The pressure for automakers to create battery-electric vehicles that consumers really want to buy amped up last week when Congress declined to expand the use of federal tax credits on electric vehicles.
The incentive program provides tax rebates that decline after the first 200,000 EVs an automaker sells in the U.S. Congress was lobbied to raise the threshold to the first 600,000. Last week, lawmakers rejected the idea and moved on.
General Motors and Tesla, the only automakers to reach 200,000 sales, had lobbied for the increase, along with a slightly lower tax credit for consumers: $7,000 per BEV instead of the current $7,500.
However, the incentive program remains unchanged, and buyers of other EV brands will still be able to benefit from the $7,500 credit. Nissan, Ford, BMW and Mercedes-Benz are the next automakers likely to reach 200,000 in EV sales, but they are still several years away from the mark at their current sales rates.
“Frankly, I was surprised that anyone at any automaker thought there was a realistic chance of the 200,000 cap being increased in the current administration,” said Navigant analyst Sam Abuelsamid.
Once an automaker reaches the 200,000 mark, the $7,500-per-vehicle credit is reduced by half for two quarters, and then to just one-fourth for another two quarters before it phases out completely for that company. GM’s ability to entice buyers with its remaining 25 percent credit will end on March 31. Tesla’s ability to offer tax credits phases out at the end of this year. That could place GM and Tesla at a price disadvantage against a growing wave of EV competitors, including Jaguar, Audi and Volkswagen, which will still be able to pitch the $7,500 credit.
The Trump administration opposed raising the limit, characterizing the credit as welfare for wealthy, left-leaning consumers, according to several reports.
Sticking with the 200,000 cap will compel automakers to create more appealing EVs, Abuelsamid said.
“OEMs have been shifting their strategies to focus on vehicles they think they can actually sell at a high enough price point and in enough volume to at least break even.”
But some view the government’s decision not to increase EV support as a missed opportunity to stoke demand for U.S. EVs, whose costs would come down as volume increases. “If sales slow due to the evaporation of the tax credit, it will take car companies longer to recoup the enormous investment they are making in battery technology,” Jack Gillis, CEO of the Consumer Federation of America, told Forbes. “Reducing demand will postpone both technological innovation and the implementation of economies of scale that will bring prices down.”
Still, it wasn’t all bad news on the legislative front for EVs. An amendment to the spending bill included an extension of a tax credit for consumers who install a home charging station. Rebates of up to $1,000 are available through 2020.