Republicans in the House of Representatives want an end to the tax credit of up to $7,500 on electric vehicles. Critics of the credit say it’s a giveaway that disproportionately benefits the wealthy (sort of true), because that’s who’s buying EVs relative to their numbers in the US population. Backers of the tax credit say it supports a fledgling technology in the US that could also cover long-haul trucks, electricity storage for big power plants with lots of off-peak capacity, and backup power for homes and businesses. Kill the credit and other countries will move ahead on EVs and lithium-ion battery technology.
Meanwhile, the tax credit is already sunsetting on Tesla. The company has sold 200,000 vehicles. Yesterday (Monday, Oct. 15) was the last day to order a Tesla and be guaranteed delivery by Dec. 31. That’s the last day of the pre-phase-out period where a Tesla is still eligible for the full, $7,500 federal tax credit.
Why Some Pols Want the Credit Discredited
The current US law allows buyers of electric vehicles to get a tax credit against the money you pay in taxes — a way better deal than a tax deduction — up to $7,500. You do have to pay taxes and owe at least $7,500 in taxes this year to get a $7,500 credit this year. The credit is to offset the higher price of an EV mostly owing to the massive lithium-ion battery packs.
Liberals are up in arms because the person who introduced the bill is US Rep. John Barrasso, a Wyoming Republican who’s a friend of traditional-fuel vehicles. There was an attempt to end the tax credit in 2017, which was piggybacked onto other legislation, then scrapped. The 2018 legislative proposal by Barrasso is a standalone bill. The summary calls it:
A bill to amend the Internal Revenue Code of 1986 to terminate the credit for new qualified plug-in electric drive motor vehicles and to provide for a Federal Highway user fee on alternative fuel vehicles.
Several sources note Wyoming is a fracking-friendly state and Congressman Barrasso is well financed by oil interests. OpenSecrets.org says Barrasso in the 2017-2018 election cycle has taken in $498,000 from oil and gas, 60 percent of it from political action committees. That’s more than a dollar per person of voting age in the Equality State, and the biggest bucket of contributions.
More broadly, critics of EVs and/or the tax credit say the electric vehicle industry should stand or fall on its merits, without subsidies.
It should be noted that buyers of EVs are clustered heavily in California and the West Coast, followed by about 10 Northeastern states. Basically, these are the largest of the 20 states that Hillary Clinton won in 2016. They also contain most of the states with HOV (high occupancy vehicle) lines, which allow EVs to use them as well as cars with either two- or three-plus occupants.
With Tesla Heading Out, Credit Remains for Mainstream EVs
Tesla is the maker of the priciest EVs currently. A Tesla Model S sedan or Model X crossover easily passes the $100,000 mark. So critics are right that the Tesla tax credit benefits those making big bucks. But those Tesla credits are on the way out. From January through June, the credit drops to $3,500 tops, then in the following two quarters, it’s $1,875. That’s for actual deliveries, not for orders, and not for price paid in full for a vehicle that’s still en route.
According to InsideEVs.com, this is where automakers stand as of the beginning of September 2018:
- Tesla, 244,000-plus EV sales
- General Motors, 193,000
- Nissan, 125,000
- Ford, 110,000
- Toyota 89,000 (hybrids were in a different tax credit category)
- BMW Group, 76,000
Every automaker under an umbrella brand counts toward the 200,000 unit total. It is for EVs and for plug-in hybrids with large batteries. GM’s 200,000 includes Chevrolet, Cadillac, Buick, and GMC. A separate, smaller tax credit exists for hybrids that go just a mile or two on battery power.
Tesla was smart in managing its deliveries so it hit the cap early in July. The way the phase-down kicks in is this: Once you hit 200,000 deliveries, every vehicle delivered in that quarter gets the full credit, along with every vehicle delivered in the following quarter. So an automaker can get credits for anywhere from one quarter plus one business day, up to two quarters minus one day. GM is likely to hit 200,000 sales in this quarter (October to December), perhaps this month, so it, too, may benefit from pacing deliveries.
Other automakers are starting to deliver EVs: Kia and Hyundai; and Volkswagen and Audi. Most of those are sub-$50,000 vehicles.
California Wants to Boost Its State Credit
Wyoming has clean air. California has cleaner air than 25 years ago, but it’s challenged by a population of 40 million and regional basins that trap polluted air (Los Angeles). The federal government long ago gave California the right to set stricter standards to control air pollution and it allowed other states to use the California standard, which many Northeast states have done. An ongoing tug of war is testing whether the feds can take away what it granted.
California is pondering whether the state needs to raise its own subsidy from $2,500 to $4,500. That’s to not just continue but increase public demand for EVs and PHEVs. Last month, Mary Nichols, chair of the California Air Resources Board (CARB), said she was hoping Congress will increase the number of cars that qualify for the federal credit. Failing that, she told the Los Angeles Times, “We would be having to look at another way to make up for that.” The Obama administration, late in its tenure, proposed raising the EV credit from $7,500 to $10,000, but Congress didn’t act on it. A $10K credit would drop the price on an entry EV to as little as $20,000 – $25,000.
The current 150-mile Nissan Leaf S in California, base price $30,000, with federal and state credits, plus up to $3,500 in Nissan incentives (mid-October 2018), would go out the door as a $15,000 car.
Automakers, in general, want to see the US tax credit remain in place, or set to a higher limit. GM called EV credits “an important customer benefit.” Nissan said the tax credit led the company to make “significant investments” in EV technology. The Alliance of Automobile Manufacturers (GM, Toyota, BMW Group, Fiat Chrysler, Ford, Jaguar Land Rover, Mazda, Mercedes-Benz, Mitsubishi Porsche, Toyota, Volkswagen, Volvo), representing more than three-quarters of US vehicle sales, said dropping the credit will hurt the development of newer, more efficient EVs. Tesla did not have a comment and no automaker said killing the federal credit was a good idea.
Several European countries are pushing toward an EV-only future by 2050. Whether they’re serious or just bluffing the auto industry to see what they can accomplish, it’s going to spur more EV research, and if the US tax credit fades away, it may mean R&D dollars leave the US.