Tesla Buyers Making Twice U.S. Average See Rebates in Danger

California’s incentives to purchase electric vehicles are under attack, as data shows most of the money goes to consumers who earn twice the national average yet collect cash rebates on Tesla Motors Inc.’s luxury models.

“It’s hard for the average Californian to understand why someone buying a $100,000 car should get a rebate,” said California state Senator Ted Gaines, a Republican who has proposed eliminating rebates on cars that cost more than $40,000. “That’s the same question I posed to myself, and it was hard to justify.”

With almost a fifth of California payments applied to Tesla vehicles priced higher than $71,000, its regulators also are drafting rules to ration incentives based on income. While the state accounts for 40 percent of the U.S. plug-in market and has doled out more incentive cash than any other, such rebates are being scrutinized from Washington to Georgia.

The incentives are intended to rid the roads of gas-guzzling vehicles that spew carbon pollution by making electric cars more more affordable to a broad range of consumers. Surveys indicate that 77 percent of buyers in California earn more than $100,000 a year.

Three quarters of U.S. states offer some sort of incentive for clean-air vehicles. California gives $2,500 to consumers who buy battery electric cars like the BMW i3, Ford Focus Electric, Mitsubishi I-MiEV and Tesla Model S, and as much as $5,000 for hydrogen fuel-cell cars like the Hyundai Tucson. The U.S. government allows for a tax credit of as much as $7,500.

Biggest Market

California is Tesla’s biggest market in the U.S, selling almost 20 percent of its cars in the state in 2014, according to the California New Car Dealers Association.

Gaines’ proposal to curb California rebates shows his disappointment that Tesla chose Nevada rather than his district as the site for a $5 billion battery factory, said Diarmuid O’Connell, the company’s vice president of business development.

“Punishing Tesla, a company that has created over 8,000 direct jobs in California in the past five years and thousands more indirect jobs by eliminating a modest rebate for its products while preserving that credit for companies like Toyota and Nissan -- companies that have abandoned California for Texas and Tennessee respectively -- seems like a curious response unless viewed through the lens of ignorance and retribution,” O’Connell said in an e-mailed statement.

Wozniak’s Tesla

Apple Inc. co-founder Steve Wozniak, who’s worth an estimated $100 million, has bought two Tesla cars. He accepted the incentives, he said, but they played no role in his decision to buy the vehicles.

“I think there are a lot of people who are buying the low-end Tesla and that $10,000 made it happen for them,” Wozniak said in a telephone interview. “Of course you take advantage of it. It’s not like I had a choice. I could say I don’t really need to, which I don’t, but why would I pass it up? What good is that?”

Since 2010, California’s program has doled out $203 million, including $34 million to 13,598 Tesla owners. Almost twice as many people received rebates in California for the Nissan Leaf, which cost about $29,000, according to state figures.

Price Point

Gaines has proposed legislation that would boost the state rebate for electric cars to $3,500 and limit eligibility to those models that cost less than $40,000. Combined with federal incentives, that could help cover more than a quarter of the cost in some cases.

“It’s much easier to justify a rebate for an electric car that the middle class can buy, and hopefully it will spur an increase of sales at that price point,” Gaines said. “That should make the manufacturers of those cars more successful.”

The $40,000 cap wouldn’t prevent affluent consumers from receiving rebates for vehicles that cost less than that, advocacy groups such as the Natural Resources Defense Council and the Greenlining Institute said in a letter to Gaines last month in opposition to the bill.

“As a whole we have good evidence to show that the program has helped California make up 40 percent of U.S. market,” said Max Baumhefner, an attorney with the NRDC. “Undoubtedly, the program’s cost effectiveness could improve if we target the rebates at consumers who are most likely influenced by them.”

Senate President Pro Tem Kevin De Leon, a Democrat, said a limit based on vehicle price is premature. He was the author of a 2014 law that requires the state Air Resources Board to devise an income cap for rebates later this year.

Georgia’s $5,000 tax credit helped Atlanta last year become one of the best-selling markets for Nissan’s Leaf. Now lawmakers have passed a statewide transportation funding bill that would end that incentive and charge electric vehicle users an additional $200-a-year fee.

Tax Exemption

Washington state provides an exemption from sales tax on electric vehicles, and that incentive is set to expire in July. Governor Jay Inslee, a Democrat, wants to extend it for 10 more years. Lawmakers are considering restricting the exemption to the first $45,000 of a purchase. Tax revenue on sales of electric cars above the cap would subsidize construction of charging stations.

“People buying those cars above $45,000, basically Tesla buyers, will be providing the dollars to build out the charging network,” said state Senator Mark Mullet, a Democrat and Tesla owner.

Battery Factory

Tesla, California’s largest automotive employer, is building a battery factory in Reno designed to more than double the world’s supply of lithium-ion batteries, driving down costs and making electric cars more affordable.

The Tesla Model S starts at $71,000. The company will introduce an SUV model late Summer, also priced at about $70,000, and plans to target middle-income consumers with a car called the Model 3 in 2017.

Tesla has said it expects to deliver 55,000 vehicles worldwide in 2015, including about 9,500 in the first quarter. Shares in Tesla were up today after Dan Galves, an analyst at Credit Suisse, wrote that Tesla’s delivery forecast “looks beatable.”

Mark Ferron, a former executive with Deutsche Bank who served on California’s Public Utilities Commission until last year, bought a midnight-blue Model S in December 2012 for about $100,000. He took advantage of the state and federal incentives.

“But it didn’t really factor into my consideration whether to buy the car,” Ferron said. “I would have bought the car regardless, because to be honest the incentive relative to the purchase price is not that big.”

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE