What’s Happening with Electric Car Incentives?

By David Roberts

Plug-in electric vehicles (EVs) are much more efficient than gasoline and diesel-powered vehicles and can be powered by renewably generated electricity. EVs can help clean up transportation, one of our dirtiest energy sectors, and save money on gasoline and maintenance costs for owners. A range of federal and state policies and incentives supporting EV adoption are developing as the numerous benefits of switching from gasoline to electric become clearer.

For many buyers, the upfront cost of an EV remains the most difficult barrier to ownership. Federal, state and electric utility purchase incentives are helping bring down this cost. The most important incentive available to EV buyers is the federal tax credit. This credit was included in the 2008 Energy Improvement and Extension Act passed by Congress and signed into law by George W. Bush. The value of the tax credit is based on the amount of energy stored in the vehicle battery and is capped at $7,500 per vehicle. All-electric vehicles powered solely by battery power typically get the full $7,500 amount. A few plug-in hybrids (PHEVs) powered by battery and gasoline power get the maximum, with some lower range PHEVs getting less. The FuelEconomy.gov website has details on the amount of the credit available by model and details on how consumers can claim the credit on a purchase: https://www.fueleconomy.gov/feg/taxevb.shtml

About half of EV consumers are leasing, in which case they are not eligible to claim the credit directly, since they do not technically own the EV. In this case, the leasing company will usually pass through all or a portion of the tax credit as a lease incentive to lower the EV lease down payment or monthly payments.

The quantity of federal tax credits available to consumers is capped at 200,000 vehicle sales in the USA by individual automakers. Automakers like Tesla, General Motors and Nissan who were early EV market entrants are likely to approach the 200,000 cap in the next year and begin the sunset steps explained in the diagram below.

Federal Tax Credit Sunset Process

According to EV sales estimates reported by InsideEVs.com, Tesla is at 183,801 U.S. sales as of the end of April 2018 and is likely to reach 200,000 in June or July 2018, thus triggering the wind-down of federal tax credit availability. General Motors is next in line with 179,423 U.S. sales and will likely hit the cap around September or October 2018. Nissan is next in line with 118,543 U.S. sales, which could give them another year or more before they reach the cap. Other automakers have more incentives left, but sales could pick up and lead to faster than expected depletion at any point.

Congress could act to extend the availability of the federal EV tax credit to allow more buyers to take advantage of this important incentive, but, given the uncertainties, anyone considering an EV purchase in the next year who is relying on the tax credit to reduce their cost should monitor this issue and possibly move up their purchase date if they can.

Closer to home, many northeast states are offering EV purchase incentives, but a few have run out of funding (or not offered them in the first place). See the table for more details on currently available state incentives.

Vermont is one of the states that doesn’t have a statewide incentive, although many electric utilities do offer a variety of incentives for an EV purchase to their customers. The Vermont Legislature considered several proposals for an EV incentive that would reduce the 6% state purchase and use tax in the 2018 session, but these did not advance this year.

EV industry observers expect EV prices to continue to come down as battery costs are reduced and greater economies of scale are achieved. Many have suggested EVs will cost the same or less than comparable gasoline-powered vehicles within the next 10 years, after which it will likely be time to revisit the structure and need for any remaining incentive programs.

David Roberts is the Drive Electric Vermont coordinator. He has driven an all-electric car for the past five years and says if you have to drive, drive electric.