This year electrics run up against the limits of tax subsidies. Will that scare off buyers?
What’s holding electric cars back isn’t merely range anxiety or fear of electrocution or charge times. It isn’t even the price of the cars themselves, the haphazard charging infrastructure, or any sort of politically correct stigma. What truly matters most is profitability. It’s elusive and the next few months will prove whether any manufacturer can make bucks building and selling electric vehicles. And that all depends on, well, you.
Deloitte Touche Tohmatsu Limited is one of those consulting firms that manages the neat trick of being taken seriously. The firm regularly does a global study of consumer views in the automotive market and the 2020 edition of that report indicates that consumers are increasingly comfortable with the idea of electric and other alternative fuel vehicles. In the United States (a major North American country) interest in such vehicle expanded from 29 percent of consumers in 2019 to 41 percent in 2020.
A Tesla charges at an Ikea in Germany. (Photo: Getty Images)
A 12-point bounce is impressive, even if what consumers say and what they actually do in the market are very different things. Achieving critical mass in consumer acceptance is a big step towards finding enough customers who will sign up for financing on electric vehicles that economies of scale kick in and the cost of production drops significantly. So that’s encouraging if you’re a zap fan.
The big challenge for electrics is coming as sales volumes increase and manufacturers reach the limits of the Federal and state tax subsidies on the vehicles. The Energy Improvement and Extension Act of 2008 established a tax credit of up to $7,500 per electric vehicle on the first 250,000 electric vehicles an OEM screws together. After that the credit phases out. In 2009, the American Recovery and Reinvestment Act dropped that phase out number to 200,000. Tesla sold 367,500 cars during 2019 – including an amazing 112,000 during the fourth quarter of the year. As impressive as that is, will the sales momentum keep up as the subsidies fade away? And Tesla’s profitable third quarter last was a net $143 million after it sold $134 million in tax credits.
A 2020 Chevrolet Bolt plugs in to power. (Photo: Chevrolet)
If consumers buy, say the upcoming all-electric Ford F-150, in massive numbers the effect of the tax breaks will be muted with each additional unit sold. That may present pricing challenges to the manufacturer, particularly if there’s a similar F-150 on the lot powered by an internal combustion priced significantly cheaper.
It’s going to be an interesting balancing act for both consumers and manufacturers. For Ford, selling an electric F-150 with its super-zoomy EPA fuel economy ratings will help its Corporate Average Fuel Economy (CAFE) ratings. And that will in effect subsidize its ability to sell more units of the incredibly profitable F-150 Raptor (EPA rated at 16 mpg combined) and Shelby GT500 (14 mpg combined). Meanwhile for buyers the trick will be assessing how the total expense of an electric (including maybe a home charging station), the hassle of charging, and range concerns compared to conventional vehicles as prices evolve in light of how the subsidies work out.
Governments can subsidize, mandate and encourage all sorts of products. Ultimately, however, the ability governments have to drive consumer markets is limited. They can’t force consumers to buy something they don’t want or to pay a price that they can’t afford.
The 1996 General Motors EV1, the electric car that could have started it all. (Photo: General Motors)
Right now, about 1.4 million electric vehicles are on American roads.Out of about 273 million total, that’s only a bit more than one-half-of-one-percent. By now, it’s obvious that electric vehicles have technologically evolved to the point of viability for everyday use. As more manufacturers enter the market, and strive to sell electric vehicles in ever greater numbers, starting right now, we all are about to find out whether electric vehicles are viable as consumer products.