Is it Too Early to Stop EV Tax Incentives?

 In EV Industry

When electric vehicles first hit the market, the fear was that their cost would be unaffordable to the general public. To offset this buyer’s anxiety, the federal government (US) began offering tax credits of up to $7,500 to incentivize people. The credit amount varies on the capacity of the battery used in the vehicle, but for the most part, it was a good chunk of change that caused consumers to have a greater interest in the electric vehicle industry.

That was in 2010. As we near almost a decade of credits given, states are starting to cut off the funding. Although some other countries offer great incentives, many have also begun cutting off their tax breaks. The result of ending these subsidies has often been catastrophic to the local market. It has caused the industry to seriously question if it is too early to stop EV tax incentives and how it can end up affecting the growth of commerce.  

Incentives Support the Industry

These credits support the industry in a variety of ways. Not only do they incentivize consumers to purchase a more expensive vehicle, but manufacturers also get a piece of the pie. The government offers manufacturers tax breaks for their first 200,000 customers. Although Tesla has 400,000 backorders of its forthcoming Model 3, the question remains, will people keep buying when the incentives completely run out?

The answer in Georgia is “no.” In the month prior to the state repealing their $5,000 tax credit, almost 1,300 electric vehicles were sold. By August, the number dropped to a shocking 97. In the year before, Georgia accounted for 17% of the US EV market. After de-incentivizing, it is now at a mere 2%. Therefore, this may be a sign that it is much too soon to start taking these credits from people if you want the market to continue to thrive.

Introduction of New Fees

In addition to the lack of credits, at least 9 states (including Indiana and Illinois) have introduced bills that will levy new fees on EV owners. Georgia has already started. When the state repealed their generous 5,000 EV tax credit, they added an additional $200 registration fee for all EV owners. This, in turn, caused EV sales to shrink by 80% in the state and the market to become virtually nonexistent.

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At this point, 25 states have now passed bills to not only let subsidies expire, but charge fees against EVs. The notion behind this move is that EV owners are not paying gasoline taxes and thus need to be taxed in another way for infrastructure. But if the market is depending upon these incentives, will it thrive if we de-incentivize people by taxing them?

Not according to the people in Hong Kong. What was once considered a “beacon city” for EVs has almost completely died out, as a new tax hike has increased the price of the vehicles by 50-80%. In fact, in May of 2017, directly following the levy, the city had zero registrations for EV vehicles. That’s astounding, considering in March, 2,944 Teslas were registered.

Gas is a Major Competitor

Although battery prices are expected to drop, it is not anticipated this will affect market prices until 2026. Since the crash of crude oil prices in 2014, operating a gas-powered vehicle has become much cheaper than it once was. This is expected to influence the mass market buyer who, although they care about the environment, simply cannot afford an electric vehicle without a tax break.

The only way to continue to attract the customers who would be affected by a tax credit, is to shift the onus to automakers to keep sales afloat. With the cost of batteries still a tad high, this may have serious consequences to their bottom line. If they cannot make a profit, the market will dry up. This is yet another sign it may be entirely too early for governments to pull out of assisting consumers with electric vehicle purchases.

The proof is in the numbers. Elon Musk, the owner of Tesla, once called Hong Kong the most promising and accommodating city to electric vehicles in the world. And yet, when the government de-incentivized the EV program, it killed the market.

It is much too early for EV tax incentives to dry up because the industry cannot currently support itself without them. The only successes they will see is in the high-end market, and that won’t nearly be as influential to emissions as people hoped. With gas prices at all-time lows and states now taxing EV owners, it’s hard to say where the future of the industry lies. Hopefully, they’ll churn those batteries out sooner than expected, and we can all get back to making the planet a cleaner place.

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