GOP Tax Bill Threatens Electric Car Tax Credit

By · November 07, 2017

Chevrolet Bolt models on a dealership lot in San Leandro, Calif.

The House GOP tax reform bill released last week proposes to wipe out the federal tax credit for electric-vehicle purchases. The credit is worth up to $7,500 for consumers who buy cars that run on battery power and produce little to no tailpipe emissions. If the bill passes, the credit will apply to electric or plug-in hybrid vehicles purchased through the end of 2017—but not beyond that time.

A change in the availability of the tax credit could complicate how manufacturers set EV pricing—to preserve the desirability of electric cars while managing the current price difference between battery-powered vehicles and internal combustion cars. The short-term impact could be increased sales from consumers wanting to purchase an electric car while the tax credit is in effect.

The tax credit was intended as a short-term means to encourage automakers to produce electric cars—and to incentivize consumers to make an EV purchase (in a time when batteries are relatively expensive).

According to current rules, the buyer of a plug-in vehicle can use the full allotted credit on one of the first 200,000 units sold by any individual automaker. After that, the credit is cut by half every six months until it’s gone for that automaker’s EVs. No manufacturer has reached the 200,000-unit threshold yet, but Tesla Motors could run out of tax credits as early as 2018—with Nissan and General following as soon as 2019.

Read more about the full range of federal, state, and corporate plug-in car incentives.

An Unstoppable Trend

If the GOP tax reform bill is passed in its current iteration, the tax bill would immediately eliminate the EV tax credit. However, the status of the tax credits is unlikely to shift the auto industry’s trend toward vehicle electrification. Carmakers have made major investments in EV technology with pledges to dramatically increase electric-car production in the next few years. Several automakers have pledged to offer EV variants of every vehicle they sell.

However, the elimination of the EV tax credit could make it more difficult for automakers to comply with mandates in California (and nine other states) to significantly increase EV sales in the next decade or so.

Similar yet smaller tax incentives were offered to buyers of conventional no-plug gas-electric hybrid vehicles for about a decade after they first went on sale. Those incentives were eliminated in 2010. In 2017, about 2.5 percent of US vehicle sales are conventional hybrids. Historically, high gas prices have had a great impact on sales of fuel-efficient cars compared to tax incentives.

Today, automakers offer about 40 plug-in models. Current sales represent about 1 percent of overall vehicle sales in the US in 2017.

“Tax credits are an important customer benefit that can help accelerate the acceptance of electric vehicles,” stated General Motors, which plans to expand its plug-in vehicle offerings from the all-electric Bolt and plug-in hybrid Volt to as many as 20 models in the next five years. “General Motors believes in an all-electric future. We will work with Congress to explore ways to maintain this incentive."

New to EVs? Start here

  1. Seven Things To Know About Buying a Plug-In Car
    A few simple tips before you visit the dealership.
  2. Incentives for Plug-in Hybrids and Electric Cars
    Take advantage of credits and rebates to reduce EV costs.
  3. Buying Your First Home EV Charger
    You'll want a home charger. Here's how to buy the right one.