Tesla And GM Close To Capping Out On Electric Vehicle Tax Incentives

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

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 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, 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 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 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.

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36 comments

  1. The Rev Kev

    This could prove interesting. I take it that these rebates are to give a sort of protected window while manufacturers research and develop technologies to use in these cars and get them into production. Trouble is that as the rebates go away, these technologies will have to stand by themselves and perhaps some will be found not fit for purpose. It’s like that old saying that it is only when the tide goes out that you find out who has been swimming naked. It’s strikes me too that the rebate for this series of cars is really only to benefit the 10% who can afford it. Call it upper middle-class welfare as who else can afford to buy one of these cars.
    There is an article at which talks more about this and has figures for the top six manufacturers and only Tesla and General Motors are near the limit. If Trump puts a tariff on German cars it might help US manufactured cars but probably not these type of cars much. Tesla may have the biggest problem and an article at talks about how Musk may try to slow walk the process by parking the cars in lots around the country or shipping them to Canada but if he hasn’t been able to shake down and set up a manufacturing line with the first 200,000 cars then it is all over red rover for Teslas.

    Reply
  2. boz

    Yves / Lambert: with the 2-10 year spread narrowing, it would be great to see a piece of economic indicators and a forward look into the likely recession (the history of that 2-10 curve suggests late 2019 the recession will hit).

    I’m a UK reader with an interest in financial services (when the US sneezes etc).

    Perhaps there is something in the archives still relevant?

    thanks
    boz

    Reply
  3. Knifecatcher

    The EV tax credits do get a bad rap, primarily (IMO) due to the fact that so many went to wealthy Tesla buyers. But I believe they’re serving their purpose in getting the public comfortable with EVs. We bought a Leaf new in 2015 and love the thing to bits, despite the fact that it’s a first gen car with limited range.

    As a certified car nut it pains me to say it but EVs are clearly the future. I think about it this way: my Leaf – the very first truly mainstream EV – is far more cost efficient to run than even the most frugal gas powered econobox. And the Model S, the first performance oriented EV, accelerates faster than just about every gas powered street car ever made. The technology is only going to get better from here.

    Which brings me back to the tax credits. I expect that my family will always have at least 1 EV in our fleet for the foreseeable future – but we would never have tried one without the credit as an incentive.

    Reply
    1. The Rev Kev

      To tell you the truth, I do have my doubts about these sorts of cars. Performance and cost-efficiency are one thing but the full range of costs and factors should be examined with these cars. For example, the way those batteries burn in a fire are the stuff of nightmares and I have no confidence in the quality controls at Tesla. In addition, there is the factor of just how efficient these care are for the environment. Check out the following story at RT-

      As the Scotsman said: “I ha’ ma doots!”

      Reply
      1. PlutoniumKun

        I’ve seen a couple of studies like that and I’m extremely dubious – that one has a very obvious flaw in that its comparing the Tesla to an ‘average’ UK car, which is significantly smaller and less powerful. The fossil fuel industry is busy using the tobacco industry playbook of scattering out questionable studies to spread doubt.

        There have been in Europe funded by governments which indicate that even in the worst case scenario – i.e. a dirty mix of electricity – over their livecycle EVs are significantly less polluting. And while they haven’t been around long enough to be sure, there is also good reason to think EV’s will last longer than conventional vehicles as they have fewer moving parts.

        The fire issue is a red herring in my opinion. By definition, all vehicles require a power pack of energy, and concentrated energy storage sources can go on fire or explode in the right (wrong) circumstances – it doesn’t matter whether its gasoline or diesel or LPG or propane or steam or flywheels. Petrol cars go on fire so often its just not newsworthy (a friend of mine nearly died a couple of years ago when his Mercedes engine spontaneously went on fire while driving). The only relevant question is whether batteries are inherently more flammable or explosive than gasoline or diesel and there is no reason to think this is the case.

