With a few automakers running out of federal tax incentives available to car buyers in the next year or more, there’s concern it could put a damper on plug-in electrified vehicle sales.
In a recent Edmunds report, optimistically titled “Elimination of Federal Tax Credits
likely to Kill U.S. EV market,” the car buyer guide assumes that PEV sales will be negatively impacted once the incentives run out.
Started up by the Obama administration in 2010, buyers of qualified PEVs have been eligible for a federal tax credit of up to $7,500. While longer range batteries and cheaper sticker prices are likely to bolster sales, losing the ability to offer car buyers the incentives will need to be addressed by automakers.
There is a cap placed on each automaker that runs out when 200,000 PEVs are sold in the U.S.
Tesla is in a vulnerable position with high-volume production of the upcoming Model 3 starting this year. Tesla is expected to reach that mark relatively soon, having hit the 100,000 halfway mark earlier this year. Sales of the Model S and Model X are expected to remain strong, and adding Model 3 sales brings the forecast up for Tesla running out of federal tax credits in 2018.
General Motors crossed the 100,000 mark in July of last year through Volt sales, and Nissan did so in November with Leaf sales. GM could see an end to its federal incentives sooner than Nissan, with strong Volt sales continuing and the Bolt doing fairly well. Edmunds forecasts GM will run out of credits in late 2018 or 2019.
To renew or extend federal tax credits for PEVs, the Trump administration would need to work through Congress and the Internal Revenue Service, which is likely to be put off.
President Trump has not addressed the federal PEV tax credit, but did propose eliminating a subsidy program automakers have used to finance PEV launches. In his proposed 2018 budget proposal, Trump proposed eliminating the U.S. Department of Energy’s Advanced Technology Vehicles Manufacturing (ATVM) loan program. That low-interest loan program has been known for assisting manufacturers move forward in future PEV production.
The Edmunds report looked at what happened in the state of Georgia when incentives go away. The state had its incentives expire in July 2015. A $5,000 state tax credit for zero emission vehicles joined with the $7,500 federal tax credit helped PEVs reach 17 percent of all PEVs sold in the U.S. during 2014.
Nissan took most of the hit when the program ended, with the all-electric Leaf being the top selling PEV in the state. Another risk Nissan was taking involved offering $132 monthly lease payments for the Leaf, which made for 80 percent of Leaf sales in Georgia at that time.
Tesla and BMW saw more stable results, but weren’t pursuing the aggressive competitive approach Nissan had been taking in Georgia.
Another issue automakers and dealers face is residual value depreciation that PEVs typically have. If the federal subsidy goes away, lease payments could go up quite a bit due to low residual values no longer buffered by federal incentives. Market dynamics will bring up the lease payments.
One market trend that Edmunds noticed looking at Georgia’s incentive program ending was the role consumers with higher incomes play. The high-end market, such as luxury PEVs, is able to weather price fluctuations as incentives go away. That market segment is known for purchasing the new technology and prompting more efficiencies and improvements to the products. As the technologies improve, prices come down and more consumers are able to purchase the PEVs, Edmunds said.
Edmunds sees long-range battery development and a better charging infrastructure likely to support PEV sales; but without government incentives, automakers may need to offer their own incentive programs and cut into profitability of PEV sales, Edmunds said.