For the past decade, federal tax credits of up to $7,500 have helped woo a miniscule percentage of U.S. buyers into the plug-in electric-vehicle (EV) fold.
The tax credits were key to the Obama administration’s plan to have 1 million EVs on the road by 2015. That goal wasn’t achieved until 2018, when U.S. market share of EVs reached a heady 2.1%—up from 0.62% in 2013.
That 239% growth rate over five years was driven mainly by Tesla’s ascendancy in the segment. Sure, total EV sales remain paltry within a 17-million-vehicle U.S. market that’s awash in cheap hydrocarbon fuel. But it is growth, nonetheless.
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The tax credits also accelerated EV buyers’ decisions to “go electric” by one year or more. They sparked more than 30% of early plug-in sales (including about half of Nissan Leaf EV sales), according to a 2016 study by the University of California-Davis. Meantime, 37 U.S. states and the District of Columbia dangled to the public their own tax breaks, utility-rate discounts, free parking, HOV lane privileges and other incentives.
These “buy a car, get a check” schemes are right out of the old Lee Iacocca playbook. Except the American taxpayer, not Chrysler Corp., is footing the bill. Opponents of the tax credits in the U.S. Congress, led by both senators from Wyoming (a state with more than two cattle per human) are again working to eliminate them. They say the credits subsidize wealthier households—currently the core of the EV customer base. The opponents also argue that EVs are a double burden because they diminish gasoline-tax revenues typically used to fund road and infrastructure repair.
According to the Manhattan Institute, a free-market think tank, ending the federal EV purchase subsidy will save taxpayers about $20 billion over the next decade. For Tesla and GM, the subsidies are already ending. Each has exceeded the 200,000-unit delivery cap, which by law triggers the credit phase-out. By 2020 their credits will be gone. Latecomers to the EV market who haven’t yet reached the cap will continue to reap the full credits.
When will the EV market finally take off? It hasn’t yet happened in Europe, where a gallon of Super 95 costs about $5.50. With petrol there priced so high, you’d wonder who would want to buy a new combustion engine vehicle. Yet EV market share in Europe is, at about 2.35% in 2018, on par with cheap-gas America.
While the industry pours billions into EV development with little near-term payback, a potential solution is being debated in Congress: End the vehicles-delivered cap for EV tax credits and replace it with a time limit. An industry coalition supports this alternative; I’m propulsion-agnostic and I do, too. But for how long should the clock tick?
Let’s give the credits five more years—stop subsidizing EV purchases by December 31, 2025. By then, a flood of new EV models will be on sale, with a greatly-expanded charging network. By then, the value proposition of EVs should be able to stand on its own.
Lindsay Brooke, is Editor-in-Chief of SAE International Automotive Engineering Magazine.
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