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
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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!