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US rebate rollback threatens EV automakers

California Clean Air green sticker - Mariordo (Mario Roberto Durán Ortiz).

Consumers and automakers alike could be hurt if the Republican Party succeed in scrapping the EV tax credit, and other clean-energy tax breaks

It was announced this week that House Republicans are proposing to eliminate the US$7,500 tax credit currently in place to help increase the affordability of EVs.

Currently, automakers in the US can take advantage of a US$7,500 tax credit on each vehicle, for the first 200,000 units sold. The financial benefit is then passed on to consumers through a cheaper and more market-competitive purchase price. Despite the advances in battery technology, bringing lower costs, the hardware is still more expensive than ICE counterparts. As such, automakers rely on tax credits to make products more affordable.

Car companies and zero-emissions advocate groups have already weighed in on the news. Spokeswoman for General Motors, Laura Toole, has responded, arguing that the tax credit “an important customer benefit that can help accelerate the acceptance of electric vehicles.”

While some automakers have refused to comment, the Alliance of Automobile Manufacturers, representing the likes of Toyota and Volkswagen, made it clear that it and its clients disapprove of the proposal: “The potential elimination of the federal electric vehicle tax credit will impact the choices of prospective buyers and make the electric vehicle mandate in 10 states — about a third of the market — even more difficult to meet,” said spokeswoman, Gloria Bergquist.

Bergquist is, of course, referring to responsibilities placed on companies, such as imposed mandates. California, and a dozen other states, have tasked automakers with producing more and more zero-emission vehicles to meet quotas. Obviously, such credits are essential to meeting these requirements. Ms Toole also explained that “General Motors believes in an all-electric future…” and that the company “will work with Congress to explore ways to maintain this incentive.”

California Air Resources Board (CARB) can operate outside of federal government policies and is likely to not be swayed by changes in tax breaks. In fact, it is expected that CARB’s quotas will significantly increase, up to 16% of total sales by 2025. If EV automakers want to compete, and stay on the right side of zero-emission quotas, then they will have ‘to eat that amount’ while, instead, cashing in on leases.

 

Indecent proposal

Toole’s comments are important because they relate to several problems with the Republican proposal. The first is that the party has not offered any other way of supporting the zero-emission industry and its workers in the wake of a removal of tax credit assistance. This is likely going to put a dampener on the recent surge in electrification that we have seen across many of the large automakers. It will also mean that companies will have to work much harder, with the government and the consumer, to keep products affordable and competitive. However, there are bound to be knock-on effects.

Indeed, director of the National Resources Defense Council’s Clean Vehicles and Fuels Project, Luke Tonachel, pointed out that “the EV tax credit repeal would cede U.S. leadership in clean vehicles, putting our companies at a competitive disadvantage and threatening jobs while costing drivers more at the pump and increasing pollution”. Similarly, news has come in that Tesla’s share prices have crashed amid these political rumours.

It is reported that, if enacted, the change will affect every EV sold after December 31st 2017. Inside EVs, a website that tracks vehicle sales, estimates that the credit would fall to $3,750 per vehicle for the highest performers, like GM and Tesla, in late 2018, and would end for everyone completely in 2019.

The move is a complete u-turn on the previous administration’s stance. It was repeatedly proposed, by former president Barack Obama, that the tax credit should rise to US$10,000 while becoming a point-of-sale rebate instead of a company rebate.

Major zero-emission advocate, Plug In America, was quick to respond to the news. PIA’s Policy Director, Katherine Stainken, has drafted an email in opposition to the proposal. The email accuses the Republicans of handing “the leadership in this sector to China” and, by default, affecting the promotion of ‘jobs, technology and innovation’.

Ultimately, the move is not unexpected given the long-running scepticism of the Republican Party on clean energy and transportation credits. But it does conflict with the Party’s impetus to create jobs and strive to ensure the US leads the world in technology development.

Automakers must be on guard too. When similar rebates were withdrawn in both Denmark and Georgia,  the impact was immediate; in both instances, EV sales plummeted. Manufacturers must be prepared for such eventualities.

Meanwhile, Asia and Europe are cultivating a strong EV position. It would be wise of the US to continue to do the same, even if that means a restructuring of the fossil fuel and ICE markets. Yet, in terms of EV advancement and the benefit of extra jobs and income, hopefully the zero-emission endorsement shown by individual states such as California may just save the US from a crisis of EV leadership.

 

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