The fate of the federal tax credit for electric vehicles hangs in the balance. The House version of the GOP-led tax plan removes it entirely while the Senate version (as of Friday, November 17th) keeps it on the books. As lawmakers work to combine the House-passed bill with the Senate version, let’s examine why the EV tax credit shouldn’t be eliminated.
What is the federal tax credit for electric vehicles?
Section 30d of the tax code gives electric vehicle buyers up to $7,500 off their tax bill – or allows leasing companies to receive the credit and lease EVs for lower rates.
The credit is scheduled to phase out for each automaker that surpasses 200,000 EV sales. Some of the early entrants to the EV scene, like Tesla, General Motors and Nissan, are forecast to hit the 200,000 limit in 2018, while others, like BMW, Volkswagen, and Ford, are relying on the federal tax credit to offset the price of EVs that are set to hit dealerships in the next couple years.
What has America gotten for investing in EVs?
The EV tax credit has stimulated a market for vehicles that are cheaper to drive, pollute half as much, and offer a simply better driving experience compared to gas-powered vehicles. If you think that automakers would have produced EVs without the prompting of state and federal policy, may I remind you that automakers fought tooth and nail against seatbelts and air bags, improving fuel efficiency, and pretty much every other vehicle-related regulation that has ultimately benefitted public health and safety. Consumers deserve the opportunity to choose clean vehicles, and the federal tax credit has made that choice easier to make by offsetting the upfront cost of EVs that is often higher than comparable gas vehicles.
The tax credit has also spurred domestic automakers to get in on the EV game. American companies like General Motors and Tesla sell EVs in all 50 states, and are competing with foreign auto giants to become the global leader in EV sales. At a time when EV demand is poised to skyrocket in other countries, eliminating the federal credit will hamper domestic automaker efforts to both sell EVs on their own turf and maintain their global competitiveness.
Federal support for EVs won’t be needed forever
As I’ve previously discussed, the federal tax credit is the most important federal policy supporting the EV market, but won’t be needed forever. Battery costs are forecast to continue their decline, with some projections showing EVs becoming price competitive with gasoline-fueled vehicles in the mid-2020’s. By making EVs cost competitive today, the federal tax credit has helped EVs gain a fingerhold in a market monopolized by gasoline-powered vehicles that have had over a century to mature. Removing the credit now is premature, and will cause EV sales to suffer at a time when the market is just beginning to gain traction.
What will happen to the EV market without the credit?
Even if the federal tax credit is eliminated, the California Zero Emission Vehicle Program will still require automakers to sell EVs in California and the 9 other states that adopted the ZEV program. This program will require EV sales in states that comprised about a quarter of the U.S. vehicle market, so EVs will certainly remain available for sale. Other state support for EVs, like a $5,000 tax rebate in Colorado, will survive too. For state-level EV incentives in your area, check out this handy guide. EVs will also remain cheaper to drive, and a smart choice for millions of Americans who have a strong demand for the technology. That’s the good news.
The bad news is that one of the primary hurdles to more EV adoption is their price (along with access to charging in multi-unit dwellings and the lack of a cheap EV SUV (see Tesla Model Y). So taking away a policy that directly addresses this barrier will make it harder to own an EV, and it will hurt sales. Georgia removed a state tax credit for electric vehicles, and sales dropped an estimated 90% in the following months. I’m not expecting as dramatic as a drop if the federal credit is removed, but EV sales will drop because they will become more expensive and automakers will have less incentive to making them available in the U.S.
So, join UCS in telling Congress that you deserve more clean vehicle options, and that the EV tax credit is a key federal policy that makes it easier to own an EV. Also keep an eye on the UCS website for additional ways you can get involved, and if you are considering an EV, getting one now might be a good option if you are looking to save at least $7,500 of its sticker price.
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