Future of electric-car tax credit up in the air

Keith Laing
The Detroit News
A client's Chevrolet Volt charges at the Pep Station charging station for electric vehicles has been installed outside the office building of Pep Stations, LLC., in Livonia, Mich. on May 10, 2011. The company is the state's only developer of electric vehicles charging stations.

Washington — The future of a federal tax credit that provides up to $7,500 to buyers of electric cars is up in the air, as lawmakers in the U.S. Senate have unveiled a pair of bills that would either end the program or boost the cap on the number of credits per automaker can be used. 

A measure by U.S. Sen. John Barrasso, R-Wy., would eliminate the tax credit for electric cars and institute a new tax on electric cars and alternative fuel vehicles to boost the coffers of the federal Highway Trust Fund that is used to pay for construction projects. A separate measure by U.S. Sen. Dean Heller, R-Nev., would keep the electric vehicle tax credit in place and lift the cap that is looming over General Motors Co. and Tesla Inc.

Current rules allow automakers to offer credits for up to 200,000 electric vehicles per manufacturer. At least one automaker, Tesla, has already hit the limit, and GM is bumping up on the mark. 

Reaching the maximum number of tax credits begins a phasing-out process of the $7,500 tax credit offered to buyers of full-electric vehicles — reducing by half every six months until it hits zero.

Barrasso has argued his measure, known as the Fairness for Every Driver Act, would increase the fairness of funding system for paying to maintain federal roads, noting that drivers of gas-powered cars pay an 18.4 cents-per-gallon gas tax when they fill up that goes into the Highway Trust Fund.

“The electric vehicle tax credit largely benefits the wealthiest Americans and costs taxpayers billions of dollars,” Barrasso said in a statement. “Gas, electric, and alternative fuel vehicles use the same roads. All should contribute to maintain them."

Under Barrasso's bill, electric-car owners would have to pay a fee when they file their taxes that would be equal the average amount of fuel that is typically consumed by a similar gasoline-powered vehicle, as determined by the U.S. Secretary of Transportation, multiplied by the federal gas tax rate.

By contrast, Heller's measure is listed as "a bill to amend the Internal Revenue Code of 1986 to establish a new phaseout of the credit for plug-in electric drive motor vehicles." His office did not respond to a request for comment. 

Matt Williams, a spokesman for U.S. Sen. Debbie Stabenow, said the Lansing Democrat opposes Barrasso’s bill and "is focused on keeping the tax credit in place in a way that works for industry and stakeholders." 

A spokesperson for U.S. Sen. Gary Peters said the Bloomfield Township Democrat is opposed to ending the electric car tax credit, noting the "vast majority" of future self-driving cars are likely to be built on electric platforms. 

Tesla warned buyers this month they had make purchases by Oct. 15 to ensure vehicles would qualify for the full tax-credit. The company said previously it hit the 200,000 electric vehicle mark in July, which meant that its U.S. customers would have access to the full $7,500 federal tax credit until the end of 2018 before it begins to phase out over the course of 2019.

GM has also come close to reaching the limit. The company said it “believes an important part of reaching a zero-emissions future and establishing the U.S. as the leader in electrification is to continue to provide a federal tax credit for consumers to help make electric vehicles more affordable for all. 

Environmentalists have vowed to fight the proposal to eliminate the electric vehicle credit, which was established in 2008. They argue it is vital to increasing the use of non-polluting cars on U.S. roads. 

"We think electric vehicles need to be supported at the federal level," said Andrew Linhardt, the Sierra Club’s associate director for legislative and administrative advocacy.

"Tesla has shown how easy it is to have electric cars that are easy to get in around," he continued. "Americans like their cars. While we want to reduce the amount of vehicle miles traveled, the best way to improve the environment is to get people into less polluting cars." 

Rebecca Lindland, senior analyst at Kelley Blue Book, said boosting electric vehicle adoption has been a tougher challenge than the originators of the tax credit likely envisioned. 

"We're just not seeing widespread adoption," she said. "We continue to expect manufacturers to build these cars and consumers aren't buying them. You're not cleaning up the air by having 10,000 Bolts sitting at Detroit Metro Airport." 

Lindland said the tax credit will likely have to survive if Congress still intends to try to boost electric vehicle sales, but she said lawmakers will likely have to rethink they way they apply the incentive. 

"Instead of incentivizing the very first buyer, you need to incentivize fast-followers," she said. "Not a blanket incentive so that any millionaire who walks into a Tesla dealership gets a tax credit. They're going to buy the car anyway." 

The cost of electric cars has cited as a rationale for maintaining the tax credit in the past. The all-electric 2019 Chevy Bolt starts at $36,620 before the $7,500 federal income tax credit and can go up to 238 miles before needing a recharge. GM sold 23,297 Bolts in 2017. 


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Twitter: @Keith_Laing