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        1. The Rev Kev

          I’m afraid that I am going to have to respectively disagree with the idea of the fire issue being a red herring. Yes, petrol tanks do catch fires but they only burn until the petrol is gone and then they go out. Those batteries are something else and just this week I read a report of a previous crash where the battery caught fire. Firefighters with this crash had to try to the manufactures to try to find out how to best put these things out.
          Eventually they managed to get it out but when they started to load the wreckage aboard the carrier, it caught fire a second time. The firefighters put it out a second time. Then, after the car was transported back to the police yards and was sitting on its jack jones, it caught fire a third time. This is not funny and I wonder what would happen if you had several of these cars cooking off in a long tunnel somewhere.

          Reply
          1. PlutoniumKun

            Battery fires are intense and horrible (although generally lower toxicity than most other forms), but its very difficult to imagine one fire setting off sequential combustion events, unlike with liquid fuels where spilled gasoline in an enclosed area can trigger multiple vehicle fires, as happened in the fire in Afghanistan and numerous other examples of multiple car pileups.
            But almost all catastrophic tunnel fires are caused by cargoes igniting (sometimes starting as a fuel fire), such as the in 1996 which involved a consignment of polythene coffee cups – this fire was so intense it actually destroyed the tunnel lining – if it had been in a wet immersed section of tunnel it would have flooded, killing many people. Likewise, the fire was also caused by cargo – butter and flour. There are far, far more things to worry about in a vehicle than battery fires.

            Reply
            1. The Rev Kev

              I suppose the truth of the matter is that with the introduction of any new technology there are always going to be problems. Remember the lithium-ion battery fires in aircraft () not long ago?
              They mostly solved that one by putting the battery into a metal box which sounds a bit low-tech to me. Give another ten to twenty years they will have the manufacture of these batteries for cars down pat but I suspect that at the moment these are still basically in the Mark 1 stage of development.

              Reply
                1. d

                  Well short going to fuel cell, what would be next? we have tried diesel, gasoline, and we had tried batteries before,but seems like this time around its working better.now we have experimented with solar, but so far no go, just enough energy to make it work

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                  1. Alex Cox

                    Fire is a very important issue. The San Jose Fire Dept is not equipped to deal with lithium battery fires on the interstate. I am a volunteer firefighter in rural Oregon and neither we nor our professional colleagues at CalFire across the border have any equipment to deal with these fires (we are a couple of miles from Interstate 5).

                    Perhaps Elon Musk will provide us all with new equipment from his profits selling flamethrowers!

                    Reply
                    1. The Rev Kev

                      Between these batteries and those flamethrowers the man does seem to have a fascination with burning things down.

    2. Altandmain

      The EV tax credits do get a bad rap, primarily (IMO) due to the fact that so many went to wealthy Tesla buyers.

      That’s the problem though.

      They went to wealthy people who would have bought the Teslas even if they did not have credits.

      Overall, Model X owners spent on average 29% more on their vehicles than Model S owners, with the average price of their Model X purchase ringing in at $125,000 compared to $97,000 for Model S buyers. Both Model S and X owners had an average age of 53 years old. Model X owners showed a significant bump in household annual income versus Model S owners, ticking in at an average of $503,000 and $267,000 respectively.

      As someone working in the industry, I would rather they go to lower end EVs aimed for middle class families. For them, a tax credit may be the difference between whether they can or cannot afford the car.

      For the Tesla demographic, the tax credit will be spent on options to load out the car.

      Reply
      1. Other JL

        The credit caps are per-manufacturer. Since Tesla hasn’t had a low-end offering until recently, Tesla credits don’t crowd out low-end EV purchases. For example, a low-end buyer of a Leaf will count towards Nissan’s cap of 200K, which they’re still a long way away from.

        Reply
        1. Altandmain

          I think you missed what I said.

