Early EV Buyers Win, But the Segment Stands to Die Without Tax Credits: Report

Steph Willems
by Steph Willems
early ev buyers win but the segment stands to die without tax credits report

So far, there’s no evidence the Trump administration plans to extend the federal tax credit incentive for the purchase of electric and plug-in vehicles.

Designed to kick-start the fledgling technology, the credits — totaling up to $7,500 per vehicle — will run out after automakers finish selling their first 200,000 eligible vehicles — a date that could occur as early as next year for some companies. This means a segment still as embryonic as the infrastructure meant to serve it could soon bite the dust.

A recent report from Edmunds predicts what will happen if the credits die, using a cancelled state credit as a crystal ball. Despite the hype around EVs, those incentives are an intravenous bag keeping the patient alive.

Predictions generally carry as much weight as the listener cares to give, but the past is a good predictor of the future. Had former President Barack Obama’s 2011 prediction of 1 million electric vehicle sales in the U.S. by 2015 come to pass, he’d have had the opportunity to renew the credits while still in office. Of course, a million sales would disprove the need for incentives.

Well, Obama’s prediction didn’t pan out. In 2017, EV sales have only covered half the ground towards that goal. And a market share of about 1 percent isn’t healthy — it’s a niche.

According to the report, Tesla and Nissan are halfway through their finite pile of credits, while General Motors will probably run out next year or in 2019. Just as all three automakers are poised to see large increases in EV sales thanks to cheaper, longer-ranged models, the incentive to buy them is about to disappear.

That puts the whole segment in a Catch-22, Edmunds states.

“For EVs to achieve mainstream sales levels, better infrastructure is needed nationwide, along with the development of longer-range batteries,” the report reads. “However, it’s hard for investments to be made without seeing consumer acceptance.”

Using Georgia as an example, the report shows what happens when a jurisdiction takes away just part of an incentive.

Back in 2014, Georgia accounted for 17 percent of the country’s EV sales. Then, in 2015, the state scrapped its $5,000 tax credit, which applied on top of the federal incentive. Suddenly, sales plummeted, making up only 2 percent of the U.S. total.

While sales of Tesla luxury EVs continued apace, lower-end models — which represent the bulk of all EV sales — took a massive haircut. That’s not surprising, as $5,000 off a roughly $30,000 car represents a significantly sweetened pot. Now imagine if the $7,500 disappeared for all EVs nationwide.

“There is also something to be said about being on the wrong side of the deal,” the report states. “At $290.48, a Nissan Leaf payment is still less than the average lease vehicle payment (due to the $7,500 federal subsidy), but there is a negative psychological effect when consumers know they missed out on a much more generous deal.”

So, even with a price in the $30,00-$35,000 range and a usable range of over 200 miles, the absence of a special deal would surely cause consumers to look less favorably at the Tesla Model 3, Chevrolet Bolt and upcoming 2018 Nissan Leaf.

Many green car shoppers are wealthy, but that doesn’t mean all would-be buyers are willing to blow whatever cash it takes to be seen in an EV, the report claims. On its website, Edmunds discovered that “incentive and rebates pages for green cars experienced 120 percent more traffic than their non-green counterparts.” It would seem that taxpayer cash is a bigger part of green car appeal than some would admit.

There’s another problem facing EVs, one that’s not always top of mind: depreciation. Used Leafs represent one of the best deals on the pre-owned market, with an average model holding just 30.4 percent of its original value after three years. Got no green but want to drive green? There’s your deal right there.

Tax credits have pushed down lease payments while the rapid march of technology leaves older EVs with plummeting value. Removing the tax credit, Edmunds argues, would only make the segment less attractive to buyers.

“The low used values are a problem for automakers because if the federal subsidy is lifted, lease payments will go up significantly due to low residual values.”

In that case, the onus would be on automakers to take the financial hit, offering manufacturer incentives on money-losing vehicles. Europe and Asian markets might look rosy for EVs, but without the U.S. in play, there’s less of an incentive to develop expensive technology for a smaller potential return.

[Image: General Motors]

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11 of 147 comments
  • Art Vandelay Art Vandelay on Apr 09, 2017

    Well they don't work for me because I pull 5000 pounds somewhat frequently. They might work for my wife but she's on the edge of the range between commuting and errands on many days. But yeah, what the heck. Just take some more of my taxes to buy someone else a car. Cool.

    • See 8 previous
    • Shaker Shaker on Apr 12, 2017

      @Art Vandelay "Additionally, as roads are primarily funded via the tax on fuel, I get to pay for your stupid car AND the roads on which you operate it." Are we going to trade apoplectic fits? "And any homebuyer gets it no matter if they buy a giant mansion or a small home with solar panels on the roof." No, if one is buying a house under $200,000 (and don't have many other deductions), then the standard exemption/deduction gives you more of a tax break. I can't afford a house that expensive with my income, so no Mortgage Interest Deduction for me (and many in my position).

  • SCE to AUX SCE to AUX on Apr 10, 2017

    Steph - I agree with everything in your article. I wouldn't have leased my former 12 Leaf without the Federal credit, since it comprised such a large portion of the price. However, I'd probably still take delivery of the Model 3 even without the credit, but the lack of it would give me pause.

  • MaintenanceCosts We need cheaper batteries. This is a difficult proposition at $50k base/$60k as tested but would be pretty compelling at $40k base/$50k as tested.
  • Scott ?Wonder what Toyota will be using when they enter the market?
  • Fred The bigger issue is what happens to the other systems as demand dwindles? Will thet convert or will they just just shut down?
  • Roger hopkins Why do they all have to be 4 door??? Why not a "cab & a half" and a bit longer box. This is just another station wagon of the 21st century. Maybe they should put fake woodgrain on the side lol...
  • Greg Add me to the list: 2017 Sorento EX AWD w/2.0 Turbo GDI 68K miles. Changed oil religiously with only synthetic. Checked oil level before a rare long road trip and Ievel was at least 2 quarts down. That was less than 6 months after the last oil change. I'm now adding a quart of oil every 1000 miles and checking every 500 miles because I read reports that the oil usage gets worse. Too bad, really like the 2023 Tuscon. But I have not seen Hyundai/Kia doing anything new in terms of engine development. Therefore, I have to suspect that I will ony become a victim of a fatally flawed engine development program if I were to a purchase another Kia/Hyundai.