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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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Can’t Afford An EV? You’re Paying For It Anyway

Proponents of the electric vehicle (EV) revolution have a lineup of arguments at the ready for drivers on the fence about whether to go electric, and they range from less pollution and lower after-purchase costs to the righteous idea that green cars help the world in the fight climate change.

Perhaps the best argument is this: You’re already bankrolling the EV revolution, so why not buy one?

The reality, especially in the United States, is that EVs are still a tiny fraction of all cars sold, accounting for just 2.2% of all passenger car sales in Q3 2019. At the same time, sales of gasoline SUVs and non-commercial small and medium-sized pick-up trucks are on the rise.

New energy vehicles (NEVs) sales continue to underperform the overall car market due to a lack of choice on the U.S. greener car market, analyst company Canalys said at the end of last year.

But the challenges are likely more than just choice.   

The Less-Than-Exuberant American Embrace 

In the next five years, all legacy automakers will be rolling out a growing number of EV models, aiming to compete with Tesla. This will significantly raise the number of choices for U.S. drivers.  

However, buying a car is not only a matter of plenty of options to choose from, such as price and functionality.

Considerations for buying an electric car, too, become more complicated because drivers compare their driving habits and needs with the EV range and charging stations in their area. Range and insufficient charging networks are often cited as the main concerns about the mass adoption of electric mobility. Related: Why The World’s Top Oil Traders Are Going Green

As far as prices are concerned, the argument of EV proponents goes like this: the higher upfront costs of buying an EV compared to an average gasoline car in the U.S. are mitigated by a federal tax credit and, in many cases, state incentives for EV purchases.

Who’s Really Funding the Generous EV Tax Credits?

The federal tax credit program for EV purchases is being paid for by taxpayers. But the average American taxpayer is not the one buying most of the electric cars in the United States—they are too expensive for the average Joe.

This means that everyone - including lower-income earners - is bankrolling the EV purchases of higher-income Americans, Mark J. Perry, a scholar at the American Enterprise Institute and a professor of economics at the Flint campus of the University of Michigan wrote in an op-ed in the Washington Examiner this week.

Currently, the federal tax credit program incentivizes the purchases of EVs that only higher-income earners can afford, Perry argues.

According to the Joint Committee on Taxation (JCT) estimates, “tax credits are disproportionately claimed by higher-income taxpayers.”

Most of the tax credits, 78 percent to be exact, are claimed by filers with adjusted gross income (AGI) of US$100,000 or more, and those filers receive an even higher proportion, 83 percent, of the amount of credits claimed.

The JCT estimates that under current law, expenditures for the plug-in EV tax credit will be US$7.5 billion between FY2018 and FY2022.

At the end of last year, Congress did not pass the proposal for an extension of the tax credit limits per manufacturer from 200,000 to 600,000 cars. Currently, the tax credit phases out once a vehicle manufacturer has sold 200,000 qualifying vehicles, and Tesla and GM have already reached this threshold.

The debate about EV tax credits is likely to be revived in the spring, according to American Enterprise Institute’s Perry, who believes that elected lawmakers “should put the priorities of the majority of average people ahead of providing generous taxpayer subsidies to a minority of the nation’s wealthy electric vehicle owners.”

EV Drivers Don’t Pay For America’s Road Infrastructure

The Highway Trust Fund, responsible for federal road construction and repairs, is funded by the federal fuel tax. The issue is that EV drivers do not pay the fuel tax because their cars don’t run on gasoline or diesel. If EVs on American roads continue to increase, which they will do, according to analysts, the transportation infrastructure will need more maintenance, while the EV drivers will not be paying for this, Perry says. Related: Another Major Car Maker Is Backing Hydrogen

“If more are going to hit U.S. roads in the years ahead as experts predict, we need to make sure those drivers pay to support the nation’s transportation system like the rest of us,” he argues.

In California, the state budget is missing out on $90 million in revenue on an annual basis. This has led to a number of states rolling out a mileage tax for EVs designed to fill the gap left by higher-income drivers with EVs not paying the fuel tax.

The Case For Electric Vehicles

EVs currently cannot compete with gasoline cars in terms of purchase prices, but the cost of driving using electricity instead of gas is much lower.

According to the U.S. Department of Energy, the so-called eGallon—the cost of fueling a vehicle with electricity compared to a similar vehicle that runs on gasoline—costs much less than a gallon of gas. On a national average, it costs less than half as much to travel the same distance in an EV than a conventional vehicle.

What’s more, U.S. electricity prices are much more stable than gasoline prices, which track the trends in the volatile oil prices, which in turn depend on global oil supply and demand and geopolitical factors, including Saudi Arabia’s efforts to have as high oil prices as possible in order to balance its oil-dependent budget.

Then, apart from promising dozens of electric models, legacy carmakers such as Ford are planning a massive expansion of charging networks in a bid to address one of the biggest concerns of drivers considering an EV purchase.  

Increased competition in the EV market, with more than a hundred vehicle rollouts planned over the next five years, is expected to lead to technological advances. Declining battery pack prices have the potential to bring EV prices closer to those of mass-market gasoline models, possibly enticing more drivers to switch to electric cars.  

By Tsvetana Paraskova for Oilprice.com

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Leave a comment
  • Annette Hunter on February 21 2020 said:
    Tesla no longer gets tax subsidies. Tesla is still selling. The electric vehicles depend on subsidies argument is dead.

    Most distance commuters will save money with an electric vehicle, subsidies not withstanding. A fair federal or state mileage tax will do little to alter the math. Taxes are a small portion of gas prices.

    Savings are primarily due to using cheap energy efficiently. Natural gas plants are almost three times more efficient than internal combustion engines. Battery and motor efficiency is in the range of 90%.

    We have a vast surplus of natural gas. Why not use it?

    Once upon a time our country ran on hay. Times change.

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