Will Elimination Of Federal Tax Credit Kill EV Sales? Maybe … Not

2 weeks ago by Steven Loveday 60

EV

Tesla is gearing up to produce some 400,000 Model 3’s in the coming years, and an annual 500,000 run rate per year by next year. The electric automaker is expected to hit 200,000 EV sales and begin to lose its federal tax credits sometime early next year.

Major automotive website, Edmunds, is certain that once EV subsidies go away, mass-market electric car sales will die off.

The federal government has been offering a tax credit of up to $7,500 to purchasers of electric vehicles for some time now. This incentive is not likely to last much longer. We could see it disappear quickly depending on decisions by President Donald Trump and the new administration, or it could linger until automakers hit the magic number of 200,000 EVs sold, at which point it will gradually scale down, and eventually disappear.

Edmunds, a major site for automotive reviews, sales, and news, believes that once the credit is gone, electric car sales will fade away (apparently CARB ZEV legislative mandates of accumulating e-credits equaling 2% sales in 2018, up to 15.4% in 2025 don’t factor in). The website published a paper last month that said that while a luxury market buyer may not be substantially affected by the loss of the credit, the mass-market consumer relies heavily on the incentive.

EV

General Motors – due to the success of the Chevrolet Volt, and the all-new Chevrolet Bolt moving toward nationwide sales – should also hit the 200,000 mark sometime next year.

Edmunds backs up its opinion by pointing attention to a past situation in which Georgia ceased its $5,000 credit (when used in conjunction with the $7,500 fed credit made some EVs on leases almost free).

When in play, the 5k rebate made the EV market in Georgia a extraordinary force to be reckoned with. The state actually accounted for 17 percent of the U.S. market share during a time when the incentive was offered. After the monies disappeared, that number plummeted to just 2 percent.

Will consumers cancel their Tesla Model 3 reservations, or cease to make new reservations when the base price of the car jumps from $27,500 (after federal rebate), to $35,000?

Some competing ICE and traditional hybrid models can be had for around $20,000. But, are they truly competing vehicles? Tesla aims to compete with the likes of German luxury automakers. You can’t get a new BMW 3 Series for $20,000, or and Audi A3 or A4, or a Mercedes C-Class. Based on Edmunds’ information, those looking for upmarket vehicles will not be affected as much.

What about the EV market in general?

The government incentive helped to give the electric vehicle segment some initial momentum. Though EVs only make up about 1 percent of the global automotive market share, progress is moving forward much quicker now. Major automakers have invested billions, and many are bringing multiple EVs to market in the coming years. These automakers are doing this regardless of the future status of the federal rebate.

Battery prices are dropping, and once most major automakers are in the game, playing competitively, volume alone will drop prices. The “Big” companies can afford to discount models to move product. Though the federal rebate may become a thing of the past, the automakers can offer their own rebates to offset that loss – it’s what they do best.

Though there may be a temporary, measurable dip in the EV market when the federal rebate first disappears, automakers won’t just throw away all of the research, and stop being competitive. Barring any drastic change by the current administration (which could change back just as drastically when another administration is potentially voted in ~3.5 years from now), most automakers won’t hit the 200,000 number for quite awhile. Even after the companies hit the mark, it’s a lengthy process before the incentive drops to zero. By this time, EV pricing, paired with aggressive automaker discounts and promotions, may be able to be on par with current pricing after rebate.

To expect a landslide – comparable to what happened in Georgia – to happen globally in the next couple of years, may be a bit drastic. Incentives have been important thus far, but it’s pretty safe to say that they won’t make or break the EV market as a whole.

Source: Edmunds

Tags: , , , ,

60 responses to "Will Elimination Of Federal Tax Credit Kill EV Sales? Maybe … Not"

  1. SparkEV says:

    The problem is that guys who only sold minimum number of EV for compliance (eg. Honda, Toyota, Fiat) will still get $7500 tax credit while those who pioneered (GM, Tesla) will see the credit sunset. Then the compliance guys could sell/lease “comparable” cars for $7500 less. With falling battery cost, that could represent 1/3 or more of the price of the car.

    While Tesla may be somewhat immune to “competitors” selling for 1/3 less, I doubt GM can handle that. This is simply not fair.

    If they’re going to eliminate the tax credit, they must do it for all manufacturers, not just for those who paved the way. Or better yet, don’t eliminate the tax credit until every last “major” carmaker sold 200K+ EV.

    1. Sublime says:

      The tax break allocation should have always been a pool, that started at like $15K for the first X vehicles, then worked it’s way down (7.5k, 4k,2k) until the pool was depleted. That would have lit a fire under these manufacturers.
      Now, like you said, the feet draggers are going to be rewarded.

