Saturday, December 9, 2017

What Congress Should Be Doing With The EV Tax Credit?

Well, in reality Tesla and Chevy will be starting their ramp downs in 2018 with Nissan not far behind them.   But leaving it alone is just as bad as  removing the tax credit.

Basically the credit for battery electric vehicles is based on the size of the battery and currently runs as little as $2500 for Prius Plug in to $7500 maximum for most others. There are several in between.  Since the Prius PEV has a plug, it gets the minimum of $2500 because its battery size is under 5 kwh.  For those over that, They get $417 for being at least 5 kwh and $417 for each kwh beyond the 5 kwh base in addition to the minimum.   Leave it to the Feds to over complicate it so lets just say as long as you have at least 16 kwh, you are golden.

Now this credit has been around for  9 years and was a vital part in getting people interested in EVs.  Batteries were expensive and there were no gigafactories and traditional battery manufacturers had yet to gear up.  In fact, there was nearly nothing which was a big reason Nissan built their own. They reviewed what was available and realized there was nothing out there that would provide the volumes they needed.

But times have changed.  Traditional battery manufacturers are now recognizing and preparing for the huge new field; batteries designed with electric vehicles in mind.  This means costs have come down with a bigger supply line and this means better margins for manufacturers and better deals for consumers.

But several automobile manufacturers have only token entries on the plug in market which means they could be benefiting from the lower cost to purchase for years. There is also nothing that prevents new entries into the field years down the line.

This will create a huge marketing advantage for the companies who have chosen to sit in the background watching while others spent a ton of R&D cash to get the technology to where it is today.  Granted, there is still a long way to go and many more dollars to spend but is this how we treat companies who risked much to get us into EVs sooner?

So what changes make the most sense?

** Create income limits that limits the percentage of the full credit received.

One of the big talking points for abolishing the credit altogether is that the credit was just another perk of the rich.  The tax isn't refundable so only ones who have the $7500 in tax liability can take full advantage of the best deals available with few exceptions.  (Thank you Nissan!) There is little to dispute this reason.  This resolves that argument.

**Limit the vehicles that qualify for the credit based on sale price of package selected

Washington State has a good plan on this. They currently have a sales tax waiver on qualifying EVs but have limits on the "base" MSRP that qualifies along with a cap on the sale price portion that qualifies for the tax waiver. With a sales tax approaching 10% in some cases, this is a huge perk! So is this a "lets pick on Tesla" clause? Pretty much! Sorry but I have issues with handouts to people plunking down $100K on a car.

**Make the credit refundable or rollable into the next tax year. 

The segment of the population that needs the most help is not getting the help the federal tax credit was designed to assist. So more than a handful elected their "2nd choice" and leased a LEAF to get the full benefits.  This change allows lower income people to have a greater choice without having to check with a tax consultant first.  Naturally should one have remaining credits roll over to a year in which they win the lottery or became CEO or any other major financial change in their situation that would disqualify them based on the first point,  they would lose that remaining credit.

**Finally; Set an end date for the credit to apply to all manufacturers at the same time.  

Several companies have announced very grand plans for EV models and the timing is a bit suspect to me.  VW might not be the best example (I guess you could say they have been a bit occupied lately) but they have been in the EV market on a compliance basis for years now but have announced huge plans to flood the market and timed it just as Tesla, Chevy and Nissan will no longer have any credits left? Sorry bud, but that ainna gonna fly with me!

Now the Pubs are in a hurry to cut out anything that makes sense or does not directly line their pockets so ending the credit EOY 2018 likely means that only Tesla and Chevy gets the full allotment of credits.  Nissan would be close. Now, not so sure that is the best idea for us (and no its not because I am a diehard LEAF fan, either!)

Turning on the exit sign for the credit and giving companies enough time to react could be beneficial to us in that manufacturers would push cars out quicker instead of dragging their feet so maybe the better choice is June 30, 2019 with no ramp down of the credit.  It will lower the overall cost of the program and no manufacturer will have a $7500 price advantage in the market and more importantly, its a small reward to the "Big 3" who had the cojones to dive into the market and provide us EVs now instead of two years from now.  This is a compromise for sure and I think it has a chance to pass. 


  1. I disagree that there is little reason to argue against income limits. I want more EVs on the road. There is no reason to restrict who gets the credit for buying them. If "rich" people know they are getting a credit, they will buy a better EV (more range, features...). This then makes for a better car in the used market. The $7500 pays for nearly all of the long range upgrade on the Tesla Model 3, for example. Without the credit, I'll buy the short range (220 miles), with the credit I'll buy the long range (310).

    I'll argue against limitations on the vehicle price too. The incentive should be for putting an EV on the road. If I want to buy a high end one or a low end one, that does not change that there is one more EV on the road that is not polluting. It should get the incentive.

    If you want to sell more eggs, you put out a coupon for eggs. You don't limit who can use the coupon or make it only for certain types of eggs.

    I agree with your other points.

    1. When debating a change, we can't have it all. There must be concessions. I would rather we simply change it to a refundable credit and allow everyone to have it thru the end of 2019 but I doubt that will fly with Congress.

      So when proposing a change, we need to address the current reasons why the change is even on the table and the "rich getting richer" is one of those things.

      As far as your egg analogy. You actually made the pitch for my side, not yours. A coupon allows people who couldn't afford the eggs in the first. It would certainly not encourage a well to do egger to increase the volume of their purchase.

    2. Wow! Agree, and hope something happens down there that makes sense moving forward
      John Chartrand