          The well off would have bought their Teslas regardless of the credits because they had the financial resources to do that. It should also be noted that Tesla fans are very, very loyal to the brand to the point where it has been called a cult. If a typical Tesla buyer has that much loyalty and money, they are going to buy the car, credit or no credit. In that regard, the tax credits are largely wasted. We might as well have subsidized Lexus LS buyers.

          For taxpayers, that money was wasted. If you are subsidizing something that someone will buy regardless of whether they are going to get a tax credit or not, that basically represents a transfer of wealth from the rest of us to the well off buying these vehicles.

          The Leaf buyer by contrast, if their income was lower, is more likely to have a make or break situation. The best choice would be to heavily restrict the subsidy, say to no more than $40k in 2016 dollars. in return, for higher quantities subsidized (ex: instead of 200k, say 300k).

          Reply
          1. Other JL

            My point is that, under existing law, credits for Tesla buyers don’t take money away from other purchasers.

            Could the law have been structured better? Certainly yes. Do Tesla buyers need tax credits? Probably largely not (although, as a Valley wage slave, I have to admit that a 6 figure salary doesn’t go that far here).

            Realistically, US code is a horrible neoliberal mess. There are many, many parts that could be significantly improved, and tax credits for Tesla buyers are a pretty minor piece of that. In any case I’d rather have credits go to Tesla buyers than Raytheon.

            Reply
  4. Thorstein's Ghost

    The article states that “years from now” EV range will be extended to over 300 miles per charge.

    On April 3, 2017, EPA certified a range of 335 miles for Tesla’s Model S 100D. Of course, this EV is quite expensive.

    Reply
  5. Jack P Lifton

    The key issue that is being overlooked in the West is the anchor point of the battery supply chain, the new production of the critical battery metals. China subsidizes miners and refiners through state controlled financing based on that country’s industrial plan. So long as Western politicians follow the efficient market/(so-called) free market “hypothesis” the critical raw materials will continue to flow to China, which already does and will continue to control when and if there is ever an electric car “revolution” based on cars/trucks made outside of China or outside of Chinese control. Its really as simple as that.

    Reply
  6. John Beech

    I remember in the mid 1980s when the first electric model airplanes came to market. They used NiCds and were – in a word – heavy and while fun in their own way, they weren’t for me. Thus, after a brief foray to try the new thing, I stuck with IC engines. About 10-15 years ago, with the strong advent of LiPo batteries (China) there was a market shift. Electric models proliferated as the power density improved (more Watts/pound from the battery). On the business front (I am involved in this as a business), my customers began requesting the electric version of our model helicopter in equal numbers with the IC version and over the last 3 years it’s become 70/30 electric – where we are now. In the fixed wing world, it’s a similar story although size plays a large role and when wingspans are below 1500mm it’s probably 90% electric. Here’s the thing, the performance of an electric model is better than that of an IC model in all respects – except – for flight duration. Sound familiar? Anyway, our industry never had a subsidy, but then again, while there ‘are’ models that cost upwards of $10,000, the vast majority (99%) cost <$200 . . . unlike electric cars that begin around $40k. I happen to believe the subsidy should continue a while longer – maybe another 10 years, or using the metric of sales, increased to 500,000 units versus 200,000 units. Of course, nobody cares what I think.

    Reply
    1. Grizziz

      I thank you for your insight into the niche category of model helicopters!
      Tax incentives do impact sales and maybe they could be structured to skew benefits away from top income earners. These incentives only accrue to new car buyers and are not that helpful to lower income earners who also face the high repair costs of failing battery sets.
      Since the bias of NC favors mass transportation and collective answers to moving people from home to work and not the individual response to the evolvution of the increasingly divided notion of labor, you might not get an enthusiastic response at this sight to your plan.
      But again, ‘500k or fight’ might be a good Elon tweet!

