Can The EV Revolution Survive Without Tax Credits?

Yves here. Notice that the article does not directly answer the headline question. But California power blackouts and huge charging station lines (and hte need for much greater charging station buildout) are other current deterrents to broad scale EV adoption.

By Irina Slav, a writer for with over a decade of experience writing on the oil and gas industry. Originally published at OilPrice

The end of the year is drawing near and it’s time for last-minute legislation in the U.S. Congress. As is tradition, various industries are using this time to lobby for their interests–and the car manufacturing industry is no exception. This time, the spotlight is on electric cars. Tax credits for electric cars, to be specific.

GM, Tesla, and other manufacturers of EVs were pushing for an extension of the tax credits introduced during the first Obama administration. The reason: the credits are only granted for the first 200,000 EVs a carmaker manufactures. After the 200,000 mark, a phase-out begins. To their chagrin, Congress did not pass the proposal for an EV tax credit extension.

Now, when this legislation was enacted, plans were to have a million EVs on the roads by 2015, energy expert David Blackmon wrote in a recent Forbes article. This did not happen, but it is on track to happen in the not too distant future. However, the distribution of sales among carmakers is anything but even.

Tesla and, to a lesser extent GM, dominate the space and both have reached their 200,000 limit. This means EVs will now become an even pricier luxury for many. But this is not the biggest problem with the EV tax credit regime. The biggest problem may be its extension.

MarketWatch’s Victor Reklaitis reported last week that there was a good chance that a tax credit extension legislation will be passed, granting Tesla and GM their wish. The industry was optimistic, too.

“Thanks to bipartisan, broad-based support, we believe the EV tax-credit extension is very well-positioned for enactment,” said a representative of the EV Drive Coalition – an industry group including both Tesla and GM. For the carmakers, this would have been a win. For the taxpaying car buyers, maybe not so much.

For starters, there is something called EV tax credit fraud, and if you pay taxes, you might be footing the bill for this. A report from the Treasury’s Inspector General for Tax Administration revealed last month that the Internal Revenue Service had granted as much as $73.8 million in wrongful tax credits to 16,510 tax returns.

Now, that took place between 2014 and 2018, which makes the per-year figure more palatable, especially against the background of sums like the budget deficit or the amount of government spending for any given year. Still, it is a problem and it could become a growing problem as more EVs hit the roads.

Speaking of roads, Forbes’ Blackmon sees another potentially serious problem with EVs. Their owners—most of which are in California, don’t pay gas tax, yet gas tax revenues are what is used for road repairs. This means that the more EVs there are on the roads, the less money there is for maintaining and repairing these roads.

There are equivalents to the gas tax for EV cars in sure other states and, to be fair, they are often much higher than gas taxes. Which, in an ironic twist, makes EVs less desirable.

An additional concern that is perhaps more relevant to anyone’s subjective feeling of justice is the fact that most EV buyers in the United States tend to be on the affluent side. Strictly speaking, most of the people who buy Teslas can afford the full price, but they were getting $7,500 knocked off anyway until recently, when the credit tax fell to below $2,000. As Blackmon puts it, “These are individuals who can and should buy an electric vehicle with their own money, not yours and mine.”

Yet leaving aside the righteous indignation, the fact is that rich people, both in the U.S. and elsewhere, are a tiny minority. The EV revolution cannot happen with a tiny minority of the population of any one country. It needs the majority to put its trust in this inarguably much cleaner mode of transportation. To this end, an extension of the tax credit limits from 200,000 to 600,000 cars would have been justified. Yet now that they’ve taken care of the tax credits, legislators can focus on the more important problems such as an EV road tax and the prevention of tax credit fraud.

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  1. PlutoniumKun

    Just to reinforce Yves point, this the huge problem with the neoliberal mindset whereby any problem can be solved by giving a nudge or incentive to the ‘market’. It has always been obvious that if EV’s took off it would have huge implications (both positive and negative) for energy infrastructure. It was obvious, for example, that EV’s based on battery swapping (i.e. when you are on a long trip and you run out of charge, you swap out your low batteries for fresh ones), would be far more beneficial, but that would have required forcing the industry to adopt a universal standard for easy-to-remove batteries, and favour rent/lease for batteries rather than buying them as an integral part of the car.
    Another issue is the use of cars as part of the overall demand/supply balance loading for electricity supply by forcing power companies to use differential charges or localised storing to ensure EV’s are powered with nighttime or surplus renewables – direct charging at service stations means that EV’s contribute to load imbalances, rather than being part of the solution.