      1. BillT says:

        Well said. I agree that the current system punishes the pioneers. Fortunately, I think the EV snowball is approaching unstoppable momentum so removing the credits would just slow things down in North America for a little while. China alone can drive demand for EVs.

      2. jerry says:

        I don’t think they’ll get rewarded unless they start mass production soon. Why is it’ll be cut as no longer needed in 3 yrs or so.
        But not mentioned is resale values go up as real cost of the EV is in it’s price.
        Another is EVs are cheaper than most think so they can cut by $5k without a problem.
        And batteries under $100/kwh shortly, ICEs are doomed.
        And heading to $70/kwh and 50% of the weight, space/kwh in 5 yrs will nail the coffin shut.
        And if big auto doesn’t get with the program, it’s going to lose as many start ups come in as EVs are so easy, cheap to produce.

    2. Ziv says:

      SparkEV, when the tax credit for Tesla and GM drops from $7500 to $3750 next year, how much do you want to bet that GM drops the price of the Volt and the Bolt both drop by around $3000? And GM will still be making a small profit on them, I would bet as well.
      Tesla probably won’t have to drop their prices because they have the cachet and GM does not.
      But realistically, the tax credit should go away for everyone when Tesla and GM credits go to zero. If you haven’t been selling that many electric cars for the 8 years the credit was around, too late for you to profit from it.

      1. SparkEV says:

        GM may make a small profit, but those other laggards will be making $7500 more profit than GM. That just isn’t fair when GM did so much in pioneering work.

        Tax credit going away for everyone is exactly what I’m arguing: don’t eliminate the tax credit until every last “major” carmaker sold 200K+ EV.

        If I could have my way, EV tax credit would be perpetual since it’s a tax cut for everyone (obviously everyone wants clean air), but I doubt Prez Dump and the tax-happy Republitards will let that happen.

        1. JayTee says:

          So eventually, $7,500 x 17 million vehicles annually? 127 B in EV credits?

          1. RC368 says:

            Wouldn’t that be sweet. Take it from the military budget of 600 billion. Fewer wars needed.

            1. John says:

              Yes! The motivation of wars are the oil, instead of paying to defense contractors, they can be paid to EV makers to self sustainable green energy sources from wind mills easily. The shale oil can be reserved for military engines , don’t waste it on simple transportation needs.

              1. Nick says:

                Haha!

                I’m sure we’d have been just as interested in middle East affairs of their main export was broccoli instead of oil.

                Would have had to find some pease time way to pay our military contractor​s. How would that possibly have worked? 🙄

                1. JIMJFOX says:

                  Well said, Nick!
                  Easily the dopiest analogy ever seen on the ‘net!

      2. stan1 says:

        Do agree that the compliance cars aren’t directly tied to the incentive for U.S. sales (and yes that includes the Volt, Bolt and even i3). But the calculation on how many of these EVs companies are willing to sell will change. Losing the $7500 essentially raises the cost of credits for offsetting SUV and Pickup sales, PR value, etc.

        It would also lead to lower demand for Tesla’s vehicles all else being equal since it is equivalent to a $7500 price increase. However they are only now beginning to see the benefits of the Gigafactory volumes. It is likely they have room to lower prices to match the phase out while still maintaining similar margins and volumes due to the improving cost of batteries they face with the ramp. GM has a similar situation with LG based on their “leaked” battery costs.

        There is no impact whatsoever on vehicle sales anywhere else in the world. These same firms are going to have to sell EVs in most other world markets whether they want to or not. EU carbon and diesel emission reduction goals, Chinese, Indian, etc. EV plans, will continue to ramp upward.

    3. zzzzzzzzzz says:

      You forgot who is in the office and who has majority in the Congress and Senate.
      Next budget will have all the “liberal waste” expenses eliminated, and I will be surprised if this tax credit will not be in the same boat. No filibusters apply to budget.

      1. RC368 says:

        We know the oil, coal and ethanol people will get what they want.

        1. stan1 says:

          Which will reduce the competitiveness of U.S. vehicle production more or less permanently just to earn fossil fuel interests slightly increased returns for a few more years.

          1. stan1 says:

            I should add that the Chinese are probably besides themselves with their good fortune. They were already handed the solar industry because the fossil boys were busy pretending it didn’t just need scale (while actively working to prevent it). Here we are now trying to give them wind, batteries/storage, energy efficiency, etc. while also strapping the U.S. economy with additional debt and lower economic competitiveness due to higher energy costs. All just to buy a few more years of profits.

  2. Rich says:

    I expect automakers will lower the price on their EVs when the tax credit expires.

