Will Electric Car Sales Fall When U.S. Federal Tax Credits End? The Answer is a Complex One…

Will Electric Car Sales Fall When U.S. Federal Tax Credits End?  The Answer is a Complex One…


For some time now, those wanting to get behind
the wheel of a brand-new electric car in the United States have been offered a generous
incentive for doing so: up to seven-thousand, five hundred dollars in Federal Income Tax
credits that can be used against your year-end tax bill, effectively slashing the car’s
sticker price by a decent amount. That is of course, if your tax liability is
more than seven thousand five hundred dollars at the end of the year. Available since the start of twenty ten, the
Federal Tax Credit for electric vehicles often pairs up with individual state incentive programs,
not only making electric vehicle ownership something of a no-brainer for those in electric
car friendly states, but also makes entry-level electric cars not much more expensive than
a similarly-specced internal combustion engine car. Yet these tax credits will soon be going away,
not as part of a change in policy in the White house but under the terms the incentive program
was initially established with. Which means, says some sources, that electric
car sales will fall off the metaphorical cliff as a consequence…. Or will they? Stick around to find out more. Hi there everyone! I’m Nikki Gordon-Bloomfield from Transport
Evolved, and today we’re going to be discussing the generous U.S. Federal Tax Credit program
that’s been operating now for the past seven and a bit years, and helps knock off up to
seven thousand five hundred U.S. dollars off the price of a new plug-in car. Originally brought into force during the early
years of the Obama administration the program offered those buying a qualifying electric
vehicle or plug-in hybrid the capability to write off up to seven and a half thousand
dollars off their end-of-year taxes, and has been instrumental in helping accelerate electric
vehicle adoption rates. But under the terms of the original agreement,
the amount of tax credit begins rolling back from their maximum amount to zero when an
automaker has sold its two hundred thousandth qualifying vehicle in the U.S. on a per-automaker
basis. And with some automakers — Nissan, General
Motors and Tesla — rapidly approaching their two hundred thousandth qualifying plug-in
car sale in the U.S., we’re going to see those tax incentives start to vanish. So what then? Well, if automotive research firm Edmunds
is to be believed, sales of plug-in vehicles will come crashing down as soon as the Federal
tax credits start to fall off, with buyers unwilling to stomach the additional price
that these cars would cost without incentives. Its reasoning? That’s exactly what happened in Georgia,
when sales of electric vehicles tumbled form a high of more than four percent to under
one percent when the state ended its electric vehicle incentive program in mid twenty fifteen,
charging electric car owners an additional registration fee for driving a plug-in car
instead. As the folks at Electrek pointed out yesterday,
it’s worth noting that while sales of the Nissan LEAF tanked completely after the end
of the Georgia tax credit, sales of the BMW i3 and Tesla Model S — more expensive, higher-end
cars — stayed pretty stable. Sadly however, Nissan LEAFs accounted for
most of the new cars sold in Georgia before the end of the tax credits there, which explains
the dramatic drop in market share. What does this mean for the rest of the U.S.? Well, if everything were to remain the same,
it suggests that sales of more affordable electric cars will fall when the Federal Tax
credit program starts to roll off after twenty-thousand electric cars have been made. But, here’s the important thing. While the state of Georgia ended all electric
vehicle incentives at the same time, the Federal Tax Credits for electric vehicles are calculated
for each and every automaker. And while Nissan, GM and Tesla may end up
reaching their respective two hundred thousandth plug-in cars first, other automakers will
not have reached anywhere near the cutoff. As such, this means that some automakers will
be able to continue to offer the Federal Tax Credit long after others can’t. And that’s going to do something very interesting. Either, it’s going to shift the balance
of electric vehicle market share from one automaker to another, or it’s going to force
automakers who have hit that milestone to leverage economies of scale to lower the total
sticker price for their electric cars. You see, some analysts and commentators postulate
that the Federal Tax Credit has been artificially keeping costs for plug-in cars high. And while we’ve seen the cost of plug-in
cars gradually fall over the past seven years or so, the suggestion is that they haven’t
fallen as fast as perhaps they might have if the incentives weren’t available at all. That suggestion however, does forget the basic,
undeniable fact that for now, it costs automakers more to make an electric car than it does
an internal combustion engined vehicle, partly because of the extra investment needed but
primarily because of the cost of the battery packs that each and every plug-in car needs
to function. That said, I’m someone who likes to think
that the progress that electric vehicles have made around the world means that we’re unlikely
to see a roll back to pre-EV days just because Federal Tax credits are due to end. Indeed, because these credits will expire
slowly and on a per-automaker basis, I think we’re more likely to see the price of plug-in
cars fall as competition and economies of scale keep automakers competitive. But there’s something else here. Elsewhere in the world, electric cars are
being evermore aggressively pushed and, well, America isn’t the only market for these
vehicles. And since any automaker making a big investment
in electric vehicles wants that investment to be paid back as soon as possible, it makes
no sense at all that automakers would ignore a perspective market just because incentives
are less than they once were. Finally, there’s the matter of the Tesla
Model 3, the GM Chevrolet Bolt EV, and the upcoming next-generation Nissan LEAF, all
of which will offer super 200-mile range and sub forty-thousand dollar price tag. While that’s more expensive than some other
cars out there, all three models represent how far the cost of electric vehicles have
dropped in recent years, and moreover, how far prices can fall for electric cars in the
future. With that taken on board, I think it’s highly
unlikely that we’ll end up with electric car sales trickling to a halt just because
Federal Tax Incentives are slowly running out. After all, they’re following the path that
the Federal Government laid out more than seven years ago and thus far, the prices of
electric vehicles are falling as expected. Yes, there may be a small dip, but ultimately
it’s my hope that economies of scale, healthy competition, and improving specification means
that electric cars will continue to be sold — with or without incentives. Do you agree? Will electric car sales survive the gradual
expiration of Federal tax credits, or are these credits essential to ensure people continue
to buy plug-in cars? Leave your thoughts in the Comments below,
don’t forget to like, comment and subscribe — and make sure you hit the notification
bell so you don’t miss a single video. If you’d like to see more videos from Transport
Evolved, please consider supporting me through Patreon (there’s a link below and at the
end of this video) and I’ll be back tomorrow with more clean, green, awesomeness. Until then, I’m Nikki Gordon-Bloomfield,
thanks for watching and as always, Keep Evolving!

