The electric-car market may be in for a serious downturn when current federal tax incentives end, assuming the Trump administration declines to extend them, according to a new analysis.
In 2010, the government began offering tax credits of $2,500 to $7,500 to the first 200,000 U.S. buyers of plug-in electric vehicles from each automaker.
Those credits are on their way to drying up, with companies like General Motors, Nissan, and Tesla likely to run out during 2018 or 2019.
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As Edmunds points out in its analysis, President Trump’s 2018 budget blueprint did not specifically target federal incentives for electric-car purchase.
The credits, wrapped deep into the tax code, are part of Environmental Protection Agency policies that require congressional approval to change.
It seems quite unlikely, however, that the administration would extend those credits to cover additional sales by each maker in the future.
2017 Tesla Model S
Without continuation of the credits, Edmunds believes, the market for electric cars will crash. And it bases this conclusion on a real-world precedent.
Georgia once had one of the strongest EV markets in the U.S., second only to that in the state of California. The southern state at one time accounted for 17 percent of all electric-vehicle sales in America.
That was largely due to an additional state tax incentive of $5,000 for zero-emission vehicles, on top of the $7,500 federal tax credit.
CHECK OUT: When do electric-car tax credits expire?
In July 2015, Georgia eliminated its credit after a bitter political battle (and added additional registration fees that applied only to electric cars at the same time).
Money, money, money
Sales immediately declined, and Georgia now accounts for just 2 percent of all EVs sold in the United States.
Before lawmakers repealed the tax break, 80 percent of the electric cars sold in Georgia were leased—many of them likely to guard against rapid advances in battery technology that would quickly render the models obsolete.
It was the lessees who felt the loss more than most: the average lease payment for a Nissan Leaf shot up 119 percent, from $132.46 per month to just under $300
Edmunds says that many of the EV customers in Georgia weren’t necessarily interested in the greenest car they could buy.
Rather, they were after the best deal—a sales angle particularly played up by dealers in the state, who advertised cars with lease payments under $100 per month and taglines that talked about "driving for free" or the like.
When those deals went away, customers turned their attention elsewhere.
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That's the scenario Edmunds believes will repeat itself nationally should the Trump administration decline to renew federal tax credits for EVs.
Should that happen, it may be the biggest test yet for electric vehicles in the United States.
With low fuel prices and a resurgence in SUV and light truck sales, EVs suffer not only from higher purchase prices but they now may not make much financial sense for many buyers, even with the current credits.
2017 Chevrolet Volt
Edmunds' rather pessimistic report points out that electric cars face price, infrastructure, and educational challenges before they can achieve mainstream sales on their own.
It notes that any market that still relies on government support isn’t one that's guaranteed to continue.
While various states offer incentives of several types for purchase of the same cars, the purchase rebates in California top out at $2,500, far less than the federal $7,500 for all battery-electric vehicles on sale today.