Could New California Legislation Create an Electric Car Boom?

 In Electric Vehicle News, EV Industry

Electric car sales have never been better. Through the first nine months of 2016, deliveries in the United States are on pace to shatter the previous record set in 2014, and almost every month has set an all-time high for the plug-in segment. Yet even with this encouraging growth, EVs remain at or below 1% of U.S. auto sales.

Why have these cars not caught on with the general public? While you cannot pin the low sales figures on any one factor, evidence points to the following reasons:

  • High sticker prices
  • Low range
  • Inadequate charging infrastructure
  • Lack of government outreach
  • Poor marketing by automakers

Studies have shown all of the above contributing their part to the slow adoption. However, times are changing. We have already looked at the remarkable growth in charging stations over the past year. Meanwhile, attractive, longer-range products from GM, Toyota, and Hyundai are making their way to market this year.

That leaves high prices. Once California’s new climate legislation gets funded, available rebates will combine with federal incentives to make electric vehicles affordable at every income level. In fact, this law may create the first legitimate EV boom in the Americas.

Unprecedented EV Incentives

Tesla Model 3In the states with the highest percentage of electric car sales, financial incentives have been a key driver. We saw it in Colorado (up to $6,000), Georgia (up to $5,000), and California ($2,500). We’ve also seen the opposite – a swift drop in sales – once Georgia’s state incentive disappeared. Of course, these amounts are in addition to the $7,500 tax credit available to EV buyers.

Yet no state has ever committed to electric vehicles as California just did. In the session that ended in August, the assembly earmarked $368 million for the Air Resources Board (CARB) for improving economy of heavy-duty trucks and providing funds for green car rebates. If a low-income family trades in a gas guzzler that failed emissions tests, the buyer may access as much as $12,000 when buying an EV. Combined with the federal credit, that would knock $19,500 off the sticker price.

Here are a few examples of how affordable an EV would become:

  • Nissan Leaf ($29,010): $9,510
  • Kia Soul EV ($31,950): $12,450
  • Volkswagen e-Golf ($28,995): $9,495

With prices so low, many more consumers can buy an electric model, as they are the equivalent of used cars. There are currently no new cars that cost less than $10,000 on the U.S. market.

Improving the Existing Incentives

Toyota Prius Prime

The new Toyota Prius Prime.

In addition to the above incentives, California extended the incentive of $2,500 for all-electric models and $1,500 for plug-in hybrids as part of the Clean Vehicle Rebate Program. Some $133 million will go to ensuring another wave of plug-ins hits state roads in the coming years. Families earning over $300,000 and single filers earning over $150,000 will not qualify for rebates.

Meanwhile, new restrictions on plug-in hybrid rebates appeared. Under the revised rules, only PHEVs providing more than 20 miles of electric range will get a rebate. That makes the Ford Focus Energi, Hyundai Sonata PHEV, Kia Optima PHEV and upcoming Toyota Prius Prime (rated at 25 miles EV range) considerably more affordable for consumers.

Prime’s announced sticker price of $27,100 before federal and state incentives would bring the price down below that of the base Prius model. This competition will present consumers with a choice they’ve never made before: buy a plug-in or spend more. The approach worked for Norway, the world’s leading electric vehicle market. It may very well work for California and the U.S. as a whole.

The New Generation Arriving

2017 Hyundai Ioniq Electric

The 2017 Hyundai Ioniq Electric.

So California has the rebates, the chargers, and a government committed to getting EVs on the road in never-before-seen volume. What about the cars? In addition to Prius Prime and the Optima PHEV that will make it to U.S. dealerships in 2016, several other models below the luxury class will join the fold this year, including:

  • Chevrolet Bolt EV: 238 miles, starting at $37,495
  • BMW i3 94 Ah: 114 miles, starting at $43,600
  • Hyundai Ioniq: over 100 miles of range, pricing not yet disclosed
  • Ford Focus Electric: over 100 miles of range, pricing not yet disclosed

Critics of the upcoming Focus Electric and Ioniq tend to ignore the considerable sales volumes of the first-gen Nissan Leaf, which offered 84 miles of range. Coupled with the fact that range anxiety is primarily a mental barrier, 100 miles with fast-charging capability is a viable product for households with two cars. Considering both the Ford and Hyundai should fall below $30,000, they could see high sales volumes in California.

Looking to 2017, we expect both the Tesla Model 3 (215 miles, $35,000) and upgraded Volkswagen e-Golf (125 miles, pricing not yet disclosed) to make it to America. By any estimation, consumers will have enough products to tide them over. Most other automakers are entering the scene with luxury models and/or electric SUVs later this decade.

The California Experiment

For the first time on a U.S. market, consumers could see an incredibly efficient electric-capable car (Prius Prime) undercutting the nameplate’s standard hybrid models. Low-income consumers will see pure EVs priced lower than even the most stripped-down mini gasoline car on dealership lots. If these conditions don’t create some spark in plug-in sales, it should worry everyone with anything invested (emotionally or financially) in EV technology.

We don’t see it happening. For the first time, U.S. consumers will have their pick among well-reviewed products that can cover the distances they need to drive on a daily basis, and they will have the chargers to top off the battery when running low. Combined with attractive electricity rates and a good deal of buzz surrounding the Model 3 release, it will be hard to keep electric cars down.

If California succeeds, the blueprint has the potential to travel east to other ZEV states and become a key cog in the plan to combat climate change in America. With transportation now accounting for the most emissions per sector, it’s the final frontier.

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  • Jay

    “If a low-income family trades in a gas guzzler that failed emissions tests, the buyer may access as much as $12,000 when buying an EV. Combined with the federal credit, that would knock $19,500 off the sticker price.”

    Hi Eric, Unless the $7500 federal credit switches to a rebate at sale of the car, it will be very hard for low-income families to qualify for the full credit. They need to have at least $7500 in calculated taxes to pay after net income.

    • Ash45

      That’s definitely one of the drawbacks to buying a new plug-in car, which is regressive and benefits those who make more money than the middle class and poor, where that $7500 would go much further for them than someone making 6 or 7 figures a year.

      There’s always the used plug-in vehicle market though, where the tax credit has already been taken out of the car’s value, hence why they’re fairly inexpensive to buy compared to when they were brand new. For instance a 2013 Chevy Volt was in the $40k range when new. That same car coming off a lease can be had for around $12-15k.

      So it sucks for the first owner who doesn’t plan to keep the car for at least 10 years. But for that second owner, it’s an awesome deal.

    • EricNYC

      It’s a great point. Thanks, Jay.

  • hildegard

    Car dealerships need to frame their contracts so that low-income buyers can borrow to buy a car with part of that loan including a payment upon receipt of rebates from taxes. Maybe they need to cut a reputable tax preparation company into the deal to help people do the paperwork for the tax rebate and ensure the rebate is transferred as a loan payment when the rebate comes in.
    It might be better if rebate legislation were framed so that the income that matters is the average of several years’ income previous to buying the car and then just let the rebate be part of the purchase. (This might lower the number of people who Trump the system with a one-year write-off.)