Electric vehicles are fast approaching a tipping point, but which way they tip remains to be seen. Battery prices have come down, a rash of new models is due out next year, and Tesla keeps ramping up production of its Model 3. Nevertheless, the EV – by which I mean here plug-in hybrids and battery electrics – remains a hothouse flower. Some legislators would like to toss it out into the cold.
States want to charge you extra for buying an EV and two Republicans in Congress have introduced a bill that would have the feds follow suit. EV supporters cry foul. Their opponents reply, “fairness.” Either way, the idea of EV-only charges is a sign both of how much progress they have made and of how precarious their position remains.
In 2007, then-President Bush examined a demonstration of plug-in hybrid technology at the White House. The concept still struggles to catch on. (Photo: Getty Images)
The 9-mpg EV
Twenty-six states now impose add-on EV registration fees and 12 more are considering the move. Ostensibly, the fees make up for the fact that EV owners don’t pay the gas taxes used to maintain the roads. But according to a recent study by Consumer Reports, these fees are up to three times higher than the average car buyer would pay in gas taxes. EVs in Wyoming pay as if they get 13 miles per gallon; under the proposed Missouri fee, an EV owner would pay more than the driver of a 9-mpg truck.
The “Fairness for Every Driver Act,” introduced by Wyoming Senator John Barrasso and Representative Jason Smith of Missouri would bring their states’ peculiar brand technology forcing to the federal level. They would not only eliminate the $7,500 credit but also impose a federal EV tax in lieu of gas taxes. As Congressman Smith divisively put it, “Missouri’s families and farmers shouldn’t be footing the bill for others to drive high-end electric vehicles.” Conservative commentator George Will chimed in, “Concerned that government is rigged in favor of the rich? End this tax credit.”
The charge that the rich benefit most from federal EV incentives is not untrue. A study by the Congressional Research Service found that about 80 percent of the credits were claimed by families with incomes above $100,000. Yet the same study calculated that the federal tax credit boosted EV sales by 30 percent. As for the “high-end” complaint, even econobox EVs command a significant premium over their gasoline stablemates. An internal combustion Kia Niro, sells for $23,490, fifteen grand less than the EV version while a Chevy Bolt commands an extra $15,000 over similar GM models. The Chrysler Pacifica Plug-in-Hybrid starts at $40,000; the gasoline model, at $27,000. Tesla fans will insist that a Model 3 is the same price as a BMW 3, which would cause me to point out that a Toyota Camry or Honda Accord might be a fairer comparison. Would cause me, that is, if I were itching for a Twitter fight.
Senator John Barrasso, representing the oil-rich state of Wyoming, opposes EV subsidies. (Image: Fox Business Network)
Even unfair incentives work
Yes, in the best of all possible worlds, the federal incentive would have been designed more equitably, Unfortunately, they write the tax code in the worst of all possible worlds. Otherwise, the feds might follow California’s lead and offer means-tested rebates: lower-income buyers get $4,500, middle-income earners get $2,500, and if you’re a single person with an adjust gross income over $150,000, you’re out of luck. Notably, utilities and some cities offer additional rebates.
These generous incentives work well. Californians bought about 160,000 EVs in 2018, half of the U.S. total. By contrast, in Texas, where the rebate only applies to the first 2,000 applicants, sales were below 12,000 vehicles. (Interestingly, Texas has the highest electricity rates in the country, followed by California. Also, Texas produces by far the most wind power of any state.)
In any case, the $7,500 is intended to support EV sellers, not buyers. President Obama announced the tax credit in the wake of the financial crisis alongside $2.4 billion in R&D grants. “This investment will not only reduce our dependence on foreign oil, it will put Americans back to work,” he said, “It positions American manufacturers on the cutting edge of innovation and solving our energy challenges.” In this context, the credit appears as a form of startup funding: it applies only to the first 200,000 EVs a company sells. After that, the credit shrinks quarter by quarter.
That’s why the Michigan Congressional delegation has introduced the bi-partisan “Driving America Forward Act.” It would extend the tax credit. A separate Democratic-only bill would extend the credit even further.
In California, single-occupancy EVs can access HOV lanes, a big advantage in heavy traffic. (Photo: Getty Images)
EVs walk a tightrope
I don’t mean to take a stand, at least not here, for or against EV subsidies or fees. I don’t believe Barasso and Smith are the least bit worried about fairness or the deficit as their public statements suggest. Whether it is because the fossil fuel industry plays an important role in the economy of Wyoming or the congressman from the Show Me State thinks he has found a good issue to wedge apart coastal and heartland voters hardly matters. Certainly the Michigan delegation, wants to extend the credit for the pork-barrel good of their hometown industry. Anyone who wants to delve into the horse trading that resulted in original passage of the credit a decade ago has my blessing.
The current battle over EV carrots and sticks intrigues me for what it reveals about the state of play. EV promoters point to the rapid growth in sales as evidence that Americans are finally on board. But, market share has creeped up only slowly and remains well below two percent of total sales. Battery prices have fallen rapidly in the last several years as manufacturing scale drives costs down. Progress on that front may be slowing though.
Environmentalists point to a rash of new models coming on the market in 2020, including both battery electrics and plug-in hybrid EVs. The Koreans have decided to offer customers the same models in their choice of drive trains. In other words, you can park a Kia Soul next to a Soul EV and not tell the difference. Hyundai’s Kona feels the same inside, whether gas or electric. At the high end, the Porsche Taycan already has Tesla Model S fans trash talking about lap times and quarter miles. Yet on April 1, 2020, buyers of the two best-selling models in the country, the Tesla 3 and the Chevy Bolt, will lose out on any incentives. GM and Tesla are over the 200,000-vehicle limit. Will the Bolt or the mass-market Tesla Model 3 thrive without some sugar from Uncle Sam?
The EV has reached a tipping point. Soon we will see which way it falls.