Randy Bryan, Co-Founder, Drive Electric NH
Greetings and Announcement
First, I would like to wish a very happy and safe holiday season to everyone. Holiday season can generate distracted and difficult driving, no matter what car you are in. Be happy and drive safely for other drivers’ and your family’s sake.
Second, I want to express how pleased I am with the growing state of New Hampshire’s Drive Electric event’s push. In 2017, there were four to six electric vehicle (EV) events during the whole year (four were during National Drive Electric Week or NDEW). This year, there were six NDEW events around the state and another six to eight events at other times. That’s over 100% growth. A huge WELL DONE! to all the event organizers around the state.
Will the End of EV Tax Credits Hurt?
In 2009, the U.S. implemented a Federal Tax Credit (FTC) for plug-in electric vehicles (PEVs) to encourage manufacturers to make them and to make them more affordable and competitive versus combustion cars.
The formula adopted granted FTCs according to battery size, as that would help to offset higher early-market battery and vehicle cost. To simplify, the formula provided a $7500 FTC for EVs, and $2500-3500 for PHVs. The formula also included a sunset clause where, after a threshold of 200,000 PEVs sold in the U.S. per manufacturer, their FTC would start to decline to zero. The full FTC remains available for two quarters including the one in which the threshold was achieved. The tax credit then drops to half for two more quarters, then drops to one-fourth for two more quarters, then to zero. This schedule was agreed to by the government and automakers as a good transition from market testing to volume (profitable) production.
Because Tesla reached that threshold in July, and other manufacturers are getting closer, it is a good time to reflect on how the manufacturers and market will handle this change. Loss of the FTC will usher in a significant change to how EVs are made, priced, sold and perceived. The FTC went right to the manufacturer in the sales price, then the customer filed for a tax credit with his/her taxes. My guess is that different manufacturers will handle it differently, according to their U.S. and world market view.
Tesla’s FTCs remain at full through the end of this year, then drop to half, then to a quarter in 2019. Tesla is unique in the U.S. market as a comparatively small start-up EV-only car company. Loss of the FTC will hit them the hardest, affecting their core product line. As a result, Tesla has stated they will become profitable by the end of 2018 and will fund new product developments (and price discounts) thereafter. The generator of this profit is and will-be volume manufacture and sales of their EVs and batteries. To their credit, they have shed most of the expensive cobalt from their batteries and built out their charging network. Look for them to press for ever higher manufacturing volumes in 2019, so their profitability can sustain the company. I do believe they will start price decreases in 2019 as their FTC declines.
General Motors will probably be next to cross the 200,000 threshold, probably in the fourth quarter 2018. But its circumstance is markedly different. Their EVs (Chevy Volt and Bolt) are just a tiny fraction of the company’s sales. The great bulk of its revenues and profits comes from sales of combustion-based cars, SUVs and trucks. GM has made EVs in low volumes to keep a toe in the game and prefer to delay volume manufacture until its cost of batteries allows profitable EVs. As such, I predict GM will discount its prices as its FTC fades, to stay in the game until 2022-2025.
Next up to the FTC threshold in the first quarter of 2019 is probably Nissan and its Leaf EV. Nissan has been trying to make a volume market for EVs, but not as successfully as Tesla. The recuperation of their combustion-based car, SUV, and truck product lines sustained the company. Nissan has been resorting to price discounts to sustain sales volume. Loss of the FTC will test its boardroom metal more than GM, but I believe they will and can handle the FTC loss with discounts until 2022-2025.
The other manufacturers will produce in small volumes (taking losses) to keep their toe in the game, too. All seem to be waiting for 2022-2025 when the industry cost of batteries will support profitable volume manufacture (still with FTC). For what it is worth, all this delaying of EV production makes it likely Tesla will remain unchallenged until 2022.
Has the FTC worked? Yes, definitely. Early PEV production costs were well above combustion vehicles due chiefly to battery cost and low volume production. The manufacturers swallowed some of the cost and the federal government assumed a share via the FTC. Most early EV sales were made practical by the FTC incentive. As the FTCs are lost, manufacturers will decrease their prices to stay competitive. Going forward, I suspect a sunset date for the FTC may be considered so as not to reward the industry laggards.
Randy Bryan is one of the co-founders of Drive Electric NH. Randy has been an advocate for electric cars for eight-plus years. His company, ConVerdant Vehicles, has converted vehicles to plug-in hybrids, including his own Prius in 2008, and developed and sold inverters that turn a Prius into an emergency generator.