WASHINGTON -- Tesla Inc., General Motors and other major carmakers pushing to boost U.S. electric car sales were dealt a blow by House Republicans who on Thursday proposed eliminating a $7,500 per vehicle tax credit that has helped stoke early demand for the still small segment of the U.S. auto market.
If adopted, the repeal would take effect after the 2017 tax year, according to a summary of the bill released Thursday by the House Ways and Means Committee as part of a sweeping overhaul of the U.S. tax code that would eliminate some deductions and cut the corporate tax rate to 20 percent. The Senate is crafting its own version.
Automakers from Detroit to Yokohama are betting big on an electric future with plans to spend billions of dollars on new pure-electric models to be rolled out in the coming years despite limited sales to date. Availability of the credit has been capped at the first 200,000 qualifying vehicles sold by each manufacturer. No automaker has reached that cap yet.
“That will stop any electric vehicle market in the U.S., apart from sales of the highly expensive Tesla Model S,” said Xavier Mosquet, senior partner at consultant Boston Consulting Group, who authored a study on the growth of battery powered vehicles. “There’s no Tesla 3, no Bolt, no Leaf in a market without incentives.”
Phasing out estate tax
Separately, the proposed overhaul also calls for phasing out the estate tax -- a 40 percent levy applied to estates worth more than $5.49 million dollars for individuals or $10.98 million dollars for couples.
Repealing it has been a priority for the nation’s car dealers. The National Automobile Dealers Association has argued that the tax hurts dealerships, which cannot easily liquidate assets to pay the tax. The NADA also contends a tax liability makes it less likely a business will be passed on to the next generation.
A premature end to the EV credit could have outsized impact for Tesla, which is striving to scale up production of its least expensive electric car, the $35,000 Model 3 sedan. The company has said it has hundreds of thousands of would-be buyers holding reservations for the vehicle.
Tesla shares extended declines after Bloomberg reported on the proposed elimination, plunging as much as 8.9 percent to $292.63, the lowest intraday since May 4, before rebounding back to $299.26 a share. The company declined to comment on the GOP proposal.
Eliminating the credit will also impact other carmakers offering electric vehicles such as GM and Nissan Motor Co., which according to the Alliance of Automobile Manufacturers, collectively offer more than 30 EVs in the U.S. market. Carmakers are under pressure to sell vehicles in higher volumes each year under an electric car sales mandate administered by regulators in California. Ten other states also follow that policy.
That puts the auto industry "in the middle between contradictory government policies," Alliance spokeswoman Gloria Bergquist said in a statement.
"There is no question that the elimination of the federal electric vehicle tax credit will impact the choices of prospective buyers and make the electric vehicle mandate in 10 states -- about a third of the market -- even more difficult to meet,"said Bergquist, whose trade association represents a dozen automakers including GM, Ford Motor Co. and Volkswagen AG.
GM vowed to fight, saying the credits are "an important customer benefit that can help accelerate the acceptance of electric vehicles."
Ford didn’t immediately respond to a request for comment. Nissan declined to comment.
"We are extremely disappointed in H.R. 1’s proposed repeal of the incentive for plug-in electric drive vehicles," Genevieve Cullen, president of the Electric Drive Transportation Association, said in a statement. "Congress should maintain the plug-in electric drive tax credit, which is promoting industry investment and creating jobs in the U.S., while helping consumers save on energy costs and enhancing public health."
EV sales held back
EV sales have been held back by a lack of variety of electric models, high sticker prices fueled by expensive battery packs and limited driving ranges compared to gasoline-fueled vehicles. Yet automakers expect those challenges to ease in the coming years.
"The EV tax credit repeal would cede U.S. leadership in clean vehicles, putting our companies at a competitive disadvantage and threatening jobs while costing drivers more at the pump and increasing pollution," Luke Tonachel, director of the Natural Resources Defense Council’s Clean Vehicles and Fuels Project, said in a statement.
Former President Barack Obama repeatedly proposed hiking the tax credit for electric vehicles to $10,000 and converting it to a point-of-sale rebate, but Congress failed to approve the measure.
With assistance by Craig Trudell, Keith Naughton, and Dana Hull. Automotive News and Reuters also contributed to this report.