    I’ll use GM as an example, but I don’t believe this is limited to GM.

    We know GM artificially inflated the Chevy Bolt price in the USA by $5,800. http://insideevs.com/chevrolet-bolt-ev-canada-priced-42795/

    We know GM raised the price of the Volt by more than $7,500 when Obama announced the creation of the tax credit. I don’t have a link to this, but it should be hard to find. Look for the price GM was saying they would sell it for and then the price 1 month after Obama’s announcement.

    Assuming CARB mandates are allowed to continue, I think EV prices will reduce when the Federal Tax Credit expires for each automaker.

    1. Mint says:

      GM barely supplies only a few hundred Bolts to Canada for the year, so they’re probably losing money on them and just using them for PR.

      So no, there’s no basis for saying they artificially inflated the price in the US.

    2. Ziv says:

      Obama wasn’t President when the tax credit was enacted. George W Bush pushed for the Energy Security Act of 2007 and he was the one that signed it into law. George W Bush was hailed as the “Father of the Modern Electric Car” back in 2008.

      1. WadeTyhon says:

        I have never heard of anyone refer to Bush by that name.

        But I have heard people call Ronald Reagan by that exact title due to his forming of CARB while governor of California. And his position as its first chairman.

        Bush initiated the tax credits. Obama expanded them.

        Obama, Bush, Reagan all played indirect parts in providing the right cobditions for EVs. I dont think any of them have a legitimate claim as “father”. GM, Tesla, Nissan have much more legitimate claims lol

        1. Raymond Ramirez says:

          If someone deserved the title of the real “Father of the Electric Car”, I believe it should go back to the inventor of the electric motor (the transformer and the generator, too), Michael Faraday. His untrained mind founded many electromagnetic discoveries, but the modern “Father” would be Thomas Edison who made and sold thousands of electric cars (and chargers!) to the U.S. drivers at the beginning of the 20th century.

        2. Ziv says:

          Wade, Car Connection had that as its headline back in 2011. Note that they all use the word “modern” in their headlines to differentiate between early, unsuccessful efforts vs. the modern, more successful electric cars.

          http://www.thecarconnection.com/news/1060552_george-w-bush-father-of-the-modern-electric-car

          As did EV World, albeit with a question mark.

          http://evworld.com/news.cfm?newsid=25839

          And Fox News gave him credit for the Modern Electric Car as well.
          http://www.foxnews.com/opinion/2011/05/26/george-w-bush-father-modern-electric-car.html

          This goes against what most people remember, but before the GM bailout, people thought differently about the electric car tax credit.

    3. menorman says:

      I completely agree. There’s little reason for the Cruze-sized Volt to cost more than the Malibu Hybrid and once the credits expire, GM will be forced to admit that via pricing.

  3. notting says:

    Can just write something concerning the situation in Germany:
    50% of the incentitive of 3kEUR for PHEV/4kEUR for (FC/B)EV is paid by the manufacturer. So the actual incentitive is 1500/2000EUR. E.g. Renault gave 5kEUR discount on the Zoe before that incentitive program. IIRC they still give 1kEUR on top of that incentitive = 5kEUR. So I can imagine that they will reduce prices/give more discount (even to the level of when the incentitive was offered?) when that incentive program has ended, at least a few month later.

    notting

  4. OntarioLeaf says:

    Some plug ins are priced with the incentives in mind. I think the manufacturers could do better in terms of pricing when these incentives eventually go away.

  5. Stephen Hodges says:

    Do keep the Edmunds article filed, for future articles on EV demand. Like renewables, EV’s have many who don’t get it (to be nice) or are actively working against them. I believe in remembering who was on which side of progress. We need granite to etch in the climate change deniers list too, so our future generations can know who was responsible.

    1. JayTee says:

      You mean like when Elon takes his private jet? It’s always somebody else’s fault.

      I suppose now you’ll tell me you don’t use fossil fuels. Right.

      1. Raymond Ramirez says:

        There are electric planes in development. One of them did cross the English Channel, and was made by Airbus. Elon Musk should start doing his own, using SpaceX as the source of that development.

      2. RC368 says:

        And if he still has an old gas lawnmower somewhere, “No respect for you buddy!” No transition is good enough for you I guess.

  6. DJ says:

    Hell ya it will be a problem. Even with the rebate some cars today are priced way more than they are worth. Getting rid of that will only make the problem worse.

    No way would I spend $40k on a Bolt or Model 3. $30k is more likely but notm$40k

    I agree with the pool thing. Only good thing is that 2 US companies are gonna reach the cap 1st so I suspect there is a stronger likelihood of getting it extended than if Honda or Toyota was about to reach the cap. Heck they being laggards in the EV world may be a good thing!