About the Author: Michael Flood

59 Comments

  1. I want to correct your statement, EV Tax incentives started under Obama's watch, actually is was President George W. Bush whose pen to paper started the $7500 tax incentive towards to purchase of an EV. http://www.foxnews.com/opinion/2011/05/26/george-w-bush-father-modern-electric-car.html
    http://gm-volt.com/forum/showthread.php?10184-Bush-or-Obama-s-EV-tax-credit

  2. EVs will survive. Like many others I will continue to drive EVs as they are hassle free and have a lower cost of ownership than ICE vehicles. Simply put EVs are better and in the long run cheaper. A time will come when drivers on a very super tight budget choose an EV over an ICE because the 'total cost' of the ICE is unaffordable.

  3. Will we ignore the pollution in big cities just because electric cars may cost slightly more? NO. I think that more and more people will get rid of their ICE cars, and use only electric. Even if electric cars will suffer additional local taxes, which don't really make sense, they'll become more and more practical…. and also, electricity in general is way more usable than any other form of energy, as our home appliances, tools, computers, medical equipment ….etc. all use electricity, quite efficiently.

  4. Hi. I think it's not bad if government cuts Tax Credits. automakers must make competitive car for mass market, not for geeks only

  5. the most expensive but is the battery, and cost of batteries are dropping rapid.
    i foresee an ev 'price drop' (or standard models getting cheaper and 'upgraded' models replacing the more expensive slot.

    that and tesla are making EVs more main stream cool, a bit like early 'smart phones' were really only geek toys, until apple made them mainstream cool, and even though more expensive, were what people wanted to buy.

  6. Yesterday morning I woke up with your voice in my head saying: I'm Nikki Gordon-Bloomfield, keep evolving. haha that name is so memorable. You're a great host and I love the content!

