By Jon LeSage, a California-based journalist covering clean vehicles, alternative energy, and economic and regulatory trends shaping the automotive, transportation, and mobility sectors. Originally published at OilPrice
Tesla and General Motors are seeing the beginning of the end for crucial U.S. federal tax incentives needed to transition interested car shoppers into electric vehicle owners.
The federal government years ago had placed a 200,000-vehicle cap, per automaker, on EV sales before tax incentives up to $7,500 would begin to be cut back. By the end of May, Tesla was estimated to be at about 194,000 EVs sold — including the Model S, Model X, Model 3, and Roadster — and GM was a little bit over 182,000, primarily through sales of the Chevrolet Bolt and Chevrolet Volt. Nissan was at about 120,000 through sales of the Leaf, and Ford finished May at nearly 108,000 EVs sold.
Once a manufacturer hits the 200,000 EV mark, they’ll finish that quarter and will go one more quarter beyond at the $7,500 incentive level. A phase-out period begins with incentives cut in half at $3,750 for the next six months; it then goes down to $1,875 for the next six months before it goes away entirely.
The tax credit started a decade ago under the George W. Bush administration and was expanded later under Barack Obama’s presidency. President Donald Trump has pulled away support for the tax incentives, and it was nearly terminated in the sweeping tax reform bill last year led by Congressional Republicans.
Automakers would like to see legislators direct the Internal Revenue Service to extend the tax credits. As is the case in several industrial nations, tax cuts and other incentives are seen as absolutely essential to grow EV sales — to make them worth the huge investments automakers have been slapping down in recent years.
Lithium-ion battery prices will continue to come down, EV range will be extended to over 300 miles per charge, fast charging will become common, and the EV product lineup will make them more enticing to car shoppers. But that will be years from now, and generous government incentives have been essential for sales to see a slow and steady increase.
The EV revolution is taking much longer to achieve than proponents such as Tesla CEO Elon Musk have been championing for years. In the past couple of years, European automakers have been announcing major strategic campaigns to bring battery electric and plug-in hybrid sales up to 25% of their total new vehicle sales sometime between 2025 and 2030.
In July 2017, Volvo announced that gasoline-only cars would stop being produced in 2019 with all new vehicles coming out with an all-electric or hybrid option. The company predicted it will have sold one million electrified vehicles by 2025.
When first created a decade ago, the federal tax credits were supposed to stir enthusiasm for the new technology and bridge the gap toward mass adoption. However, consumer adoption is not happening as quickly as expected at that time. States such as California have been able to enhance incentives with rebate programs, but incentive funding has been fading away in a few states.
Plug-in vehicles made up 1.2% of total new vehicle sales during 2017 according to automotive analyst IHS Markit. The research firm forecasts that will rise to 5% or more by 2022. That will rise to more than 10% by 2025, including hydrogen fuel cell vehicles.
IHS says that the number of plug-in vehicle models will go from 49 last year to 258 by 2025.
GM will take a larger hit than Tesla if the incentives dry up and go away, according to research by the Institute of Transportation Studies at the University of California-Davis. Wealthy car shoppers have been enthusiastic about buying a Tesla Model S or X, while lower-priced vehicles such as the Chevrolet Volt starting below a $40,000 sticker price have needed incentives to gain purchase support.
Italy’s new populist government believes enough in the technology to push for one million EVs to be on its roads by 2022. The goal is for Italy to go from Europe’s weakest EV market to knocking Norway off its mantle to become No. 1 in the continent.
It’s expected to cost country at least $10 billion in government incentives to reach that target.
China’s “new energy vehicle” program has been revived for the next few years. Consumers can find generous rebates and vehicle manufacturers have access to their own subsidies for building EVs in both the passenger and commercial vehicle segments.
The Chinese government wants to see its air quality improve and for its vehicle manufacturers — many times in joint venture partnerships with foreign manufacturers — to be global leaders in technology innovation and advancements.
EV incentives have seen several opponents who see it tainting the free market and supporting unwanted technology. There’s also the argument that government incentives have been subsidizing wealthy consumers to buy high-end EVs like the Tesla Model S and Model X.
Plug-in vehicle incentives have found support from major companies such as utilities. Power companies are investing in the charging infrastructure needed to build something similar to a vast network of retail gasoline stations.
GM CEO Mary Barra sees incentives as a requirement for EVs and charging to become typical and widely adopted.
“As we believe in an all-EV future, we think there’s still work to do to make sure customers understand the benefit as we continue to develop the marketplace,” Barra said.