    1. Peter

      Are EVs a solution or part of the problem?

      It all depends on how the electricity to drive and produce the vehicles and batteries are used, aside from the current problem of recyclability of LI-Ion batteries and the environmental problems caused by producing the raw materials to manufacture them.

      Electric vehicles ‘not a panacea’ without decarbonisation
      In both the US and Europe, EVs represent a substantial reduction in lifecycle greenhouse gas emissions compared to the average conventional vehicle. This has been a consistent finding across the overwhelming majority of studies examined by Carbon Brief.
      However, Michalek cautions that:
      “EVs are not currently a panacea for climate change…lifecycle GHG emissions from electric vehicles can be similar to or even greater than the most efficient gasoline or diesel vehicles [in the US].”

      Personalized EVs are part of the problem imho, to me only E- public transportation – and the rail transport of goods — will really curb CO2 footprint.
      Subsidizing individual e-transport is the wrong approach, simply put.

    1. Louis Fyne

      for normies, there is a persuasive circumstantial case that Tesla has/is engaging in massive accounting shenanigans.

      the schaudenfraude will run deep when Tesla misses a payroll/debt servicing payment and the curtain is revealed around Elon.

      your mileage will vary.

  2. JCC

    California has a $100 EV registration fee. In fact, registration/license plate fees in CA are very high in general – almost triple NY State fees, for example (based on personal experience with the same vehicle). Cars are expensive, EVs or not, especially in CA.

    I don’t own an EV, but if the Feds want to give me a tax credit, and it turns out that this lowers the price of an EV compared to a nearly equivalent ICE vehicle, I’ll take it.

  3. Chas

    Gasoline taxes should continue to pay all the costs of road maintenance so as to influence gas car owners to go electric.

    1. The Rev Kev

      What about all those people where EVs just won’t cut it due to distances involved and lack of recharge stations? America is a big country after all. And the article mentions that you have to be well off in order to afford an EV. Thus your idea would be to have poor people pay for what is for more that a few people a wealthy person’s indulgence.
      Don’t forget that all those riots in France were triggered by a tax on diesel fuel which did not effect the elites in cities like Paris but which would make life extremely hard for people living in the rest of France as diesel fueled cars dominated. If a person that is well off purchased an EV and saw them as the future, then by rights they should be willing to pay a little extra to pave the way for the wide spread adoption of them.

      1. a different chris

        But didn’t you just, sortof anyway, make Chas’ point?

        Our highway funding is a nightmare (like our funding of… well everything) but in a sane world: We suspect the maintenance/road-mile is much cheaper on an interstate than a clogged city artery with bridges and traffic lights etc.

        But not so sure the maintenance/car-mile isn’t way higher. Especially when I’m cruising along and don’t see another vehicle for minutes at a time. So if that’s where the costs/mile are, then the gas vehicles should shoulder them.

        I don’t agree with any of this per my “insane funding” aside, but just feel I should point it out.

        1. Left in Wisconsin

          One point I never see emphasized any more is the damage that larger truck weights do to pavement. My understanding is that virtually all the damage done to major roadways is from trucks, especially really heavy ones. So making the low-wage rural long-distance commuter in his/her late model junker pay the costs for road repair does seem a bit unfair.

          1. Louis Fyne

            Ya. Road damage goes up exponentially with every pound/kg of mass.

            personal vehicle drivers subsidize the entire freight trucking industry/UPS/Fed Ex, etc…..but there’s no uproar given the physics innumeracy of politicians and voters.

            just saying

          2. Anon

            Yes, I was making this same point when the Internet ate my comment earlier today.

            And it’s not just the maintenance of the roadway, but the cost of initial design/construction of the roadway (bridge spans, turning radius, road base thickness, sight lines, stopping distances) that heavy vehicle roadways demand. It takes approximately 40,000 passenger vehicle passes over a stretch of roadway to equal one pass of a loaded 18-wheeler. The impact on dynamically loaded roadway by heavy trucks is exponential.

            (So when you see the sign on the rear of the freight truck that says, “This vehicle pays $xxxxx in roadway taxes.” Divide by 100.)

      2. p. fitzsimon

        Give low income drivers a gas credit. Make the EV credit less for expensive luxury cars like the Tesla and larger for affordable EVs . Better public transportation is needed but for many commuting, shopping, visiting will depend on cars for a long time.

