Some politicians and electric utilities are now pushing the idea to remove the cap of 200,000 electric vehicles sold per manufacturer in order to get access to the federal tax credit just as Tesla and GM are about to hit the threshold.
In the US, like in several other countries around the world, the federal government has long been offering an incentive for car buyers to buy electric vehicles in order to represent the value those vehicles have for the environment over gas-powered vehicles.
But the structure of the EV incentive in the US is unlike anywhere else in the world.
First of all, it takes the form of a $7,500 tax credit and not a direct discount on the purchase of an EV.
Secondly, most countries have a cap on the incentive in the form of a deadline or a limit of the total amount of money allocated to the incentive program, but the US instead implemented a limit of 200,000 vehicles per manufacturer before a phase-out period takes place.
The result is that it eventually ends up penalizing automakers who were first movers and invested more into electric vehicles since their customers will not have access to the incentives while automakers who were late to market with EVs end up with a competitive advantage.
It just so happens that the two first automakers to hit the threshold are likely going to be American automakers, Tesla and GM. Therefore, the U.S. federal government might end up having an EV incentive program that directly disadvantages the two biggest American electric automakers.
It’s why when there was a GOP-led effort to remove the tax credit altogether last year and some industry watchers were worried about the impact on Tesla, CEO Elon Musk said that it would actually be a good competitive advantage for the company since they would be the first to lose access to the credit anyway.
Now some people are just starting to realize how the situation doesn’t make much sense and U.S. Senator Jeff Merkley of Oregon is leading an effort to remove the cap as part of the Fiscal Year 2018 omnibus spending legislation being considered right now.
36 electric utilities backed the effort this week in a letter to Congress. They wrote:
“As you work to formulate the Fiscal Year 2018 omnibus spending legislation, we write to you in support of the Section 30D electric vehicle (EV) tax credit and urge you to modify the credit by eliminating the existing manufacturer cap. The EV credit is essential to foster the rapid adoption and deployment of electric vehicles, which in turn will boost our economic and national security and continue to create the next generation of well-paying American jobs.”
They noted that the cap specifically hurts American automakers.
As we previously reported, Tesla is expected to hit the cap any month now while GM is expected to hit it toward the end of the year depending on the level of Chevy Bolt EV sales in the country. Japanese automaker Nissan could also hit the threshold this year depending on the sales of the new Leaf in the US.
But even if the effort to remove the cap is not successful, the tax credit doesn’t go away altogether for the buyers of those vehicles.
The tax credit program states that the phase-out period starts during the second calendar quarter after the calendar quarter in which the cap was reached – meaning that customers will still receive the full $7,500 tax credit for at least a full quarter. In other words, people will still get the full credit for 3 to 6 months after an automaker hit the mark – depending on if it was hit early or late in a quarter.
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.
Here’s the full letter that electric utilities sent to Congress this week: