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Electric Car Tax Credits Could Get Unplugged in Proposed Tax Plan

Electric Car Tax Credits Could Get Unplugged in Proposed Tax Plan

As lawmakers battle out an overhaul for the U.S. tax code, one bargaining chip may have huge ramifications to the automobile industry. Reports have surfaced that the U.S. government’s federal tax credit for electric vehicles may be on the chopping block, which could send sales of EV’s tumbling.

Right now, buyers of qualifying electric vehicles receive up to $7,500 per vehicle in the form of a tax credit through the Internal Revenue System (IRS). The tax benefit has supplied a noteworthy boost to sales of electric vehicles and has been seen by the industry as a necessary means of subsidizing the high cost associated with developing electrification technology.

According to Bloomberg, lawmakers are considering nixing this tax credit program under proposed new tax codes. A theme amongst the Republican-led effort to alter the U.S. tax code has been simplifying the grossly complex nature of U.S. taxes; killing off the electric car subsidy could best be described as a “simplification.”

The EV tax credit is not perpetual in its current form. Every automaker is capped to 200,000 copies of the $7,500 tax credit. This means that as manufacturers approach 200,000 in sales of qualifying vehicles, the risk of this credit being phased out is there without any statutory changes. Tesla is largely expected to be the first automaker to run out of credits, which could happen as soon as next year if the company meets new production targets for the Model 3 sedan.

General Motors and Nissan are both not far behind Tesla in hitting 200,000 sales.

Once an automaker hits their cap, the credits begin to dwindle in amount until ultimately reaching $0, at that point it is assumed the automaker has managed to scale electric vehicle costs enough to sell to an unsubsidized market.

Analysts predict removing the federal tax credit could have huge ramifications on sales of electric vehicles. A sudden drop in sales of EV’s could have cascading impacts on automakers, who cannot easily retool production to accommodate swift changes in demand.

Further complicating the situation is that all automakers have to sell a certain number of zero-emission vehicles (ZEV) to achieve their Corporate Average Fuel Economy (CAFE) targets. Failure to sell enough ZEV’s will increase the fines they must pay to the Environmental Protection Agency (EPA) and California Air Resources Board (CARB) for not achieving targets.

Of course, nothing with proposed tax changes is final at this time. Nonetheless, such dramatic statutory changes will clearly impact the automotive industry if enacted.





 

About Nick Saporito

AutoVerdict Senior Editor Nick Saporito began writing about cars at age 13. Nick ran a couple of automotive enthusiast sites for several years, before taking some time off to focus on his career and education. By day he's a marketing executive in the telecom world and by night he hangs out here at AV. You'll find him focusing on tech, design and the industry's future.
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  1. 2b2
    my (frequent) complaint is that business does better if it knows what's going to happen well in advance *AND* that any artificial/regulation changes (as opposed to natural disasters OR caprices of the markets) be made/implemented to be gradual
    Dequindre
    Good. EV's are going to have to sell on their own merits at some point. Just because they're slow sellers doesn't mean we should subsidize them in the pursuit of being "green". With that being said, I think this should also be accompanied by relaxing CAFE rules to make it fair for automakers.
    Tone
    nsaporito
    It's a stretch to assume they will get any tax plan passed, but this is a pretty big deal.

    The industry is all-in on electrification at this point. There is no pulling out of it.


    True, and given the trajectory of battery prices and capabilities, it would be stupid to radically change course now. A couple of thoughts:

    First, the tax proposal now -- and who knows what the final version will look like -- also significantly reduces corporate taxes. That gives the government a great argument for auto lobbyists: you are getting a whole bunch of money back in your coffers from taxes. If you want to subsidize BEVs -- you totally have the means to do it with lots of money left over.

    Second, from what we've seen so far on BEVs, the total cost of ownership can be lower under the right conditions. Given the growing popularity of leasing and very long car loans, it's not like buyers seem very attached to ownership. That may open up the opportunity for someone big (GM, Tesla) to change the way people buy BEVs to some kind of all-in long term lease. Imagine if you could acquire a BEV for either a monthly fee or cost-per-mile levy with most things included: maintenance, repair, fast charging (like Tesla's Superchargers), maybe even long-term, lower cost electricity. Since most people seem to shop monthly payments, that might be a way to sell BEVs in the absence of the rebate. For many, having a vehicle at a fixed price with no worries about out-of-warranty costs could be attractive assuming the vehicles themselves are desirable.

    Last: for volume manufacturers, the rebates were going away soon no matter what as they get close the the volume caps. Yet, the proposed corporate tax cuts are forever. I'm betting most will be more than happy to trade one for the other.
    2b2
    * * coal * *
    donmateo
    Further complicating the situation is that all automakers have to sell a certain number of zero-emission vehicles (ZEV) to achieve their Corporate Average Fuel Economy (CAFE) targets. Failure to sell enough ZEV's will increase the fines they must pay to the Environmental Protection Agency (EPA) and California Air Resources Board (CARB) for not achieving targets.*


    I'd rather see this scrapped.
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