      Reply
    2. John k

      Odd to me there’s any limit. No limit to any of the fossil fuel subsidies, certainly not the oil depletion allowance, or no Ca tax on oil extracted regardless of amount.
      And fossil fuels are poison,

      Reply
  7. Jim Haygood

    ‘Plug-in vehicle incentives have found support from major companies such as utilities.’

    Here’s why: Moody’s Investors Service has downgraded its overall outlook of the U.S. utility sector, which is coping with a swiftly changing electricity sector and falling demand in the U.S.

    All-electric homes, anyone? Yeah, that was a great idea the utilities flogged in the 1960s, with crappy electric stoves (for that real grilled flavor) and clunky electric baseboards (‘the heighth of fashion,’ as ol’ Holden Caulfield claimed) for heat.

    As for EVs, while they have their limited uses — such as electric buses which don’t spew a cloud of diesel exhaust into narrow urban canyons — EVs merely transfer the energy use to create power to a central plant.

    Some power plants using advanced thermal cycles may operate at a higher Carnot efficiency than an automotive internal combustion engine. But overall the energy savings from electric vehicles are rather trivial. And in many states the juice for your Tesla is being generated by a coal-fired plant. Drive green through the coal smog, comrades. :-)

    Reply
    1. PlutoniumKun

      Some power plants using advanced thermal cycles may operate at a higher Carnot efficiency than an automotive internal combustion engine. But overall the energy savings from electric vehicles are rather trivial. And in many states the juice for your Tesla is being generated by a coal-fired plant. Drive green through the coal smog, comrades. :-)

      . Thats the energy used by an electric car powered from a 100% oil fuelled grid compared to a gasoline fuelled car. EV’s are demonstrably far more energy efficient than even the very best internal combustion engines.

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    2. Scott

      Has there every been a time when utilities have not been supportive of EVs? It represents new avenues for growth, especially in places that don’t have growing demand. Although a number of states have prohibited them from owning the charging stations, they allow certain enabling technologies to be included in the rate case.

      This reminds me of an article that I read years ago that argued that the internal combustion engine over electric motors for early automobiles was one of the biggest technological upsets of all time. Electric motors are more efficient, silent and release less pollution (in the immediate vicinity). On top of that, there was a more established electric distribution system, although not fully built out and more large companies, the utilities and Edison for example, were supporting it. The IC won largely because of the limitations regarding energy storage and charging times.

      Reply
    3. John k

      Temporarily a partly valid complaint, depending on location.
      Solar waiting for cheap enough storage, already here. Will take over the southwest quickly, the south just a little later.

      Reply
  8. Knifecatcher

    EVs merely transfer the energy use to create power to a central plant.

    Merely? You think that transferring the point of energy / pollution generation from hundreds of millions of individual cars to a centralized power system is trivial? Sorry, can’t agree with you there.

    Getting Joe 6 pack out of his ancient smog spewing beater and into an EV means you’ve taken away the “freedom” of that dude to waste energy and pollute the planet. A positive, IMO. The transition away from coal at the point of power generation is happening now. Slowly, but it’s happening, and as it continues EVs will become more of a net positive for the planet.

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      1. d

        Did you think that IC engines only pollute at the tail pipe? how about lets start back they do exploratory drilling? then if they lucky and they find oil, depending on where it is, if say it was on land its a lot easier to drill for say it was 5000 feet down (or more), and the hazards are some what different (any one remember the last blow out at a drilling rig in the gulf?); on land its only slightly easier, or is it? maybe we just dont hear about because it so often? then there is fracking, which if done wrong cause earthquakes, just as Oklahoma who went from less than 10 a year, to over 300? now we also include the transportation of oil from where its found, now a lot of times thats by sea, and i am sure remember that spill in Alaska, and the spill from pipelines, from trains, from trucks. now we shouldnt forget that some of the oil we get is used just transporting it from where found it to where refine it. now almost all of these steps use electricity too (and not a small amount of it). now getting electricity also pollutes, since we use coal in some places, and natural gas, nuclear power, oh and we use reusable, just not so much yet. now that we have gotten to the stage we can a vehicle, here both use a lot electricity, and the basic shapes are the same, and except for the batteries (both have them, just different chemistries). Now from personal experience, i spend a lot less getting where i am going than using gas,but that is just me.

