Ever since the election of Donald Trump, electric vehicle enthusiasts feared the possibility of the federal government slashing the $7,500 federal tax credit given at the purchase of a new battery-powered car.
Now those fears are coming closer to reality as reports suggest that the program has been removed as part of the new House tax bill.
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Bloomberg reported today:
“Mike Bishop, a Michigan Republican on the House Ways and Means Committee, told reporters his assumption was that the credits would be phased out immediately.”
Update: It’s now confirmed that a complete end of the tax credit by the end of the year is currently on the GOP’s House bill
The language of the bill hasn’t been made public yet, but that’s the best information we have right now.
The assumption has been that since the federal tax credit program already has a planned phase-out when each automaker reaches 200,000 EV deliveries, they would simply not renew the program.
But there are apparently talks about closing the program or starting the phase-out period ahead of time.
Under the current tax code, the planned phase-out period starts when an automaker reaches 200,000 EVs delivered in the US. From that point, the full $7,500 tax credit is still available to Americans buying EVs from that automaker for the current quarter and the next.
After that, the tax credit is reduced by 50% for 6 months and then another 50% for another 6 months before being completely phased out.
We believe that Tesla is the automaker closest to the 20o,000 EV milestone in the US. We reported last month that Tesla was at about 140,000 cars delivered in the US.
The company was expected to reach the milestone during the first quarter 2018, but that might have shifted a bit following the Model 3 production ramp delay announced yesterday.
Starting at $35,000, Tesla has positioned the Model 3 to be a viable car program without the tax credit, but a lot of reservation holders in the US nonetheless counted on the credit to make the purchase.
Other automakers, like GM and Nissan, are following Tesla close behind for US deliveries and are expected to hit the phase-out period in the next 12 to 24 months.
If the tax credit is indeed slashed ahead of time, the sales of GM’s Chevy Bolt EV and Nissan’s next-gen Leaf are both expected to also take a significant hit in the US, especially in states where there isn’t a separate EV rebate program.
Keep in mind that the full federal tax credit is only accessible to buyers who owe enough federal taxes during the year and it’s not transferable.
Electric vehicles have taken a lot of heat in the US for being subsidized, but we have to keep in mind that there’s a good reason that EVs are directly subsidized in the US.
That reason is the fact that gas-powered cars are not properly penalized for the cost they have on the environment and public health which is not reflected in the price of those vehicles. So it makes sense to encourage the sales of EVs since they don’t have that same cost on the environment and public health.
Several EV proponents, including Tesla CEO Elon Musk, have advocated for the end of EV subsidies, but they want it to come with an appropriate carbon tax on pollution-emitting products, like gas and diesel-powered cars, in order to keep the market fair.