  7. Incentives are not the only way, for example what would happen if some big US cities close some roads for non electric cars, or allow petrol engine cars but with a fee ? It is the case in some major European cities and it is at least as efficient than incentives and costs nothing for the city and does not need a national level approval. For example London's "congestion charge", or Florence's ban of non EV car in the center, or Olso's authorisation to drive in bus lanes for EV, etc. When you live in a city you are more concerned with pollution, so to be (re)elected a mayor could choose to promote EV.

    Of course EV sales will anyway slow in the USA, for a time ; but as TEN pointed out the world is not limited to the US, and European peoples will be happy to have their model 3 sooner if some US clients cancel their pre-order ;-).

  8. Well here in Australia there has never been any incentives. The EV market is much smaller I realise but I don't expect the end of incentives to drop EV sales off the cliff. It just may mean other EV manufacturers will get more sales such as Hyundai or BMW for example. If price of batteries would drop even further will also help. Another way to sell EVs to mass market is with TCO cost comparisons over say a 5 or 10yr period.

  9. The ever hungry and coldly dispassionate Tax Monster awaits to pounce on it pray with little advance warning. John 10 : 10.

  10. I knew this was coming. EV cars can stand up as a legitimate, practical alternative to the ICE or they won't. I want to see in the hard cold real world how an EV minus the subsidies, stacks up….and Model 3 as the "affordable" Tesla will be the ultimate test. Most of the rich fanboys have bought their Tesla (as a second or third car), now I wanna see what happens when your middle class schmo buys one as their daily driver.

  11. Nissan has recently stated the the new Leaf will surprise in both price and range. Nissan has, and Hyundai still does, offer EVs with an MSRP just below $30k. To reasonably surprise, one might naturally assume that a small battery version with more than 125mi range should be below $29k and/or a high ranger version with 240mi or more range would be under $37k. I doubt Nissan expects anyone to hold them to their word, but when range gets up to 150mi and the price is below $25k, lack of incentives will have zero impact on my purchases. I do think loss of incentives will have an impact, but I fully expect EVs to get cheaper and eventually become mainstream. With solar on a trajectory of becoming ubiquitous, EVs become super cheap to operate. I don't miss oil changes and gas station stops, and I don't plan to go back.

  12. Nice video.  Future sales of EVs is dependent on a number of things certainly purchase cost, which the tax incentive lowers is one of them.  However the cost of Gasoline and availability of out of home charging are also important.  Plus the availability of the type of vehicles that people want.  Right now you have cheap gas, and a very limited number of style vehicles to choose from.  Add In that in many areas  EVs, other than perhaps a Tesla, can only be reasonably used locally and you have allot of factors that limit sales.

    What I think is going to be more interesting is how loosing tax incentives affects individual car manufactures (and their competitors that still have the incentives).   Tesla seems positioned to be just fine, GM on the other hand seems to be in a really bad place.

  13. The statement that the tax incentives will gradually fade away, implies that once a manufacturer has sold 200,000 cars the incentives will be reduced over time. I do not believe this is the case. I believe that once Nissan has sold 200,000 cars they loose 100% of those incentives, for any electric models they produce in the future.

  14. I am totally sold on EVs and willing to pay a premium for the driving experience (not to mention the lack of tailpipe emissions). I'm not sure how many people think like me though.

  15. Automakers will have to make/keep EVs affordable, as they serve as a "Compliance Vehicles," which enable automakers to continue to sell less fuel efficient vehicles and still achieve a certain government mandated fleet fuel economy average.

  16. I think that too much is being made of the EV range / price ratio. People will eventually become a bit more rational when the sheer 'schlep' of of running an ICE car becomes a more obviously obsolete process. They will notice that their neighbour's EV almost never needs to be away and unavailable due to needing a service, and realise that buying a car that is quite capable of covering 95 – 98% of their motoring needs is a fetter better deal than buying one which covers 100% but has numerous disadvantages. This is from a born motor-head, previously known as a petrol-head. I run a 15 year old Subaru Forester wagon which I love more than any other car I have ever owned, but the moment I can get my hands on a 2025 Smart ForTwo ED, the Forester is going to be put on axle stands in my backyard, in the hope that I can one day convert it to an EV. Call me a modern redneck, it's cool.
    Oh, and Hydrogen FCVs were always a non-starter, by the way. (a THIRD infrastructure [after petrol and electricity]???) No thanks.

