Friday, July 3, 2015

Why Washington's $35,000 EV Incentive Cap Is The Right Thing

Recently WA passed their state budget in a midnight session beating the deadline by less than 30 minutes. This was they typically generated political drama in which we all knew the budget would pass but in reality there was actually last minute finagling of the terms and one thing the legislators made clear is that the state was unwilling to support higher income residents buying premium EVs.

So the new law puts a "hard cap" on the previous sales tax waiver on Electric vehicle purchases of $35,000. IOW; if the car cost more than that, the tax credit is ZERO.  EV proponents argued that only the first $35,000 of the purchase price should be tax free which means other cars that just miss the limit like the BMW i3 or the upcoming top trim options for the longer range Nissan LEAF.

The $35,000 limit will likely (I am not sure since this is a new ruling so this is the general consensus)  be the  negotiated sale price before down payments or trade ins are considered  but it is a significant hit on the incentives of purchasing an EV. Since WA does not have income tax, its sales tax ranks as one of the highest in the nation where some residents would pay near 10% of the purchase price of a car depending on their location. I think the lowest rate is about 8.5% or so. I would pay 9.0 % but I am also lucky enough that I do not live in the area that is supporting the mass transit rail system.

But I still like the law.  Granted there is a real risk that the LEAF I get in Dec 2016 will exceed the limit since I am looking for more range and the tax hit would really hurt me but the financial benefit of driving EVs would still trump gasoline by a long shot. And there are other great benefits of the transportation bill that I greatly support such as;

** EV registration jumps from $100 annually to $150. Why is this good? Because the extra $50 will be earmarked strictly to maintain and expand the public charging network. WA was fast out of the gates for public charging but has essentially not finished a single lap in the race. The well publicized "West Coast Green Highway" is incomplete and has HUGE holes in it caused by the Federal program that was never completed.

** Gas taxes will jump nearly 12 cents per gallon with 5 cents this year and about 6.7 cents next year so gassers will be paying about the same $150 as well so that is a wash and the results is a good thing. Keep in mind that gas prices are low and the Middle East seems bent on keeping them low for the foreseeable future as a move to derail the U.S's increased domestic production.

** EVs are getting cheaper because of higher sales equaling higher production numbers along with advancing technology of the batteries which will yield cheaper, lighter and more powerful cells.  This should result in many more EVs priced competitively with their gasoline counterparts which will remove the "EV premium" and boost current range. I have said it a MILLION times and its worth repeating. Yes, I want (and need) longer range because of the unique job requirements I have but the most popular EV will be the one that does 100 "real" miles with a sticker in the mid to upper 20's which is well below the cap.

** The loss of the sales tax waiver is not going to stop one single owner from purchasing a Tesla. I only know of one Tesla owner is remotely qualifies as "normal" income and he is unique. He is a homeowner, solar panels for decades now and retired with a great pension.  He literally has no bills and basically he bought his Tesla by simply foregoing a few of the vacations he normally takes (he is literally gone nearly all Winter, every Winter) to get the purchase price of which he paid cash.

** The Chevy Volt now qualifies for the tax break or any plug in that can squeak out at least 30 miles on battery only. This I don't like. Its a way of maintaining oil flow but...

** I am sure there are Tesla S owners out there right now who don't have solar but I don't know one so again, one of the likely characteristic of people looking at high end EVs is the fact they would be charging their car with nearly free electricity and ya, I know those solar panels were not donated but they already bought them so way too last for buyers remorse! Besides, WA has one of the best solar power benefit programs in the country.

So its all good right?  Well, ya but... Right now its hard for many to believe this because most are assuming that longer range EVs will exceed the cap like the "affordable" Tesla 3 which starts at $35,000 but keep in mind; the longer the range, the greater the percentage of driving the EV would do which increases the savings which means a short payback on the ROI.   So if doing the math on say a $40,000 EV (which is about where I expect most Tesla 3 and Chevy Bolt purchases to be) that would come with a tax bill between $3600 and $4,000 for most of us and a fuel only savings of 5 cents per mile (assuming you don't have solar that is...)  we are looking at a complete recovery of the tax in 72,000 miles or less than 5 years typically.

Add in the required additional cost of maintenance of gasoline vehicles and the pay back could be reduced to just over 3 years.

Finally; as a member of the "working poor" I talk with people every day in my situation. As an auditor where 75% of my work involves physical inventory of retail establishments, I work with people in the service industry daily. Many people have taken a lot of interest in my LEAF and I am "generally" willing to share my experiences ;).

But it has always come down to the sticker price. I say lease! but that is such a strange concept to many (like it was to me 5 years ago!) so the tax break is a must. It is simply another great incentive to get fence sitters into the EV game. This allows them to see firsthand how cheap an EV can be since nearly all will still have a gasser in garage for direct comparisons.

Now I don't know how close we came to not having any tax waiver at all but it does seem like this law was not a sure fire thing so I am grateful we still have something so all in all, I am very much in favor of the new EV incentive rules because the alternative was just too scary to think about!


  1. Thanks for the summary Dave. - Pat, Vancouver

    1. Thanks Pat and to clarify, the $35,000 cap will be the negotiated sale price before any trade ins, down payments, etc. are considered.

  2. Not a good system to post to as I just wrote up a commentary, posted it and up came this google thing. I signed in and now all that I had written is gone...

    1. oh oh. your post probably went to Google Plus

    2. Tom; I checked Google Plus and as far as I can tell your post did not go there either. Anyway you could repost here?