Tesla, GM, Nissan, & Rest of the EV Drive Coalition Push Congress to Rethink the EV Tax Credit

A coalition of electric vehicle (EV) companies that includes Tesla is advocating with the US Congress to expand the EV tax credit, which is already starting to phase out for Tesla.

The EV Drive Coalition, which also has the support of General Motors and Nissan, officially launched Tuesday, November 13, 2018, making visible the positive effects of the $7,500 EV consumer tax credit for the economy and environment.

The Coalition announcement comes as the 200,000 vehicle cap per manufacturer has already affected Tesla customers, with other manufacturers also rapidly approaching the applicable tax credit pinnacle.

The EV Drive Coalition argues that reforming the credit will create greater market equity among EV manufacturers, as “forward-thinking consumers” will gain the freedom to decide which EV they want through increased options and a balanced market.

The EV Drive Coalition brings together a diverse group of industry, consumer, and environmental stakeholders with a single unifying mission: to encourage passage of legislation reforming the federal electric vehicle tax credit to ensure that it works better for more consumers for a longer timeframe and spurs increased growth of the US EV market. Supporters include consumer advocates, environmental groups, free-market advocates, and automakers, among others.

Originally designed to help consumers make the transition to zero-emissions transportation, the tax credit will drop for Tesla buyers starting January 1, 2019 to $3,750. “If the US is going to continue to produce, purchase, and drive new electric vehicles at a large scale,” the EV Drive Coalition states, “policymakers need to reform the current tax credit for electric vehicles. The original tax credit has been a successful incentive so far, but the market is far from fully mature. And its cap on the number of consumers who can use the tax credit per car manufacturer has created unbalanced market incentives and will soon limit options for consumers in the EV market.”

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Trepidation exists that, without a reformed tax credit and with the current limited models available, consumers may be disincentivized to consider EVs, forcing the EV market to contract. That possibility, the Coalition states, could put US jobs at risk.

Extending and improving the credit, on the other hand, could play a major role in reducing greenhouse gas (GHG) emissions, a significant contributor to climate change. “A federal tax credit to help make electric vehicles more affordable for all consumers is integral to reaching a zero emissions future and establishing the US as the leader in electrification,” says Dan Turton, Vice President of Public Policy at General Motors North America. “We feel that the tax credit should be modified so all customers continue to receive the full benefit going forward.”

General Motors is expected to be the second company to pass the 200,000 US EV delivery milestone and thus have the tax credit start phasing out.

Background: The EV Tax Credit

The 2008 electric vehicle (EV) tax credit was created to support the adoption and sales of EVs. The cap was put in place due to thinking at the time that manufacturers of EVs would have streamlined their manufacturing process and neared the cost of gas-powered cars by the time they reached the 200,000 sales mark. With no intermediary car manufacturer or company, consumers received the tax credit benefit directly. The original tax credit was seen as a win for consumers, the economy, and the environment.

As we learned in an exclusive webinar/podcast with Plug In America cofounder Paul Scott a few months ago, the original 200,000 milestone was for all companies combined, but Plug In America succeeded in getting that milestone changed to 200,000 for each manufacturer.

That was helpful, but it’s also clear the success of the federal tax incentive has been limited by its current structure. The $7,500 tax credit is a significant consideration for car buyers and “is essential to the continued development of the EV market,” the EV Drive Coalition says. “Without a modification to the policy, consumer demand will suffer, and so will the future of EVs in the US.”

The language of the Plug-In Electric Vehicle Credit (IRC 30D) reads as follows:

“Internal Revenue Code Section 30D provides a credit for Qualified Plug-in Electric Drive Motor Vehicles including passenger vehicles and light trucks. For vehicles acquired after December 31, 2009, the credit is equal to $2,500 plus, for a vehicle which draws propulsion energy from a battery with at least 5 kilowatt hours of capacity, $417, plus an additional $417 for each kilowatt hour of battery capacity in excess of 5 kilowatt hours. The total amount of the credit allowed for a vehicle is limited to $7,500. The credit begins to phase out for a manufacturer’s vehicles when at least 200,000 qualifying vehicles have been sold for use in the United States.”

EVs, the Marketplace, and the EV Drive Coalition

The Coalition states that the EV tax credit is significantly tied to a strong and stable EV market.

• Mass acceptance of EVs has created nearly 300,000 jobs across the US.
• The credit makes the US more energy independent and reduces air pollution.
• EVs are the foundation for advanced transportation technologies that will be critical to future mobility, such as autonomous vehicles and EVs in shared mobility services.
• Because more options lead to more competition, the tax credit spurs US innovation and supports US global competition in automotive technology.

Tesla and the EV Tax Credit: Going Down, Down, Down

The looming end ahead to the EV tax credit may be just the motivation some consumers need who have been vacillating between buying a Tesla Model 3 or waiting. At a starting price of $49,000, the first mass-market Tesla pushed the all-electric car company into profitability in Q3 2018 and was the top-selling luxury car in the US in October, 2018. The federal tax credit on Tesla models drops to $3,750 for vehicles delivered between January 1 and June 30, 2019. It will then be reduced to $1,875 for units sold beginning July 1, 2019, and will be eliminated altogether on December 31, 2019.

The Tesla website reminds potential consumers that several states and local utilities offer additional electric vehicle incentives for customers, often taking the form of a rebate. Rebates can be claimed immediately after purchase, while tax credits are claimed when filing income taxes.

What’s the Legislative Outlook for the EV Tax Credit?

“We’ve been able to make tremendous strides in the underlying technology of electric vehicles. The battery power and the range have improved significantly over the last few years. With every new advancement, we get closer to becoming an economically sustainable market. However, we’re not there yet, and keeping the cap will have a negative impact on a sustainable US electric vehicle market,” explained coalition spokesperson Trevor Francis. “At that point, it wouldn’t be just an automotive issue. As it stands now, electric vehicles are responsible for nearly 300,000 jobs. This is a jobs issue and an economic issue in addition to a consumer issue.”

And while many didn’t expect the credit to survive in a Republican-controlled government, it managed to slip its way into the tax bill that was signed by President Trump in December. Whether the bills supported by the EV Drive Coalition will come up for a vote on the floor of the House or Senate is uncertain. Gridlock is the norm in Congress.

The Coalition maintains that a reformed EV tax credit would ensure the boons of domestic manufacturing, infrastructure, and sales of electric vehicles as the industry continues to grow. “Arbitrary constraints with the federal credit limit consumer options and make it harder for consumers to purchase the cars they want,” explains Joel Levin, Executive Director of Plug In America. “Lifting the cap would create a more level playing field for all manufacturers, giving consumers the freedom to decide which car they want in a free and fair market. Increased competition spurs more American innovation and technology.”