      3. SKG

        Let me point out that you have to be well off to buy any new car these days.

        The average age of a new car buyer is 53 years old. The price of an average new car is $37,000. Over a reasonable lifetime, that’s a Tesla Model 3 SR+.

        The Millennials (with their 3% of the wealth of the country) aren’t buying new cars. (And are financing used cars for 60-84 months.)

        Most EVs get charged where they’re routinely parked; and 200+ mile ranges are more than adequate for almost any “daily driving”. (Yes, various multi-family dwellings and public parking will need to step up with at least regular plugs for recharging.) The only time you need public chargers (i.e. superchargers) is when you’re on road trips. (Hence the long lines at Thanksgiving for Tesla’s superchargers.)

    2. Kevin McCormick

      I have calculated that fuel taxes cover about 20% of roadway costs in Texas. It is about 45% at the state level, but the local city and county road spending, based on property and sales taxes, is nearly half the total roadway spending. So the notion that fuel taxes pay for road maintenance is another urban legend.

  4. jfleni

    Can The EV Revolution Survive Without Tax Credits?

    NO! Look back about a hundred and forty years: Nobody thought at all about tax credits; instead the local streetcar systems extended from Portland Me to about Wilmington De, (all you needed was a huge bag of nickels, and an equally huge bag of lunch,to go five hundred miles).
    Now the plutocrats are screaming for more, all to
    go to your gold-plated sh##box; a really bad deal.

    Stop, Look and Listen is NOT just a warning for trains, but for
    plutocrats and their bought politicians!

    1. a different chris

      >Can The EV Revolution Survive Without Tax Credits?

      YES! :)

      The problem is that we have a neoliberal society where the focus is almost completely on the top 10%, of which only the upper half of that can really afford the stuff sold but the lower half is, in that awful term, “aspirational”.

      So we get the Tesla. Realize this sedan can blow away your annoying neighbor’s pampered Vette. Do we need that? No. Do we need 350 miles range when we can recharge for our daily commute in our garage?

      No. But in this skewed society you can make money on a rich people’s toy easier than you can trying to sell something useful to the rest of us schlubs.

      So we have the tax credit that half the Tesla buyer’s don’t need, and is necessary (but probably insufficient but they buy one anyway) for the other half of the Tesla buyers that are the aspirational class I allude to.

      We’ll see how this shakes out, but the tax credit phasing out should be a good thing.

      1. Robert Valiant

        I’ve always thought that Tesla is an attempted answer at exactly one question,

        “What can we do to reduce the emissions of high performance luxury cars?”

  5. Louis Fyne

    As an example, If I recall correctly, $20+ billion of shareholder capital has been burned through at Tesla since its inception and yet that company is not generating consistent profits.

    The MTA/BART, DC Metro all could’ve used that capital and the EV credits—it would have been better for the planet to rebuild mass transit than subsidize high-end households to purchase a Tesla.

    At this point, subsidizing EV is INSANE from a utilitarian point-of-view. More basic research needs to be done for EV-only batteries. Hybrids (for commercial-fleet-government vehicles) absolutely, mass transit absolutely,

    The average American just doesn’t drive enough to make EVs worth it. What a waste in opportunity costs in the name of greenwashing!

    just saying. your mileage may vary

    1. p. fitzsimon

      Even forgetting about climate change or energy conservation a big advantage to EVs is reduction in local pollution. In the small city where I live the roads are often so jammed with traffic cars barely move during parts of the day.

    2. John Steinbach

      Despite commitments by big car makers like VW & GM to convert to EV, to convert to an EV private vehicle society/economy would take many years & an incredible resource/energy investment. (rebuilding a “smart” grid, expanding electricity generating capacity (nukes?) reconfiguring manufacturing/supply chains, developing new battery technology, exponentially expanding rare earth metal mining, investing in engineering capacity to produce EVs affordable to deplorable…….)

      With the economy potentially one recession removed from systemic collapse and the Jackpot waiting in the wings, it is beyond delusional to think EVs an the answer to our predicament.

      1. p fitzsimon

        I agree that it’s not going to happen over night. And yes we need investment in a “smart” grid. But I drive an EV now and just power up every night at home. No big deal. I know it doesn’t solve the problem all by itself since the electricity I use comes from natural gas and oil. Given the issue with the cost, size and weight of batteries it’s not for everyone at the current state we’re in.

