In a blunt report, the car magazine makes the case for a fall in tax credits as causation for death of EV industry in US
Bold claims being made by Edmunds have made Electrans wonder whether the car magazine has caught Trump-tivitis or Musk-emia. A headline like ‘elimination of federal tax credits likely to kill US electric vehicle market’ is rocking the boat a little. But, there is some truth in it.
The car magazine published a report last week which claims that a loss in Federal Tax Credits in the US – worth up to US$7,500 per vehicle – could cause a severe drop in sales of EVs which currently hover above the price of the average ICE-powered car.
The Federal Tax Credit is set to run out with during the current administration, with President Trump looking to eliminate funding for the Department of Energy’s Advanced Technology Vehicles Manufacturing (ATVM) loan program, which would have assisted future EV production. Fortunately, it is unlikely that the Federal Tax Credit will be cut, but Tesla and Nissan Leaf are already halfway through their allowance of 200,000 cars applicable for the US$7,500 credit.
Previous withdrawals would support Edmunds’ forecast. When Georgia took away its US$5,000 tax credit in 2015, the EV market crashed, and what had been a promising year for EVs took a sharp downturn:
Nonetheless, if we look closer at the figures, we can see that Tesla Models and the BW i3 did not suffer a great deal… in reality, it was the Nissan Leaf which experienced a major hit, causing its sales to nose dive to the same level as the much pricier Tesla models.
Edmunds is arguing that the same will happen when credits run out across the country. Moreover, it could happen very soon; if projected production levels of 5,000 cars a week the Tesla Model 3 prevail, tax credits could be gone by the end of the year. General Motors, meanwhile, may max out in 2018 or 2019 if sales of the Bolt and Volt continue on their current pace.
Some who’ve ordered the Tesla Model 3 seem to be banking on the incentive.
@nickbaum I believe so
— Elon Musk (@elonmusk) March 24, 2017
Edmunds has claimed that beyond that expiry, the uptake of EVs will be a very slow process, given the low sales figures for plug-in electric cars. Other models involved in the credit scheme include the Nissan Leaf, BMW i3, and Fiat 500e.
There is reason to be optimistic just yet – the slow phasing out of the tax credit scheme could allow enough time for EVs to become competitive on the market. To be competitive, they should be around US$20,000.
Dodgy data… credible cause?
At Electrans, we’re not certain whether one can draw such a strong line of cause and effect between lack of incentives and death. It is apparent that the cut in tax credits in Georgia did some damage, yet the only car shown to have measurably suffered was the Nissan Leaf. On top of this, 80% of these cars were being leased at the time, which caused a 119% rise in monthly payments for the cars – hardly surprising that there was a severe drop in sales.
Rather than drawing correlations between a cut in incentives and a dead EV market, this study indicates that more accurate research is needed. For example, further market research into the stage in the buying process at which people begin looking at boring things like rebates and financial incentives. When do people get excited about EVs? Do people look into purchasing an EV to save money, to save the environment, or with an eye on the future of oil reserves? Are EVs still a niche because of lack of financial incentive, or because of lack of charging stations?
On the other hand, Edmunds’ aim is credible, just a little drastic. If the study is making accurate predictions, it will be the cheaper, but not-cheap-enough cars which will suffer. They are correct about this catch-22 situation. “The mainstream vehicles are expected to improve, and growing global markets — particularly in Europe and China — will allow automakers to achieve economies of scale.”
If there is little government support, car makers will be the ones who have to make their cars competitive on the mainstream market. This study does not give rise to predictions of death of the EV market. What it does suggest is that cuts in Federal Tax Credit could make little difference to sales for some car companies, but cause others’ sales to plunge – if they do not react now.
Luxury electric sedans, already sold for large sums, are likely to survive the loss of rebates. However, it is those companies selling cars to people who take into account that extra US$7,500 that will suffer, if they do nothing. Yet models like the Nissan Leaf, BMW i3, and Fiat 500e are still far from reaching the limits of the tax credit, giving them a time-limit, albeit narrow, to work on selling without the subsidy for consumers.
Arguably, more models are in the process of being made and prices are slowly but surely decreasing. These companies indeed have foresight and no doubt are aware of their weaknesses. Only if they did not, would they be likely to drive themselves off a cliff.