Tax-credit loss would hurt sales of affordable EVs

Nora Naughton
The Detroit News

As General Motors Co. and other automakers bet big on all-electric futures, House Republicans want to eliminate the $7,500 per vehicle federal tax credit intended to bolster consumer interest in electric vehicles.

The repeal, which would take effect in 2018 as part of the GOP tax bill, poses a threat to the growth of the emerging electric-vehicle market, especially at the lower end of the price scale.

“This will hurt the few automakers who have been the leaders in the field,” said Xavier Mosquet, senior partner at Boston Consulting Group, a global management firm and business strategy adviser with an office in Troy. “It will be OK for the very premium vehicles, but for vehicles at more affordable prices, the incentives are a driver.”

The Chevrolet Bolt and the Tesla Model 3 are the two mass-market all-electric cars that would be hurt the most.

The elimination of the electric vehicle tax credit could strike a serious blow to the Bolt. It would effectively raise the price of the car — which starts at less than $30,000 after the tax credit — to more than $37,000. That would put it out of reach of many buyers who might otherwise take a chance on an electric car.

GM holds up the Bolt as a symbol of the company’s future without fossil fuels. The carmaker recently said it would introduce 20 new all-electric, zero-emission vehicles by 2023.

“Tax credits are an important customer benefit that can help accelerate the acceptance of electric vehicles,” GM wrote in an emailed statement Thursday. “Because General Motors believes in an all-electric future, we will work with Congress to explore ways to maintain this incentive.”

The Bolt enjoyed its best sales month ever in October — the third month of the vehicle’s national roll-out — with 2,781 deliveries. Chevrolet spokesman Fred Ligouri said about a third of those buyers are first-time electric-vehicle owners. Bolt sales have steadily gained momentum since it went on sale across the U.S. in July.

Tesla’s Model 3 sedan, which would start around $35,000 and has garnered hundreds of thousands of $1,000 deposits from hopeful owners, is critical for the Silicon Valley automaker after it posted a $619 million loss in the third quarter.

Tesla had promised a production rate of 5,000 vehicles per week by the end of the year for the Model 3, but CEO Elon Musk on Wednesday night pushed back that goal to possibly March. That, coupled with the proposed elimination of the electric-vehicle tax, sent Tesla stock plummeting 6.8 percent to $299.26 by the end of trading Thursday.

Other automakers are offering electric vehicles at the same price point, including the Nissan Leaf, the Ford Focus EV and the Kia Soul EV, but they’re not performing as well as the Bolt even with hefty incentives from automakers.

The Bolt, which is being offered without automaker incentives, appears more poised to compete with the more affordable Tesla Model 3 after it emerges from what Musk calls “production hell.”

Model 3 aside, ultra-luxury Tesla models likely don’t stand to lose many sales without the electric vehicle tax credit, as the average buyer of a $100,000 Model S doesn’t need or much care about a $7,500 credit, said Michelle Krebs, automotive analyst for Autotrader.

But the luxury brands can’t carry the segment. Demand for more affordable electric vehicles is necessary in creating an all-electric future for the industry — at least in the U.S.

“I don’t think that means automakers will stop making EVs,” said Michelle Krebs, automotive analyst for Autotrader. “Instead it will be China that rules the day.”

Electric vehicles in China, the world’s largest auto market, are offered to consumers with hefty incentives as the country moves toward a future without fossil fuels. China is also requiring automakers to meet manufacturing quotas for zero- and low-emission vehicles in 2019 and 2020.

“Global players will still have to produce electric vehicles, but it doesn’t allow (the U.S.) to dictate standards,” Krebs said. “For the Detroit Three, it’s giving an advantage to foreign competitors.”