Incentives end looms for top-selling EVs

Tesla and GM have accounted for 44 percent of the 853,500 plug-ins sold in the U.S. since the tax credits took effect Jan. 1, 2010, according to estimates by the Automotive News Data Center.

The two companies are likely to feel the end of the credits differently. Industry experts expect GM to take a bigger hit than Tesla. The federal incentive affects purchasing decisions for lower-priced vehicles such as the sub-$40,000 Chevrolet Volt more than a $75,000-plus Tesla Model S or X, according to research by the Institute of Transportation Studies at the University of California-Davis.

"We expect that GM will have much more impact or drop in sales," said Gil Tal, director of the Plug-in Hybrid and Electric Vehicle Research Center at UC-Davis. "The larger the share of the incentive, the higher the impact."

A 2016 study co-written by Tal found that 29 percent of plug-in sales in 2010 through 2014 can be attributed to the federal tax credit. Within that, 40 percent of Volt buyers would not have purchased one without the credit of up to $7,500, according to the study, but only 14 percent of Tesla buyers would have bought something else instead.

That's likely why Tesla and its outspoken CEO, Elon Musk, have been uncharacteristically quiet on the looming end of the credits, while GM and its executives have lobbied for an extension or expansion of the program, which is believed to be highly unlikely under the current administration.

"At the end of the day, we think having the benefits is great for the customer, because obviously it makes the EV adoption easier and more attractive," GM North America President Alan Batey told Automotive News this month.

GM, which currently offers two plug-ins in the U.S., plans to launch at least 20 all-electric and fuel cell vehicles globally by 2023. The company has said its next-generation EV platform — expected in 2021 — would be profitable.

A lot of GM's competitors don't have any EVs to offer, and Batey said there "should be a broader opportunity for those that have EVs to offer the consumer."

Despite its flaws, the federal tax credit is and has been "the most important incentive for the purchase" of plug-ins, said Michael Nicholas, senior researcher at the International Council on Clean Transportation. The industry has been "able to get to more favorable economies of scale sooner" than it would have otherwise, he said.

Nicholas, co-author of several studies on the topic, and others described the tax credit program as a "mixed bag."

"Will it make some consumers look at a brand that still has the tax credit eligible? Absolutely," said Rachel Shue, automotive consultant with IHS Markit. "But are some consumers going to return to the place where they bought their first EV because of new and exciting products? Absolutely as well."

Industry experts argue the federal tax credits should have been based on a period of time, not the number of units sold — creating a level playing field and more urgency among automakers.

"One of the really strange things about this program is it doesn't have a finite ending point," said Jeremy Acevedo, Edmunds' manager of industry analysis.

Some say the incentives also should be based on the price of the vehicle and only be available to first-time buyers, which would encourage consumers to actually purchase the vehicle instead of leasing. When plug-ins are leased, the finance company gets the credit and doesn't always pass along the full amount to the buyer.

KBB's Lindland, who participated in a 2015 National Academy of Sciences study on barriers to EV deployment, said the regulatory incentives essentially have helped more affluent, eco-conscious drivers who would have bought the cars regardless and are now running out "just when the mainstream market needs to be incentivized."

For a case study on what occurs when such credits end, look no further than sales of the Nissan Leaf after the state of Georgia — one of its prime markets — removed an incentive of $5,000 for plug-ins.

When the tax credit was replaced with an increased registration fee — to make up for the gasoline taxes that EV drivers don't pay — Leaf salesin the state reportedly dropped almost 90 percent.

The phaseout of the federal tax credits begins two quarters after the quarter during which a manufacturer crosses the 200,000 threshold. That means buyers can still get the full credit for up to six more months, depending on the timing.

If Tesla, for example, reaches the limit anytime from July 1 through Sept. 30, the full credit would remain available to buyers who take delivery of its vehicles by the end of the year. The credit would then be cut in half, to $3,750, for the following two quarters (January through June) and then halved again, to $1,875, for two more quarters (July through December) before going away for all Tesla buyers starting Jan. 1, 2020.

Tesla has said it expects to hit the 200,000 mark sometime this year, and reports on some Tesla online message boards suggest that the company has slowed U.S. deliveries to ensure it doesn't trigger the phaseout before July 1.

During Tesla's annual shareholders meeting this month, Musk said the company wouldn't start building the least-expensive version of the Model 3 until the first quarter of 2019.

That means consumers who have been waiting for the $35,000 base trim that Musk announced two years ago would finally get their car just as the credit drops by $3,750.

The credit applies to businesses as well as individuals, suggesting that Waymo, Google's self-driving technology affiliate, could reap credits totaling $465 million for a May agreement to buy up to 62,000 Chrysler Pacifica plug-in minivans. If so, that also would reduce the number of individual FCA US customers eligible to receive a credit by nearly one-third.

Plug-in advocates are quietly pressing lawmakers to raise the limits, although no legislation is imminent, said Genevieve Cullen, president of the Electric Drive Transportation Association.

In March, 36 utilities wrote House and Senate leaders seeking elimination of the 200,000-unit cap. Utilities are increasingly gearing up to provide charging infrastructure for EVs and say incentives still are necessary to help achieve economies of scale and provide certainty to automakers and consumers.

"We've continually reinforced the need to extend," GM CEO Mary Barra said earlier this month.

"As we believe in an all-EV future, we think there's still work to do to make sure customers understand the benefit as we continue to develop the marketplace."