  17. Here in the US, the American Taliban continually pushes to move us backwards in technology versus forward. Therefore those incentives will not be renewed.

    However that very same group also has a track record of messing up the economy. So yes it will be complicated. For starters, the price of gasoline always gets out of control when the American Taliban is in charge. A quick look back to a decade ago when Bush jr was in charge shows that gasoline prices broke the $5 a gallon threshold. Compare that to when Obama was in charge where the cost plummeted to under $2 per gallon in many places. (Right now the national average is $2.39 gallon).

    Ok, so price of gas will slowly climb = good for EV's?

    However, The Taliban's current policy towards immigrants is creating a vacuum that is already having negative effects on the economy. For instance we are already seeing problems in southern states where there is no immigrant labor to pick fruits and vegetables and those consumables are simply rotting in fields. This problem will only be exasperated as time goes by. Many predict that by late summer consumable prices will begin to skyrocket especially as the situation becomes critical in mass food production states such as California, Indiana, Wisconsin, idaho etc..

    Secondly the Taliban's policies are also affecting the travel industry. Everyone including Theme parks (such as Disney) and major airlines are already showing decreased interest by foreigners to visit the US.

    So, What does all this mean?
    Increased food prices,
    Increased price of gas, (will also lead to higher heating and cooling costs)
    Decreased Tourism.

    This will all come to a head at the most inopportune time. The all important Christmas shopping season. Now this will mean great deals for consumers, unfortunately the majority of consumers will be struggling to, A. keep the house warm and B. put food on the table, so regardless of how great Christmas deals are, retailers will take a huge hit this year.

    By February 2018 we will be nearing the situation we found ourselves in 2007-2008. Once retail numbers come in and annual reports start showing decreases in sales and profits things will start to destabilize.

    People's greatest failure is not learning from history. Every time that the American Taliban has held total control of the American government, they have crashed the economy. Right now public sentiment is pretty wobbly. Once things start to get shaky, it will not take much to knock the house of cards over.

    Car manufacturers in general should buckle up, it's going to get rough…

  18. I wonder if the tax incentive program prohibits rebadged vehicles from getting the credit?  Nissan and Renault have an alliance.  Will we see Renault Leafs in the US?  Opel is no longer owned by GM, but still has a relationship with them.  Will we see Opel Bolts/Ampera-es?  Or they could use smaller companies that already have a presence in the US.  Just a thought.  I'm not even sure if it's feasible.

    I'm in the camp that thinks that companies are holding EV prices artificially high because of the tax credit, and the prices will come down as the incentives go away.  GM announced in 2015 that they were paying $145/kWh for their batteries, and they've probably only gotten cheaper since then.  If you do the math, the batteries aren't the huge cost that they used to be.  

    In one way the subsidies hurt the image of EVs, because they make the resale value look worse than it actually is.

  19. What we really need is a carbon tax. If you just change the rate on 3 excise taxes you change the whole economy without any new regulations and without picking winners and losers, except c as a loser.

  20. Maybe Toyota and Honda are hiding their best evs so they can crush Tesla and Nissan when they run out of incentives.

  21. Correct me if I'm wrong, but I believe that a person buying a new EV will pay the full price, and won't get the tax rebate till tax time… thus the sticker price is still the sticker price before incentives.
    Either way, EVs are becoming so superior to fossil cars in every way, the batteries are dropping in price… and I'm looking forward eagerly to my Model 3, with or without the incentives!

  22. Sales might recover over time when prices drop but initially I think sales will plummet. I live in Denmark and our government recently began phasing in sales tax on EVs. The first year 2016 with 20 percent tax on top saw a considerable drop but this year with the tax now at 40% only 5 EVs were sold in the first two months and none to private persons.
    The psychological effect of increasing prices and fear of increasing depreciation have effectively killed the EV in my country. Sad considering all our wind turbines and the short distances in our small country. We would have made a great EV nation.

