That’s up to $7,500 you won’t be getting back, in other words.
Of course there are still some unknowns, particularly in how the IRS will be treating the end of the sales cap limitations. Specifically, whether tax credits will be available to drivers who reserve a car now (with a refundable deposit) but don’t take delivery until next year.
Back in August, when the Inflation Reduction Act was signed into law, the IRS did allow some leniency towards people who had orders for newly-ineligible cars. The transition rule (opens in new tab) is that if someone paid a non-refundable deposit or at least 5% of the final sale price before August 16, they could claim the tax credit under the old rules.
It stands to reason that something similar could happen with the lifting of the sales cap. Provided you don’t lock yourself into a sale, or take delivery of a Tesla before January 1, you may be eligible for the credit.
We have to make it clear that the IRS has not confirmed any details about the changes happening to the EV tax credit on January 1. In fact, as best we can tell, it’s still figuring out what the changeover rules should be. If I were you I’d just wait until January to order my Tesla, or at least until after the agency confirms all the fine print about the transition period.
If you’re after a different Tesla, one that costs more than the price cap allows, then there’s absolutely nothing to lose by ordering as soon as you can. That includes both Tesla Model S and Model X models and the Performance Model 3. The Long Range Model 3 would also be ineligible, but Tesla has suspended orders until next year.
It doesn’t matter if these cars arrive tomorrow or next year, you won’t be getting that tax credit. You might as well get some of the waiting out of the way. Then again, the way things are going, it’s not quite so important to invest in an electric car right now.
Gas prices are going down as well
The recent record-breaking spike in gasoline prices has helped hammer home just how much cheaper electric cars are to run. Even though the cost of electricity rose, it was still dwarfed by the cost of a gallon of gas back in June — with the national average exceeding $5 a gallon.
Some people decided that it was the right time to buy an electric car as a result, against the advice of some money-saving experts. After all, spending tens of thousands of dollars you wouldn’t otherwise spend on a brand new car is no way to save money.
If you are able to buy and recharge an electric car, we certainly encourage you to do so. But if you weren’t already planning on replacing your car then now is not the time to do so. Especially if you were worried about the price of gas, since it has started falling to less insane levels.
According to AAA (opens in new tab), the national price of regular gasoline is around $3.70 a gallon. That’s more than it cost a year ago ($3.177), but it’s also less than it was this time last week ($3.764) and last month ($3.959).
In short, the cost of driving is slowly decreasing, which minimizes the savings you’d gain from buying an electric car — Tesla included. Which means you can probably afford to wait a little longer before you make your purchase.
Are there any downsides to waiting?
If you order a Tesla today, then the price you’ll pay will be locked in. If you wait, and Tesla decides to increase its prices yet again, you’ll be stuck paying the newer, more expensive price. It’s rare for Tesla to announce price hikes ahead of time, and you’ll only find out after it’s happened. So waiting is, in essence, a gamble.
You have the choice of holding off on placing an order so that you can claim up to $7,500 from the IRS, or lock everything down right now and guarantee the price you pay — potentially sacrificing the tax credit in the process.
Nobody can make this decision except you, so you’ll have to decide which option you’d rather take. Or more specifically, what will make you the least upset if you end up on the losing side.
There is absolutely nothing stopping you from buying an electric car right now. You just need to be aware of which cars are actually eligible for the tax credit before you make your decision — and most importantly why certain cars aren’t eligible.
For a lot of electric cars, it’s all down to the fact they aren’t assembled in North America, and that’s not likely to change anytime soon. For Tesla and General Motors, it’s all down to aspects of the previous tax credit hanging around temporarily. Fortunately that caveat already has an end date that’s less than four months away.
$7,500 is no small amount of money, even on cars that cost in excess of $60k. So if you want to maximize your savings buying a shiny new Tesla, you’ll want to hold off on placing that order for just a little longer. And hope Elon Musk doesn’t push the price up again.