Say Goodbye to EV Tax Credits Under New GOP Tax Plan

It’s the last thing Elon Musk wants to hear and it’s likely not something General Motors will be too pleased about. Contained within the tax plan introduced by House Republicans Thursday is the elimination of a huge driver for electric vehicle sales — the $7,500 EV tax credit.

Automakers, and especially the two mentioned above, already stood to lose their credits in the near future (there’s a 200,000-vehicle-per-manufacturer cap), but the new tax bill would see the buyer incentive permanently removed, not renewed, as many had hoped. Such a move could slam the brakes on a still-fledgling segment in the U.S.

The tax bill is aimed at simplifying the tax landscape. In it, House Republicans propose cutting the corporate tax rate and paring down the number of tax brackets to three, among other measures.

According to Bloomberg, Michigan Republican Mike Bishop said it’s his understanding that the EV tax credit would disappear immediately once the bill is passed into law. Under the existing plan, once an automaker hits 200,000 EVs, the credit is cut in half every six months until it’s gone. Tesla is already on track to lose its credit next year, with GM and Nissan being the next to follow.

Going by recent examples of jurisdictions scrapping or reducing tax credits for green vehicles, the move could spell rough waters for any automaker. While ultra-expensive EVs could still make a profit, the newness of the technology, plus the steep (but declining) of batteries means low-priced models like the Tesla Model 3 and Chevrolet Bolt are already selling at a loss. It’s been reported that GM loses $9,000 on every Bolt.

The goal of automakers is to lower the cost of manufacturing through economies of scale, and that requires many people lining up to buy a new EV. For the public to do that, the vehicle must first be affordable. Getting $7,500 off MSRP can really sweeten the pot, especially with low-end EVs.

Among domestic manufacturers, Ford and GM plan on introducing a fleet of electric vehicles in the near-to-mid term. Tesla has new models in the works, including a pickup. As well, many other established automakers plan to do the same, including Volkswagen, Nissan and Volvo. Naturally, much skepticism surrounds the actual buyer demand for such vehicles, given the fledgling state of the infrastructure needed to make the vehicles viable on a day-to-day basis. The possible elimination of a large financial incentive only serves to heighten the doubt.

Tesla’s stock, already bruised by Wednesday’s admission of slower-than-anticipated production of the Model 3, sank nearly 8 percent in Thursday trading.

In 2015, Denmark announced it would phase out its 180-percent import tax exemption on electric vehicles over the course of four years, ending in 2020. The result? EV registrations plunged in early 2016, to the tune of 80 percent. A further reduction in the number of citizens buying electric cars followed in each successive quarter.

The change in buying habits mirrored that of the State of Georgia, which saw its Low Emission Vehicle Tax Credit expire in 2015, followed by a cratering in EV demand. Currently, 11 U.S. states offer a tax credit for the purchase of an EV; most recently, New York and Texas. Still, these incentives are much lower than the federal credit.

Automakers aren’t happy when they invest billions of dollars into product development, only to see the government disincentive those very products. Expect to see much lobbying in the days ahead from industry groups.

GM spokesman Pat Morrissey told Bloomberg that tax credits “are still necessary to help grow the EV market.” However, environmentalists — who aren’t in the business of selling cars — aren’t all in agreement.

“It helps to have EV tax credits, but fuel economy standards are more important,” said Daniel Becker, director of the Safe Climate Campaign. The lobby group’s reasoning is that, if EVs represent less than 1 percent of new vehicle sales, a larger environmental impact would come from making combustion engine vehicles more efficient.

Some automakers, like Nissan and Mazda, are working on squeezing more distance from a drop of gas using variable compression and gasoline compression ignition technology.