  23. 🙂
    Cost will always be a determining factor for every commodity.
    However the economy and standard of living will also tell part
    of the story too.
    🙂

  24. Since the first serious EVs, the Tesla Roadster and the first Nissan Leaf, battery pack costs have halved, everything else in an EV isn't that expensive. In fact it the battery pack were free, EVs would be cheaper than their equivalent fossil cars.
    This is the typical crying of the wolf done by people with vested interests in the benefits being renewed.
    Considering a 50kWh pack and a US$ 150/kWh drop in cost+sales margins, that equals the tax credit value.
    Tesla has said they could survive without any subsidies, be it ZEV credits or consumer purchase incentives. In fact a Tesla Model S/X gets the least advantage from those credits comparing the sticker price with the cash involved in the sum of the subsidies.
    Tesla Gigafactory coming online has once again reduced the cost of Lithium Ion packs even more.
    When some people cry wolf too much, they'll find their cries will fall into death ears.
    The federal purchase subsidy has a gradual phase out after the 200000 car mark is hit (stays at full value during the quarter when it hits plus the next one, then phase out during the next year in a few increments).
    By the time Tesla hits the 200k mark and completes the 12 month phase out, Lithium pack costs likely will have dropped another 10%.
    Model 3 is expected to cost US$ 35k base, which is the median car price for developed countries. Without incentives, so Tesla is already cost competitive considering all of the technology included on a base Model 3.

  25. I never qualified for the tax rebate, but put my money down on the Tesla Model 3 because when Tesla first came out with the roadster I wanted it. Then they came out with the S and I thought, yes, that one would be fantastic but still very steep, until the plan was revealed to create a mass market more affordable car. When the model 3 was finally announced I was at my local showroom with a few other hundred people and put down my deposit. I kept my Prius and I have been saving. If you always wanted an EV in genera,l your not going to let the diminishing credits be the reason you don't get one, used or new.

  26. i think it's ridiculous that a family of 4 making $60,00.00 a year should have been subsidizing a persons $70,000.00 car in the first place. having said that, i think that the family making that income should get a tax credit for the same amount of their taxable income that they would have gotten from buying an electric vehicle. and as the popular phrase used, but in reverse, it should not have to be paid for. just taken away from the vote buying politicians government checkbooks.

  27. electric cars are too expensive. should be the same as an ice car. ice car have expensive engines and ev's have expensive bat.

  28. Electric Car Sales will Fall When U.S. Federal Tax Credits End if 'everything remains the same'. When has that ever been true of disruptive technologies?

  29. I think the biggest problem electric cars have is that they concentrated on small cars, while when the auto market recovered, the customers went for SUV's and large trucks. So the most important thing will be to align the type of car being built with the demand.
    Battery prices have plunged over the last 5 years. One way of looking at this is that you can get a better car for less money today, without incentives, than you could get with incentives when the incentives were provided.
    Of course for those wanting a low cost alternative, Look at a used Leaf or Prius. The prices for used electric cars and hybrids are not that much different than for used ICE cars.

  30. In Australia we don't have incentives. In fact we have disincentives. There is a massive amount of luxury car tax on the Tesla which unnecessarily pumps the price out of reach for most people. The biggest challenge I feel is the lack of charging stations and limited variety of electric cars available here. Yes, Australia is a big place however most people drive less than 100km per day.

  31. I love your neutral, fact based approach. I also appreciate that you mention when you're stating your opinion and the reasons why you support it. Showing both sides coupled with being grounded to reality is why I've started following this channel. Thank you.

  32. To me I think the need for incentives is much less than it was 7 years ago. Look at the Leaf for example. 7 years ago there was no such thing as a used Nissan Leaf for 6,000 dollars. Today there are so many electric vehicles that they are showing up on used car lots for bargain prices!