  7. Michael Will says:

    It’s not going to make much of a difference, less margin for the automakers but in terms of electric driving adoption the cat is out of the bag. Too many people already known it’s advantages, and once you switched you wouldn’t want to go back. Just like I would never hand in my iPhone for a cheaper landline, just not going to happen.

    https://electrek.co/2017/05/05/ev-benefits/

    All major automakers have realized that and shifted gears towards electrification. I expect Volvo, Ford, Mercedes, BMW, Audi, Jaguar to see a lot more sales of plugin electric cars globally, whether the US stops their local incentives or not.

  8. SteveSeattle says:

    I suspect that GM has planned for this and has built some margin into the current Bolt pricing. Also I believe that they are planning to expand the range of vehicles using Bolt technology when the incentives run out. This will allow them to gain economies of scale to reduce prices for their BEV products.

    I have always advocated for a switch to a pool incentive approach that kicks in when the Tesla or GM incentives run out. This pool will drop by $1000 per year from $7000. This will allow a soft landing for the plug-in market. Hopefully the present government will see this as “America First” as it will benefit Tesla and GM the most.

    1. Ziv says:

      Steve, it would be like GM to miss an opportunity, again, with regards to electric cars. When they hit the 200,000th sale next year they will have 3.1 to 5.9 months of UNLIMITED full $7500 tax credits available to them. If they sell 10 more electric cars, their 10 customers will get the full credit until the end of the second calendar quarter.
      BUT, if they are like Tesla and selling cars like mad, if they can find 100,000 people to buy Volts and Bolts, technically, all 100,000 buyers/leasers would get the full $7500 tax credit.
      How much do you want to bet that Tesla takes advantage of this in a big way, and GM does not? I could definitely see GM finally delivering a CUV with a Voltec drivetrain, a month after the tax credit gets cut in half.

  9. James says:

    Nobody’s gonna buy any Evs like Tesla without Incentives. We’ve seen it in Norway and Honkong, where sales of Tesla Model S dropped from over 1000 to like zero.
    Tesla aims to compete with the likes of German luxury automakers? Yeah right, only the price is luxury. If a Tesla is luxury then call every car in the world is luxury

    1. RC368 says:

      Not comparable. Norway’s incentive was 50%. Your opinion aside, Tesla is spanking the luxury car makers.

    2. terminaltrip421 says:

      the premium teslas certainly are luxury, granted considerably inflated in price — that may be par for the course though. the model 3 however appears laughable given the interior and in no way should it compete with luxury brands in that price range — certainly at least not once the other brands start offering autonomous driving or their own electric options.

      1. RC368 says:

        Seems you’re rushing to a preconceived judgement.

  10. SJC says:

    Add a carbon tax then we can do incentives all across the board.

  11. JBA says:

    What I am curious about is how much that tax credit actually benefits the standard income people that will buy the Tesla model 3. It is fine to say wow, a $7500 savings, but the way it is applied as as tax credit that must be taken in the first year with no carryover allowed then I wonder just how much savings is really realized. Their annual income tax bill after all of the standard deductions would probably be considerably less than $7500.

    1. William says:

      Lease the vehicle, for the first few 2-3 years if you can’t take advantage of the full $7.5k. That way when/if you buy at the end of the lease, you still effectively get the cap cost reduction of the $7.5k fed incentive.

      1. Mark.ca says:

        ….and you get to see if you really like the car enough for you to keep it. That is the way to go if the credit is fully discounted in the leas.

  12. Someone out there says:

    There will certainly be a noticeable dent in demand but eventally it will push prices down.

    1. Raymond Ramirez says:

      I agree because most EV buyes cannot qualify for the full tax rebate, and some may not qualify at all if they don’t pay Federal taxes, such as myself (I don’t live in the continental U.S.)

      1. Rich says:

        “most EV buyes cannot qualify for the full tax rebate”

        FYI

        https://www.fool.com/retirement/2017/03/04/whats-the-average-americans-tax-rate.aspx
        The average American’s federal income tax
        For the 2015 tax year, the IRS assessed income tax of $1.454 trillion on Americans, out of the 150.6 million tax returns received by the agency. A quick calculation shows that the average taxpayer owed $9,655 in income tax. Since the average taxpayer’s gross income was $71,258 for 2015, this translates to an effective federal income tax rate of 13.5%.

