Expiration of Federal Tax Credits May Kill EVs in U.S., Says Edmunds

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If the Trump administration decides not to extend a federal tax credit of up to $7,500 that’s currently offered to electric-car buyers, the result may well be the death of that small but growing market in the United States. That’s the conclusion of a research report from Edmunds, released this morning.

What’s driving the market for EVs and plug-in hybrids is not primarily the desire for better fuel economy or the salvation of the planet, according to the report. It’s the federal tax credit and the similar rebates offered by some states.

Evidence of the get-a-good-deal approach can be found in how green-car shoppers do their research on Edmunds, according to the report. Car shoppers in search of electric cars are much more likely to view the site’s manufacturer incentive and rebate pages than are people shopping for cars with internal combustion engines. In fact, incentive and rebate pages on Edmunds for EVs had 219 percent more traffic than their non-green-vehicle counterparts in January and February of this year.

But the federal credits are only available to the first 200,000 customers of each carmaker offering them. With the Tesla Model S and Tesla Model X, that carmaker has sold nearly 100,000 vehicles, which would put Telsa near the halfway point of credit allotment. Nissan, which makes the Nissan Leaf, is about halfway through its credit allotment. General Motors, whose plug-in cars include the Chevrolet Bolt and Chevrolet Volt, is expected to run out of credits in late 2018 or in 2019.

It would require congressional action to extend the credits, which are part of a broader set of EPA policies that require carmakers to produce cars that are more fuel-efficient and emit fewer greenhouse gases. Plug-in cars are key to achieving those goals. The Trump administration has discussed rolling back the emissions requirements, so it’s unlikely that the federal tax credits will be extended. That spells trouble for plug-in cars, which currently make up just 1 percent of all new-car sales.

“Without these credits, this market is likely to crash,” according to the Edmunds report.

A case study of what happens when tax credits disappear can be found in Georgia, which had been offering a $5,000 tax credit for zero-emission vehicles. In 2014, it had the second-highest EV sales rate in the U.S., just behind California, and accounted for 17 percent of all U.S. sales of electric cars. After Georgia eliminated the credit in July 2015, the EV market crashed, tumbling to just 2 percent of national sales.

The Edmunds report lays out the Catch-22 for EVs and plug-in hybrids: To achieve mainstream sales levels, they need a better national charging infrastructure and longer-range batteries. But without evidence of a market for such cars, it’s hard to make the case for such investments. If the government pulls the plug, “the onus will be on automakers to keep sales afloat — most likely with their own incentive programs and at a detriment to their bottom lines,” Edmunds concludes.

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