|Electric cars have been a tough sell here in the United States. The proposed Tax Bill from the House Republicans could make selling an electric car even harder.
According to a report by Bloomberg, the proposed plan includes the immediate elimination of the $7,500 Federal Tax Credit currently afforded to purchasers of electric vehicles (EVs). The federal government subsidizes the cars in hopes that the technology and appeal of driving an EV will eventually become mainstream and people will choose an EV over a conventional internal combustion-powered vehicle.
The tax credit, originally set in motion by the Bush administration, was put into effect under Obama and has provided a much-needed incentive to buy an otherwise more expensive car. Currently, the tax credit applies to the first 200,000 electric cars sold by each automaker. After those units are sold, the credit phases out over the next five quarters. At the current rate of EV sales, Tesla would be the first company to reach 200,000 in 2018, followed by GM and Nissan.
To get a good idea of what could happen if the tax credit were to immediately disappear, look at the state of Georgia. They had one of the most aggressive state benefits of $5,000 per electric car on top of the federal benefit of $7,500. Electric cars sold very well in Georgia at a rate of about 1,400 per month, according to Bloomberg. After they canceled the state credit in June 2015, sales dropped to only 100 units per month.
Automakers fear a similar fate if the Tax Bill is approved. With more money than ever going toward electric vehicle research and development, this bill could prove devastating to the field. Gasoline-powered car companies such as GM have made significant commitments to the movement. GM plans on releasing 20 electric cars by 2023 and almost every other manufacturer aims to release multiple lines of electric cars over the next five years. Under the current plan, Tesla would be covered for the first year of production of the much-anticipated “mass market” Model 3, which is their first attempt at an affordable EV, and would have grown the Tesla market base exponentially, allowing more price-conscious consumers to join the Tesla family.
The companies most affected by this proposed bill would be those who have yet to sell a significant number of electric vehicles, and were counting on having the tax credits intact for many years to come. They were counting on Telsa, GM, and Nissan to run out of credits right around the time they were ready to release more EVs. If the credit were to end now, those companies may have to change strategy as companies with a stronger foothold in the EV market would likely continue to outsell them.
For most of America, the elimination of the tax credit may be considered positive. As it stands, 99% of vehicles sold here are powered by fossil fuels, not batteries, so eliminating the tax credit can be seen as way to limit unwarranted government spending. Others argue that for electric cars to truly succeed, subsidies need to go away to force more competition between the car manufacturers. It’s difficult to predict exactly what would happen if the proposed bill were to be approved. States like California mandate car manufacturers to produce a certain number of EVs if they want to sell any car in their state. With policies like that, it makes it very hard for an automaker to simply stop making electric cars. Instead they would have to accept a loss on each car just to sell their profitable vehicles.
It’s important to note that this bill has not yet been approved and the proposal can change drastically. It may seem dramatic to say the fate of electric cars rests with the outcome of this bill, but the reality is people just don’t buy electric cars unless they are either heavily subsidized or a niche car like a Tesla.