The federal electric vehicle tax credit was established with one goal: Grow the nascent EV market. While we have seen considerable expansion, we are not close to a fully mature market and the benefits that come with it.
To ensure the continued growth and eventual stabilization of the market, the electric vehicle tax credit must be reformed.
Due to their economic and environmental benefits, electric vehicles are poised to take over the global auto industry. It’s estimated that by 2040, 55 percent of all new car sales will be EVs.
Current models of electric vehicles tend to be more expensive than internal combustion engine vehicles. The added cost is primarily from the cost of EV batteries.
But over the last 10 years, dramatic advancements have led to steady decreases in cost and improvements in battery performance. In 2010, lithium-ion batteries cost $1,000 per kilowatt hour. By 2017, the cost had dropped to $200 per kWh. Projections show by 2025, batteries will cost $100 per kWh.
This threshold is widely considered the point when EVs become cost-competitive with ICE vehicles. After that, EVs become cheaper — and that’s when things really get interesting. A reformed tax credit will continue to help consumers with the upfront costs and bring the benefits associated with EVs to even more Americans.
Implemented about a decade ago, the credit provides consumers with a $7,500 tax credit to purchase a qualified electric vehicle; however, the credit is capped at 200,000 vehicles per manufacturer. Once any manufacturer hits 200,000 in electric vehicle sales, the credit begins to phase out.
Although the cap was well-intentioned — it was put in place to avoid a permanent credit — it has put the manufacturers that have invested the most money and time into developing these vehicles at a direct disadvantage with their competitors. Once a manufacturer hits the cap, its models become uncompetitive with other EVs and with ICE vehicles. This reduces consumer choice, slows down EV adoption and dampens the American auto industry’s efforts to compete with the vast electric drive investments being made in Germany, China and elsewhere.
The state of Georgia experienced this firsthand. After eliminating a $5,000 credit and replacing it with a punitive electric vehicle tax, sales dropped by roughly 90 percent. If the market were to shrink like this across the country, it would push back our efforts to advance EV technology by years, cede American leadership in automotive technology to other countries, and put into doubt the long-term sustainability of our auto manufacturing industry.
In the years since the credit was implemented, electric vehicles have become a more common sight on roads throughout America. The credit has provided a purchase incentive for consumers while encouraging private companies to make ongoing technological improvements, resulting in better-performing electric cars that are both more affordable and increasingly convenient to own.
With few moving parts and no need for oil changes, electric vehicles require less routine maintenance than their gas-powered peers. EV drivers also save on fuel costs. The most recent numbers show the average gallon of fuel is $2.25, while the electric equivalent hovers at $1.18.
The auto industry is changing, and the future is electric. A reformed tax credit is critical to establishing a strong domestic market capable of producing affordable electric vehicles that can compete on a global scale. Inaction will bring recent advances to a grinding halt, and America will voluntarily step down from its historic role as a leader in the automotive industry.
Private companies have invested billions of dollars in this industry already. Consumers have shown their demand for these cars when they are well-engineered, properly priced and meet range requirements. A reformed electric vehicle tax credit would be a strong step for a new Congress intent on building a more environmentally conscious economy, while protecting American jobs and technological leadership.
Joel Levin is executive director of Plug In America.
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