Can The EV Revolution Survive Without Tax Credits?

The end of the year is drawing near and it’s time for last-minute legislation in the U.S. Congress. As is tradition, various industries are using this time to lobby for their interests--and the car manufacturing industry is no exception. This time, the spotlight is on electric cars. Tax credits for electric cars, to be specific.

GM, Tesla, and other manufacturers of EVs were pushing for an extension of the tax credits introduced during the first Obama administration. The reason: the credits are only granted for the first 200,000 EVs a carmaker manufactures. After the 200,000 mark, a phase-out begins. To their chagrin, Congress did not pass the proposal for an EV tax credit extension.

Now, when this legislation was enacted, plans were to have a million EVs on the roads by 2015, energy expert David Blackmon wrote in a recent Forbes article. This did not happen, but it is on track to happen in the not too distant future. However, the distribution of sales among carmakers is anything but even.

Tesla and, to a lesser extent GM, dominate the space and both have reached their 200,000 limit. This means EVs will now become an even pricier luxury for many. But this is not the biggest problem with the EV tax credit regime. The biggest problem may be its extension.

MarketWatch’s Victor Reklaitis reported last week that there was a good chance that a tax credit extension legislation will be passed, granting Tesla and GM their wish. The industry was optimistic, too.

“Thanks to bipartisan, broad-based support, we believe the EV tax-credit extension is very well-positioned for enactment,” said a representative of the EV Drive Coalition – an industry group including both Tesla and GM. For the carmakers, this would have been a win. For the taxpaying car buyers, maybe not so much. Related: IEA: An Oil Glut Is Inevitable In 2020

For starters, there is something called EV tax credit fraud, and if you pay taxes, you might be footing the bill for this. A report from the Treasury’s Inspector General for Tax Administration revealed last month that the Internal Revenue Service had granted as much as $73.8 million in wrongful tax credits to 16,510 tax returns.

 Now, that took place between 2014 and 2018, which makes the per-year figure more palatable, especially against the background of sums like the budget deficit or the amount of government spending for any given year. Still, it is a problem and it could become a growing problem as more EVs hit the roads.

Speaking of roads, Forbes’ Blackmon sees another potentially serious problem with EVs. Their owners—most of which are in California, don’t pay gas tax, yet gas tax revenues are what is used for road repairs. This means that the more EVs there are on the roads, the less money there is for maintaining and repairing these roads.

There are equivalents to the gas tax for EV cars in sure other states and, to be fair, they are often much higher than gas taxes. Which, in an ironic twist, makes EVs less desirable.

An additional concern that is perhaps more relevant to anyone’s subjective feeling of justice is the fact that most EV buyers in the United States tend to be on the affluent side. Strictly speaking, most of the people who buy Teslas can afford the full price, but they were getting $7,500 knocked off anyway until recently, when the credit tax fell to below $2,000. As Blackmon puts it, “These are individuals who can and should buy an electric vehicle with their own money, not yours and mine.”

Yet leaving aside the righteous indignation, the fact is that rich people, both in the U.S. and elsewhere, are a tiny minority. The EV revolution cannot happen with a tiny minority of the population of any one country. It needs the majority to put its trust in this inarguably much cleaner mode of transportation. To this end, an extension of the tax credit limits from 200,000 to 600,000 cars would have been justified. Yet now that they’ve taken care of the tax credits, legislators can focus on the more important problems such as an EV road tax and the prevention of tax credit fraud.

By Irina Slav for Oilprice.com

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