        1. zzzzzzzzzz says:

          Tax tables from IRS:
          https://www.irs.gov/pub/irs-pdf/i1040tt.pdf

          You need at least $56,000 taxable income to qualify for $7,500 credit if filling as typical “married jointly”. Unused part can’t be carried over to another year.
          That is taxable income only, i.e. after $12,600 standard deduction, 10+ thousands for exemptions, state taxes, itemized deductions and so on. Realistically you need at least around $100k income to get that credit, or about double median US household income, or around 25% of population.

          The rest 75% of population can only lease, but it is up to automakers/leasing companies to pass credits in full or play games making overall deal more expensive than it should be.

        2. SparkEV says:

          zzz is correct. You should only look at median since US tax base is far from normal (Gaussian), which means average is heavily skewed and not very meaningful.

  13. CLIVE says:

    The Tesla Effect will kill off ICE.

    1. Raymond Ramirez says:

      That will never happen! Someone said the same about the gas engine killing off horses over a hundred years ago.

      1. RC368 says:

        Considering how prevalent they were, cars killed most of them.

    2. zzzzzzzzzz says:

      I’m still waiting for Concorde effect to kill legacy airlines and provide quick and affordable transatlantic travel for $1000 maximum. But somehow it takes too long and my patience wears thin 🙁

      1. RC368 says:

        Yeah, that’s relevent.

      2. stan1 says:

        EVs are cheaper (yes already at the top of the market and by 2022-2025ish completely), more reliable, and have better intrinsic noise, vibration, and harmonics characteristics than ICE vehicles. Literally the only downsides for EVs are speed of recharge versus refill and available infrastructure.

        Speed of recharge is largely irrelevant since currently vehicles sit 95 percent of the time and are utilized at a rate where even a 12 amp 120 volt wall socket can refill the vast majority of vehicles globally during normal downtime. As time goes by internal resistance has been declining continuously lowering the refill advantage.

        Likewise, the infrastructure issue is largely an inner city and intra-city issue since 12 amp 120 volt wall sockets can reach most rural parking locations. The inner city issue (lack of street/parking garage infrastructure) may disappear completely with vehicle autonomy.

        The intra-city issue is already pretty small (as the total number of trips and need for infrastructure) and as time passes the speed of recharge is increasingly making that even smaller (fewer stations required for shorter time periods).

        ICE vehicles are therefore intrinsically inferior for the vast majority of use cases and the slice where they are better is rapidly disappearing.

        The Concorde was faster but way more costly. The value of time saved versus extra cost never crossed below the absolutely highest tier of global earnings. It was intrinsically inferior to standard jet airplanes.

        1. stan1 says:

          Correction: ICE vehicles are therefore intrinsically inferior for the vast majority of use cases and the tiny slice where they are better for any reason is rapidly disappearing.

  14. mevp says:

    ***mod edit (IT)***

    noted, will work on that, thanks for heads up

    ***mod edit***

  15. Bob Nan says:

    This is exactly what the media said about Hybrid cars. When that $2,500 credit is phased out, the hybrid cars will die.

    But it continues to sell well and more than 12 million Hybrid cars were sold Worldwide.

    Now they are saying the same with Electric. Surprise is waiting for them.

    The $7,500 credit is simply pocketed by automakers and once when its phased out, they will reduce the price and the sales will more than increase.

  16. Mark.ca says:

    There is another possibility here…
    I too expect the fed credit to be gutted (while the oil credits will be kept well and fat) but Trump does have an America first policy so what if he keeps the credit going but only for American manufacturers…he is a fan of supporting American business….or at least that’s what he said.

    1. menorman says:

      He’s clearly more a fan of polluting since dozens of American companies begged him to stay in the Paris Agreement and he didn’t.

  17. Nix says:

    The end of the federal incentive will make EV’s a state-by-state deal.

    States will have to step in where the federal gov’t fails until either rational people are in power, or until EV technology which will continue to be developed for the rest of the world makes the EV drivetrain price in line with gas cars (some say 2025).

    Yes, sales will slump in the US for a while. Less if a slump in states who act NOW to work together to soften the impact.

    At this point, green-friendly large cities and green-friendly states need to work together in a pro-active, coordinated way.

  18. Greg Meek says:

    I bought a BMW X5 40e, it was cheaper than the X5 3.5, before the $4668 federal tax rebate. Not sure of other manufacturers with similar EVs or PHEVs, to same model ICE.

  19. Jason says:

    It is all back to front anyway. There should be a surcharge on ICE vehicles so that they actually become too expensive to operate and EV’s naturally become the best choice. Is it Norway where they have done this and EV adoption is something like 50% or more?

    Rebates rarely work as the providers invariably inflate their prices and absorb any benefit. You see direct correlation to this all the time, but politicians seem to love giving them out as an easy win compared to increasing taxes.

Leave a Reply