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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Governments Deliver Blow To EV Darlings

  • Financial Times: EV additions to national fleets cost governments globally $10 billion in fuel duty revenue losses.
  • Governments are depriving themselves, or rather, their successors, of billions in fuel duty revenues in the name of electrification.
  • Governments have started to phase out tax incentives and have lifted registration fees for new EVs to compensate for the decline in fuel duty revenues.
EV

Western governments have been nurturing an EV market for years. They have had quite some success. But now they have to deal with lost fuel duty revenues from ICE car sales—and they have no other option but to hurt their EV markets.

There are eight states in the U.S. that charge EV drivers a registration fee of $200 per year. Another 24 or more have an annual fee of $100 or more. Now, $100 per year is not a whole lot for most of the people who tend to buy EVs—but it is an additional expense on vehicles that people have been taught to perceive as tax-break carriers only. And people don’t like additional expenses. The conundrum lies in the fact that just as people don’t like additional expenses, governments don’t like lower tax revenues.

Governments have been raking in billions in fuel duty revenues over the decades. Now, these revenues are slimming, thanks to EV proliferation—actively encouraged by those same governments. Per a Financial Times report citing data from the International Energy Agency, last year alone, EV additions to national fleets cost governments globally $10 billion in fuel duty revenue losses.

This could swell to as much as $110 billion by 2035 if the same governments fulfill their transport electrification targets. In other words, governments are depriving themselves, or rather, their successors, of billions in fuel duty revenues in the name of electrification. Luckily for those successors, that electrification will likely not happen exactly as planned—because of these additional taxes being slapped on EVs at a time when demand has started to become quite fragile. Related: EU Proposes First Batch Of Sanctions On Russian LNG

Last year saw record sales of electric vehicles in most markets. In the United States alone, some 1.2 million EVs were sold in 2023, representing a market share of 7.6%. That was 1.2 million fewer internal combustion engine vehicles sold, along with the fuel duties they would bring into state coffers. So, state coffer managers started taxing electric vehicles.

“It is more like a penalty,” Jeff Shoffner, a Tennessee EV driver told the FT in comments on the increase of local state registration taxes that went up from $100 to $200 this year. “I’m not averse to paying the extra fee, but I think it’s too high.”

Shoffner is hardly an exception among EV drivers who are starting to feel the pinch from governments as the latter wake up to the fact their fuel duty revenues are shrinking, and it is not only because of constant improvements in internal combustion engine efficiency but the governments’ very own incentive regime for EVs. So, they are taking unpopular steps.

In New Zealand, the government has introduced a road use tax for EV drivers, the FT reports, charging it per 1,000 miles. The tax comes in at about $45 per 1,000 miles (NZ$76), which is not a whole lot but, again, it is an additional expense on vehicles that are already costlier than their ICE equivalents.

In Europe, governments are taking a different but equally unpopular approach: they are phasing out EV incentives. The first results are in. In December, Germany announced the abrupt end to EV subsidies. Over the first quarter of this year, EV sales in the EU’s largest economy dropped by over 14%. In January alone, EV sales took a 50% dive following the cancelation of incentives.

Governments’ steps to replace lost fuel duty revenues with EV taxes and fees have understandably caused resentment among EV enthusiasts and lobbyists. These taxes and fees are adding to already substantial EV costs that carmakers have proved incapable of doing much about because, after all, EVs are made from certain materials that cost money to extract or produce. And this is sapping demand just when it was supposed to really take off. Yet again.

The EV revolution has been around the corner for years now. EVs keep being just about to really take off and overtake internal combustion engine vehicles. It has taken billions in subsidies and other incentives to stimulate greater demand globally. And yet there are just two countries that can honestly boast EVs are mainstream on their roads: China and Norway.

In neither country has oil demand declined as a result of that EV mainstreaming..

Everywhere else, EVs remain largely a niche market, for a number of reasons, such as underdeveloped charger networks, range and battery anxiety and, of course, price. Now, governments aiming to ban all other cars but EVs in a little over ten years are adding another reason for EVs to remain a niche market: taxes.

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“Any time you’re increasing that upfront cost of an EV, it will by definition be problematic for growth,” Corey Cantor, a BloombergNEF EV analyst, told the FT. Upfront costs for EVs are already high enough as any carmaker struggling to make its EV line profitable enough knows. Now, instead of helping like they did for years, governments are making everything harder. And that’s because they really have no other choice. Governments run on tax money.

By Irina Slav for Oilprice.com

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