The Biggest Support For Electric Cars In America Is Going Away

For customers who wanted an electric car but couldn't afford to drop the extra dough on the expensive technology, the $7,500 U.S. tax credit was extremely appealing when it came down to considering new car options.

But the tax credit isn't positioned to stick around forever. According to The Detroit News, incentives are scheduled to "taper off" as each car maker achieves its 200,000th U.S. sale. That time is sometime next year for Tesla, with GM and Nissan close behind. The publication also notes that an extension of the incentives by the Trump administration probably won't happen.

A recent Edmunds study asserted that, should the tax incentives go away, the EV market would suffer. In particular, the study looked at the EV market in Georgia as an example.

In 2014, EV sales in Georgia accounted for 17 percent of all electric vehicles sold in the U.S. And it wasn't just because Georgians were die-hard environmentalists, either. In addition to the $7,500 federal tax credit, the state also offered a $5,000 tax credit, which could be applied to "new vehicles purchased or leased."

But when the state credit was discontinued in the summer of 2015, the percent of EV sales in George fell dramatically, from 17 percent to two percent. Sales of luxury EVs, like the Tesla Model S, declined but then went back up again. Sales of the Nissan Leaf went down and stayed down.

That's all fine and good for Tesla, but if EVs are going to be truly competitive with gas cars they need to be priced competitively, reasons The Detroit News.

From the story:

For plug-ins to really pass the subsidy test and take over the auto industry, they'll need to prove themselves in cheaper classes of car.

The primary cost for an electric car is its battery, responsible for almost half the price tag of a mid-sized plug-in. If you take that away, electric cars are much cheaper to produce and maintain than internal combustion vehicles.

For true mass-market appeal, the up-front sticker price matters most, and battery prices must come down further. Prices are falling by roughly 20 percent a year. The manufacturing cost of electric cars will fall below their gasoline counterparts around 2026, according to an analysis by Bloomberg New Energy Finance.

It's also worth pointing out that these incentives from federal and state governments don't seem to be driving EV sales. Part of the reason for that is because the electric cars themselves do not, in many buyers' minds, offer a comparable tradeoff for internal combustion engines.

Yet, with the modestly priced Chevy Bolt and the entry-level Tesla Model 3 on the way, the EV market could begin to see more mass appeal that isn't solely helped along by tax incentives. We'll just have to wait and see.