The Impact of an Attack on EV Tax Incentives for Electric Automakers

 In EV Industry

Was it only a month ago that Tesla clinched the title of the most valuable automaker in the US? It’s estimated that Tesla is worth $52.7 billion, compared to General Motors’ $49.6 billion. That’s hardly chump change, putting Tesla – a company that produces only electric vehicles – firmly ahead of the Big Three and their diverse offerings.

How did this happen? And did it have anything to do with economic incentives for EVs? Although the US administration continues to huff and puff about reviewing CAFE, there have been no definitive steps taken. Trump is now threatening to pull out of the Paris climate change agreement, and a recent proposal from Senators from auto states to give carmakers more CAFE credits sends some strong signals. If there were a review and standards were to be rolled back, there’s no telling how that would impact US EV economic incentives.

“Economies of the 13 clean car states benefit from the increased spending and job creation in other sectors.”
– Andy Wunder, state program manager for Ceres

California sticking to (CARB) guns

It’s not surprising that the California Clean Air Resources Board (CARB) are sticking to their clean air standards guns. Recently, CARB voted unanimously to reaffirm their regulations for cars and trucks. In fact, California as a whole is moving ahead with stricter pollution rules for 2022 to 2025. And 12 other US states have adopted California’s standards, which impacts a whopping 113 million US residents, representing over one-third of US vehicles. Could this lead to a court battle if the Trump administration re-opens standards for 2022 to 2025?

Automakers argue that the current ambitious standards will only serve to raise car prices and lower demand. It’s also their opinion that EV technology just won’t be ready in time.

But it can’t be ignored that supporting the current standards provides many benefits, including investment, job creation, and hey – cleaner air and a healthier planet. The reality is that manufacturers in other parts of the world have already committed to clean air strategies. Automakers produce globally, and making a sudden major shift in production is tricky and/or next to impossible. So even if the US were to roll back CAFE, there are still tough emission standards to meet in Europe, Japan, China and elsewhere.

Rabbit hole of state-by-state incentives

Right now, the US federal $7,500 credit is still in place, even though it will be phased out as manufacturers hit their quotas. Each carmaker is allocated credit for up to 200,000 EVs. Tesla and GM are tied neck and neck to hit their respective 200,000 quotas in 2018.

Reviewing EV incentives state by state is like falling down a rabbit hole, as criteria and boilerplate can be baffling and vary from generous to non-existent. There are 16 US states offering EV incentives, down from 25, and many are valid through 2017.

However, one of the most generous, Colorado’s $5,000 tax incentives may be pulled. Utah has decided not to extend its tax credit, and still others like Illinois, Pennsylvania, and Tennessee have let their incentives expire.

Georgia repealed its $5,000 tax credit on low-to-no-emission vehicle tax credit in 2015, and instead, actually instituted a $200 registration fee for EVs. Ten states have slapped special fees on EVs or PHEVs of up to $200/year, and nine more – including Indiana, Kansas and Montana, are considering them. The flawed rationale behind the registration fee is that EV owners don’t have to pay gas taxes, so this is their contribution to infrastructure expenses.

Is this just about electrical vs big oil?

Looking at the players, it’s tempting to think that this is another skirmish between the EV industry and Big Oil. EVs could reduce oil demand by two million barrels a day by 2025, the same dip as the oil price collapse in 2014 and 2015. But moving away from EV technology could remove the US from its pole position in vehicle technology. Industry experts compare the scenario to the US automakers 1970s love affair with big cars – all those land yachts opened the door for Japanese car companies to lay rubber with their compact, affordable and fuel-efficient cars.

The truth is, sales of EVs leaped over 70 percent in China, which is embracing EVs with a vengeance. Chinese car buyers are more interested in EVs due to serious problems with air pollution in major cities like Beijing. In 2015 alone, the Chinese government spent a staggering $4.56 billion in incentives! While these incentives will eventually be reduced, for now they are still in place. In 2015, GM sold 35 percent of its new vehicles in China.

EV sales for Canada, France and Sweden have also grown by 50 to 70 percent. Canada offers incentives even for buyers of used EVs in Quebec and BC. Nissan recently announced a program in Quebec to provide used LEAF vehicles from out of the province for purchase or lease with the provincial government’s $4,000 incentive. And despite being one of the world’s largest oil exporters, Norway’s EV incentives are the most generous – notably providing an exemption from the 25 percent VAT.

The EU has mandatory emission reduction targets set for 2021, with the average emissions of new cars targeted at 40 percent less compared to the 2007 fleet average. Fine particulate pollution is a major issue in many large European cities, and EVs are seen as a significant player in the solution.

Transportation sector heaving emissions into the atmosphere

The fact is, in Europe, the transportation sector is responsible for a quarter of all greenhouse gas emissions. Since 1990, industrial emissions may have fallen by 38 percent, but the transportation sector has increased emissions by nine percent. How does that compare to the US? Well, last year, for the first time since the 1970s, the transportation sector released more earth-warming gases than electric power!

These facts were not lost on 30 US city officials, who asked automakers for an estimate of providing 114,000 EVs to the tune of $10 billion. They want to ease the role city traffic plays in climate change, even asking for electric vehicles that don’t yet exist such as electric fire engines and heavy duty trucks. New York, which has never before offered incentives, has introduced a $2,000 EV rebate.

The message is clear – consumer, government and business want EV technology. Although the pullback of incentives and the seeming lack of interest in clean air by the current US administration may be a stumbling block, it’s not the end of the line. The EV train has left the station, and there’s no stopping it.

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