        Reply
  9. Altandmain

    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.

    The big issue is that you are asking consumers to take a huge risk on what is their second largest (or for non-home buyers, their largest) purchase. They are risking:

    1. That the resale value of these vehicles will not plunge.
    2. Reliability of the vehicles will be good even after the warranty expires (see: ).
    3. Widespread adoption leading to many charging stations and standardization (or at least an adapter for that standardization).
    4. That their cars will not be obsoleted rapidly by advancing battery and other car technology at a rate much faster than old ICE engines are obsoleted (this could lead to plunging resale values).

    Most people cannot afford to take that gamble. There are other issues, such as longer charging times and the fact that people may be forced to rent an ICE car for longer road trips. Decades of wage suppression thanks to neoliberalism is also to blame for this as well.

    Customers are very price sensitive to cars I’m afraid. A lot of these problems were predictable and well, had you asked car people, they could have noted these. The big problem is that many EV proponents think that they are smarter than those who worked in the industry and think that the industry would easily be “disrupted”. It’s not as easy as it seems.

    There is also the matter that car culture itself is the problem. This is the problem:

    Also read this:

    These problems are not going to be resolved with EVs I’m afraid.

    I mean, I would have to find a new line of work if we did become more walking and mass transit oriented, but provided we have lots of aggregate demand (which would require the end of neoliberalism and a focus on stimulus plans in recessions), it would be a better society.

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  10. steven

    There is also the matter that car culture itself is the problem. … These problems are not going to be resolved with EVs I’m afraid.

    That is probably the bottom line (right up there with Keynes’ “in the long run we are all dead”). We need to find some way to live with past mistakes, e.g. all that asphalt and urban sprawl. There may indeed be some serious problems with EVs as even a short term solution. Some months ago Yves posted a comment about her research in the industry – specifically a potential shortfall of cobalt. Someone needs to take a serious look at all the issues and decide whether EVs are even a short run option.

    But articles like this one or the Russia Today story don’t IMHO qualify as a ‘serious look’. (Including hydrogen fuel cell vehicles in the discussion from everything I’ve read and heard casts doubt on the author’s credibility.) If you want to talk about subsidies, what are the exemptions to Clean Air and Water acts worth to the fossil fuels industry and its customers? What is their value when the bill comes due for climate change? With their up front battery costs EVs are more expensive. If they are the right thing to do, some way to make them affordable to more than just the upper middle class needs to be found.

    (There is a potentially much more serious cost – the continued viability of the planet. Has the U.S. been dragging its feet in the transition to renewable energy because, unlike oil, it is available in one form or another more or less everywhere? As long as the US controls access to, say, the Middle East’s oil it can continue to dominate the global economy, even as it off-shores more and more of its wealth-creating potential.)

    P.S. – On a personal note, I may be an arch environmental criminal but for the last 7 years I’ve heating and cooling my house here in Tucson and charging EVs for about 5,000 miles a year driving with 15 year old solar panels. When I was first considering the panels I was told by a work colleague with a PhD in physics the panels would never generate the amount of energy it cost to produce them. I suppose that is a possibility for the differential (if any?) required to produce EVs and their batteries. But once they exit there is no question they are better for the environment than gas engines.

    Musk could have done a much better job refuting the Russia Today article from what I’ve read and heard. (Hum, Russia sells what? A new RussiaGate?)
    1. even for electricity produced 100% from burning fossil fuels, EVs are better by a wide margin than internal combustion engines (ICE) (16%);
    2. it takes quite a bit of electricity just to refine the gas burned by ICEs (6kwh per gallon?)

    Hopefully someone with a better command of the numbers will weigh in here

    Reply

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