  33. Tax credits do not influence me to buy a leaf. I bought used. When the 60 kWh leaf is 4 years old,probably buy one of those as well.

  34. I think, for me, what would change is the timing. I'm considering buying a Tesla 3, and expect to do it as quickly as I can to be sure to qualify for the tax credits. If I miss the credits, though, then the urgency is gone. In that case, I'll probably save some cash by continuing to use my old car for a while, waiting to buy until I'm confident Tesla has the kinks all worked out.

  35. Good points Nikki.

    Edmunds missed a very critical issue in their article…. the cost of gas. In 2012, it reached an all time high (around $3.60/G (USA) and starting tailing of to around $2.40 when the Georgia tax credit ceased. It was a combination of those two points which decimated Leaf sales.

    Today's EV market is growing year on year against the backdrop of cheap gas Going forward gas taxes will rise as will legislation to make gas vehicles cleaner and more efficient. Battery pack prices are falling faster than analyst had forecast and some automakers (well one really) will reach the price parity convergence point by 2019. Foreign sales may keep them busy until that point if US sales fall away, but somehow I think that's unlikely.

    To wit, Edmund's are once again wrong! Strange how they are not running a dooms day article on ICE just yet 🙂

  36. If the cost of buying and operating an electric car go up, then sales for the customers with the least money will go down. Basic economics. For people who can afford a $50K to $100K car, a few thousand more $ won't matter as much.
    Once tax incentives are gone and the driver has to pay more for public charging, then sales for EVs at the low end will fall.

  37. Well Take Denmark. We added 150% tax gradually over 5 years on top on the 25% we had. Here 3 years in. Sales are NON. Export and total EVs. Are fare greater then the amount sold. Actually I believe the total number sold softer this year is 3 sofare !!! Noway however has almost reached critical mass. They will continue even when they add a little tax.

  38. Trump is cutting all support to renewable energy. ..and increasing support to fossil fuel consumption
    China is a good example. …slow sales but renewable is the future. ……there are going to be a lot more blocks….
    Big Oil is dead

  39. The tax incentive will have to be renewed. You can't keep subsidizing oil to the disadvantage of another industry. it will just trigger a lawsuit against the government to drop the oil subsidies. The easy credit will be renewed just to ensure a parity.

    The fair thing is to drop all the subsidies entirely and let each industry compete on a level playing field.

  40. I think for electrics to really take off, the price needs to come down and they have to become more practical (i.e. they need to alleviate people of their range anxiety). I already drive a car that gets 36 to 38mpg that cost me around ten grand. As much as I am beginning to like electrics, I am hard pressed to justify spending upwards of $30,000 to $40,000 or more for an EV (or even a plug in hybrid) that will only get me around 100 miles or so (and yes, the newer models are getting better, so don't get me wrong). At the moment, these cars are suited for people with money and a conscience, but not for the poor blokes like me that I feel make up a good portion of the auto buying public. When they can market a decent EV that can go 250 or more miles on a charge for the $20K – $25K range (or less), I think they will begin to sell more, but even that's not a guarantee. Purely my opinion for the two cents that it's worth.

  41. Battery prices, recharging, range, most people don't need their car to go 0 to 60 in 2 seconds, but they do want their vehicle to go around 200 miles without having to refuel.

    The Nissan is expensive as an ordinary car because they use a special battery made especially by Nissan which means the cost of the batteries development.

    Had Nissan just used an off the shelf battery like the 18650 they could have dropped the price of their leaf.
    Tesla has a high end product at a price that is roughly twice the price of Nissans low end product at the time, and their battery performs a lot better.

    I'm still waiting to see a Tesla Leaf combined effort, and how much such a car would cost to manufacture.
    The car is there all it needs is the battery.

  42. Absolutely EV sales will decrease significantly when incentives are taken away, unless prices drop below the $30K barrier for 200+ EV range cars. I for one can't take advantage of some of the great incentives out there, so I haven't switched to these more expensive EV cars.

  43. Denmark killed the subsidies and killed EV sales. The US wuill see a big drop with GM and Tesla them Nissan. Not as much as Demark but a serious impact.

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