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Killing Electric Car Tax Credit Would Punish Consumers and Hurt Economy, Experts say

Consumer Reports logo Consumer Reports 6 days ago Jeff Plungis
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President Donald Trump may be trying to punish General Motors with his threat Tuesday to kill a federal subsidy for electric vehicles, but it might be consumers who would feel the most pain, auto experts say.

Eliminating the tax credit would slow the EV market by making vehicles more expensive, says David Reichmuth, a senior engineer in the Clean Vehicles Program at the Union of Concerned Scientists. Automakers are still going to invest in dozens of new electric models to sell in markets such as Europe and China, Reichmuth says.

“Taking away the credit would mean it might be harder for U.S. drivers to take advantage of the technology,” he says. “It might push R&D and manufacturing to countries where they’re encouraging EVs, not discouraging EVs.”  

Trump’s economic advisers are targeting the tax credit, which can save taxpayers up to $7,500 off what they owe to the federal government. Throw in end-of-the-year congressional budget negotiations and there is a plausible scenario that the tax credit that’s meant to help offset the higher cost of EVs will go away sooner than anyone in the auto industry had anticipated.
 

Who Gets Hurt If Credits Go Away?

Trump’s opposition stems in part from a GM announcement that it would shutter five plants in the U.S. and kill off six underperforming vehicles.

Far from punishing automakers such as GM for shedding U.S. jobs, as the president has hinted he wants to do, revoking EV tax credits would hurt consumers and the economy as a whole, says David Friedman, vice president of policy and advocacy at Consumer Reports.

“If costs are truly the concern, policy makers should look to cut oil and other kinds of subsidies that are distorting the market,” Friedman says. “Or they could put a price cap on the EV credits so they don’t cover the more expensive models.”

Some EV experts say killing the tax credit for electric vehicles would take away a crucial incentive right as the industry is getting established, and it would risk ceding U.S. technological advantages to other countries that are aggressively pursuing electrification, such as China, Japan, and European nations.

As reported by Bloomberg News on Dec. 3, White House economic adviser Larry Kudlow said EV tax credits should be cut, along with any other Obama-era subsidies for the auto industry. “We are a free market,” he said.

The credits have helped establish the EV market in the U.S., which is becoming more robust as costs are coming down, says Luke Tonachel, an analyst with the Natural Resources Defense Council. The number of models sold is increasing each year, but it’s still a very small market, he says.

“Electric vehicles are the cleanest, most efficient cars on the road today,” Tonachel says. “It’s not the time to slow down.”

Tax credits are vital to “a zero-emissions future” and establishing the U.S. as the leader in electrification, GM spokeswoman Jeannine Ginivan said in an emailed statement. GM believes the credits should be modified so that all customers continue to receive the full benefit, she said.

“We’ll keep doing our part by innovating to bring the cost down on electric vehicle and battery technology and look forward to the day that there is no need for the federal tax credit for consumers,” Ginivan said.

© Provided by Consumers Union of United States, Inc.

The full $7,500 EV tax credit is capped at 200,000 sales for each manufacturer. The thinking was that once the market was established, the incentive wouldn’t be needed. Tesla reached that threshold a few months ago and has now sold more than 295,000 electric vehicles, according to the website EVAdoption. And the site projects that General Motors, at nearly 197,000 vehicles, will hit it by the end of the year. That means for the two leading makers of EVs in the U.S., there will be smaller tax credits next year before they’re phased out entirely.

The tax credit starts to decline after an automaker hits 200,000 units sold. Tesla is already there—starting next month, buyers who take delivery Jan. 1 through June 30, 2019, will only get a tax credit of $3,750; the credit declines even more after that, until it ultimately goes away.   

Some critics say the tax-credit program subsidizes only the wealthy who hardly need the help. Those critics point to the fact that many Tesla models can sell for $100,000 or more, and several upcoming EVs are from luxury brands such as Audi and Porsche. EV backers say mainstream shoppers can benefit from the credits, especially those who choose cars such as the Chevrolet Bolt and Nissan Leaf, both starting in the $30,000 range.  

Consumer Reports is an independent, nonprofit organization that works side by side with consumers to create a fairer, safer, and healthier world. CR does not endorse products or services, and does not accept advertising. Copyright © 2018, Consumer Reports, Inc.

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