Tax incentives: Why the Roadster costs less than its sticker price

Michael van der Sande
Senior Vice President of Global Sales, Marketing and Service

January 14, 2009

Nearly 150 lucky customers took ownership of their Tesla Roadsters in 2008, but 2009 could be the best year yet for new owners, thanks to a wide range of tax incentives in the United States that in some cases shave 10 percent or more off the cost of the car.

Many states are rolling out additional perks – from free parking at Los Angeles International Airport to carpool-lane privileges even when you’re driving solo. Some states offer grants of up to $5,000 toward the purchase price and even 100 percent sales tax exemptions.

Now consider maintenance costs of the Roadster: no oil changes, no new mufflers or other exhaust system repairs, no timing belts, fly wheels or transmission fluid. Coupled with tax incentives, the result is far lower lifetime ownership than on another car with a similar sticker price.

And that doesn’t even begin to factor in the price of gasoline! I’ll hold off on a comprehensive comparison of lifetime ownership costs; for now, let’s just discuss tax incentives.

The federal government gives tax credits of $2,500 to $7,500 for consumers who take delivery of an alternative-fuel vehicle after Jan. 1, 2009. The provision was primarily aimed at incentivizing plug-in hybrids from Detroit automakers.

Specifically, it provides that plug-in electric drive vehicles with batteries of at least 4 kWh qualify for a $2500 credit. An additional $417 is provided for each additional kWh, up to $7500 for vehicles up to 10, 000 lbs. The credit expires at the end of 2014.

It’s no wonder Washington and Detroit insiders call it the “Volt credit”; Chevrolet’s hybrid, expected in late 2010, is likely to have a 16kWh battery, barely squeaking past the maximum $7,500 credit. The Roadster, with its 53kWh battery pack, is a slam-dunk for the $7,500 maximum.

On top of the federal tax credit, Arizona [ http://www.afdc.energy.gov/afdc/progs/view_ind.php/AZ/5874 ], New Jersey [ http://www.eere.energy.gov/afdc/progs/view_ind.cgi?afdc/5778/0 ], and Washington waive the sales tax on the purchase of a Roadster. (Connecticut used to waive its 6 percent sales tax, but the program expired [ http://www.afdc.energy.gov/afdc/progs/view_all_exp.php/CT/0 ] in October. Fortunately at least one customer took advantage [ http://www.teslamotors.com/blog5/?p=62 ].)

Let’s examine Washington [ http://www.afdc.energy.gov/afdc/progs/view_ind.php/WA/6207 ], which gives a 100 percent sales tax exemption that’s expected to save state residents at least $18 million in the next two years. It applies to people taking ownership, registration and title of their vehicles from Jan. 1, 2009 to Dec. 31, 2010. The tax break applies to new cars and trucks that get at least 40 highway mpg.

Unlike in New Jersey, where only zero-emission vehicles get the exemption, in Washington mainstream cars such as the Toyota Prius and hybrid Honda Civic are eligible for the exemption, as are EV “city cars” that have reduced maximum speeds and are used mainly for urban outings or in residential communities. But for now the Roadster is the only production sports car that will get its sales tax waived.

Washington sales tax rates vary from county to county. In Seattle, where customers usually pay 9.3 percent sales tax, Roadster buyers can pocket more than $10,100 instead of forking it over to the state.

Think about it this way: after a $7,500 federal tax credit and the Seattle sales tax exemption, the $109,000 base Roadster effectively costs $101,500. The Porsche 911 Turbo starts at $126,200 and would cost a Seattle buyer $137,937 including sales tax. A difference of over $35,000, although the sticker prices are only $17,000 apart.

On top of the federal incentive, Rhode Island [ http://www.afdc.energy.gov/afdc/progs/view_ind.php/RI/5302 ] provides a tax credit of $1,250 on the Roadster; Oregon [ http://oregon.gov/ENERGY/CONS/RES/tax/docs/AltFuel.pdf ] and South Carolina [ http://www.afdc.energy.gov/afdc/progs/view_ind.php/SC/6086 ] $1,500; Kansas [ http://www.eere.energy.gov/afdc/progs/view_ind.cgi?afdc/5169/0 ] $2,400; Utah [ http://www.afdc.energy.gov/afdc/progs/view_ind.php/UT/4758 ] $2,500; and Georgia [ http://www.afdc.energy.gov/afdc/progs/view_ind.cgi?afdc/5180/0 ] $5,000. Louisiana [ http://www.afdc.energy.gov/afdc/progs/view_ind.php/LA/4446 ] and Colorado [ http://www.revenue.state.co.us/fyi/pdf/income09.pdf ] residents who purchase a new Roadster should also qualify for a tax credit – and in Colorado it could exceed $5,000.

California [ http://www.afdc.energy.gov/afdc/progs/view_ind.php/CA/6306 ] offers rebates of $5,000 for Roadster owners, though the popular program recently reached its cap and expired before the March 31 deadline.
Roadster owners in California also get free metered parking in many places, including San Jose [ http://www.afdc.energy.gov/afdc/progs/view_ind.php/CA/6007 ], Hermosa Beach [ http://www.afdc.energy.gov/afdc/progs/view_ind.cgi?afdc/6139/0 ], Santa Monica [ http://www.afdc.energy.gov/afdc/progs/view_ind.php/CA/6140 ] and Los Angeles [ http://www.afdc.energy.gov/afdc/progs/view_ind.php/CA/6006 ] – no worries about expired meters if you display your “Clean Air” decal. Sacramento [ http://www.afdc.energy.gov/afdc/progs/view_ind.cgi?afdc/5365/0 ] EV owners get free metered parking and even free charging in downtown lots equipped with charging infrastructure.

Roadster owners also get a 10 percent “alternative fuel vehicle discount [ http://www.farmers.com/FarmComm/WebSite/html/common/hybrid_discount.html ]” at Farmers Insurance. In most states with high-occupancy vehicle lanes, even single-occupancy EVs can use carpool lanes to zip by rush-hour jams. This could mean hours of time saved in places such as California, Virginia and Florida.

In Washington, DC, Roadster owners get an exemption of vehicle excise taxes, and registration fees are reduced to $36 per year.

We realize that a double-digit discount on registration fees doesn’t significantly change the cost of a six-figure sports car, which will remain out of reach for many Americans. That’s why Tesla is developing more affordable vehicles, as the cost of batteries is effectively decreasing by about 8 percent per year. We expect to sell the Model S four-door sedan starting at $57,400 before tax incentives – half as much as a Roadster. And we announced Jan. 13 at the Detroit auto show that we were partnering with Daimler AG to produce the battery packs and chargers for 1,000 smart subcompact electric vehicles in 2009 and 2010. All of these are precursors to more affordable EVs worldwide.

But even without new models, the real cost of the Roadster is already dropping – and savvy customers from Florida to Washington aren’t the only beneficiaries. As more people buy all-electric, zero-emission vehicles, the carbon footprint of personal transportation shrinks, and the entire planet benefits.