  6. Knifecatcher

    As someone who has driven over 50k miles in EVs over the last 4 years (2015 Leaf and a 2019 Bolt) I believe that as more people get experience behind the wheel of an EV demand will naturally increase. Much is made about the long-distance limitations but these are far outweighed by the advantages in everyday use – far lower operating costs, instant torque, near zero maintenance, and never needing to stop at a gas station.

    That said, in the short term the tax incentives are vital at the low end, as otherwise costs are still much higher than an equivalent gas car. Case in point, my Bolt is very similar in size to a Honda Fit, but has an MSRP roughly double the Honda. I live in Colorado which has a generous state tax credit, so between the remainder of the Federal credit, the CO credit, and a massive dealer discount (Bolts aren’t exactly flying off the lots) I was able to bring my out of pocket cost more in line. For the Tesla / Porsche / Audi / Jaguar types selling cars costing $60k+++, yeah. Kill the credit.

    Another approach rarely discussed is figuring out a way to disincentivize the purchase of gas powered cars, somehow baking the negative externalities into the price via taxation or some other indirect method.

    1. notabanker

      One needs to ask why the costs are so much higher than gas equivalent. Who is really benefiting from tax “incentives’?

      I know I researched PV’s and costs in the US are much higher than costs globally, by about the margin in tax credits. Corporations bake the tax incentives into the price and let the consumers deal with the government hassle to get the money back, or charge a premium to get it back for you.

    2. ptb

      “near zero maintenance”
      for a vehicle fleet we’re talking about that is both upscale and on average fairly ‘new-car’…

  7. Rudolf

    Nobody here has mentioned that the fossil fuel industry is supported by $20 billion in subsidies in the US alone per year. What would the cost of gasoline be should that support disappear?
    Virtuality every new, promising technology has received some form of government subsidy to develop. So nothing to see here. Sadly, the fossil fuel and related industries are not interested in any innovation that negatively impacts their profits or influence. The results of this are huge pushbacks against EVs, mass transit or any innovation that will lessen dependence on fossil fuels.
    By the way, EVs are super fun to drive and much cheaper to operate than ice powered vehicles. To drive from Portland, OR to SF and back costs about fifty bucks for electricity vs about $250 for an ice powered car.

  8. Wellstone’s Ghost

    The fact that if you turn on your ICE automobile in your garage with the door closed it will kill you should be reason enough to get away from this technology as soon as possible. Especially in cities.

  9. Danny

    “Forbes’ Blackmon sees another potentially serious problem with EVs. Their owners—most of which are in California, don’t pay gas tax, yet gas tax revenues are what is used for road repairs. This means that the more EVs there are on the roads, the less money there is for maintaining and repairing these roads.”
    As a California driver, I’m calling bullshit on Mr Blackmon.

    “One thing that has not changed is the impact of the gas tax charged by the state. In this, California also has the dubious distinction of being No. 1. As of July 1, the price of a gallon of California gas included 57.8 cents of state tax and fees. Add in 18.4 cents of federal taxes, and that is just over 76 cents in taxes for every gallon pumped.”

    “California voters had the chance to ditch a hike in the gas tax last November, and the wise voters in Fresno County did just that. They supported a gas-tax repeal measure on the ballot by a 52% to 42% margin. The Bee supported the repeal, arguing that in California’s $200 billion annual budget, there surely had to be adequate funding for road maintenance.”

    “Unfortunately, voters statewide bought into the panic campaigns pushed by labor unions and city-county governments, which worried about how they would get road projects done without the tax, and the repeal was handily defeated.
    But wait, there’s more
    It gets worse….”

    Higher auto registration fees come as a shock:

  10. Anthony G Stegman

    It is a mistake to consider only the fuel source for vehicles. Whether electric, diesel, or gasoline powered motor vehicles are nasty machines that destroy our planet. It is the least efficient means to move people from point A to point B. Motor vehicles require vast acreages of paved roads, massive polluting factories to build them, massive polluting mines to provide the raw materials. At a global level we need to reduce the total numbers of motor vehicles on the road, regardless of energy source and type with the goal of eliminating their day to day use.

    1. ptb

      yes. +1

      multiple occupancy.

      our society is all in on using personal cars/ trucks too much, subsidizing roads, fuels, and vehicle financing. We should transfer a good part of these resources to mass transit. pollution down. stress down. human time up. the development of brand new tech would become less urgent.

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