Is it Time to End Federal Tax Incentives for Electric Vehicles?

Cadillac ELRWhen GM first announced the Volt would be offered under the Chevy brand, the promise seemed to be that the company would sell an electric car that middle America could afford. With a current sticker price of $39,145 before tax incentives, that is decidedly not the case. According to The New York Times

Last year, G.M. sold 23,000 Volts in the United States, less than 1 percent of its overall sales and well below the expectations set by the company.

The Volt’s major competitor over the past several years has been the Nissan Leaf, a similarly priced all-electric vehicle. But now the two companies strategies seem to be diverging. Nissan, with excess capacity, is promising to offer a base model for $6,000 less than its current sticker price of around $35,000. GM, on the other hand, will be introducing the Cadillac ELR – a luxury version of the Volt, which promised to be sold for significantly more.

The Times quotes one analyst on GM’s strategy:

“There are wealthy people who don’t consider price to be an obstacle when buying electric,” said Joseph Phillippi, head of the market-research firm AutoTrends. “In Silicon Valley, they’d write a check for the ELR without thinking about it.”

At one time it seemed to make sense to have a federal tax credit of $7,500 to encourage people to buy hybrid or electric cars. While we want to promote positive environmental decisions, the way the early mass-market electric cars have been priced, it seems as if the manufacturers have been building the subsidy into their pricing models – ie, capturing the entire incentive for themselves. Would GM really be charging $39,000 if it wasn’t for the tax incentives? Maybe it didn’t matter when the government owned a significant stake in GM, but now that it doesn’t perhaps it is time to find better ways to incentivize the sale of electric vehicles.

If the federal tax credit is really designed to promote the sale of electric vehicles, maybe it should be designed on a reverse sliding scale – ie, a greater subsidy the cheaper the electric car. For example, an electric car of $25,00 could get the full subsidy of $7,500 but a car of $50,000 wouldn’t be eligible for any tax credit. This way both consumers and manufacturers would be encouraged to create a truly mass market for electric vehicles.

Of course, if that seems too complicated, we could always just go with a simple gas tax. All drivers and manufacturers would be incentivized to economize that way.


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