Automakers already have a hard time selling electric vehicles in the United States, and it may become even more of a challenge under the sweeping tax cut legislation unveiled by House Republicans on Thursday. The House tax bill calls for an immediate repeal of a $7,500 tax credit per electric vehicle, reports Bloomberg.
The tax plan revealed on Thursday isn’t a final product by any means, but the inclusion of the EV tax credit shows that just about anything is on the table for Republicans, who’re angling to significantly cut taxes across the board. The plan calls for reducing the number of tax brackets to three, in addition to the current 39.6 percent rate for high-earners, according to the New York Times. It also calls for a significant reduction in the corporate tax rate.
But as automakers are barreling ahead with billion-dollar plans to produce fleets of electric vehicles, it’s almost certain the proposed elimination of the EV tax credit will receive pushback from the industry. General Motors has proposed rolling out 20 electrified cars within the coming years; Ford has plans for more than a dozen new models of its own; and Tesla is contending with a make-or-break moment to produce the Model 3 sedan, its first entry into making a mass-market car.
The current design of the credit calls for the incentive to be phased out once an automaker sells 200,000 electrified cars. From there, buyers can receive a tax credit of $3,750 for six months; another half-year later, the credit’s again cut in half, until it’s finally eliminated.
The office of Congressman Mike Bishop, who reportedly mentioned the elimination of the EV tax credit on Thursday, didn’t immediately respond to a request for comment.
But Bloomberg has a sobering look on what could happen to EV sales if the tax credit is eliminated. Here’s a snip from their piece:
To understand what could happen to electric car sales if Republicans phase out federal EV incentives, look at what happened in Georgia. Electric car sales there were growing briskly until the state cut its $5,000 electric vehicle tax credit in June 2015. Sales crashed from as many as 1,400 electric cars a month statewide to fewer than 100 the month after the incentive was axed.
Automakers fear a similar sales plunge if the federal tax credit goes away. Losing the credit would crush sales of electric cars just as most major automakers are beefing up to sell a slew of EVs over the next five years. “The credits matter a lot,” says Eric Noble, president of the CarLab, a consulting company in Orange, Calif. “In states without EV mandates or incentives, you’ll see sales crater.”
Part of the concern stems from a mandate in California, which says that automakers must sell a specific share of zero-emission vehicles, reports Bloomberg.
If they don’t reach that percentage, they must buy credits from companies with bigger green footprints (and thus extra emission credits), such as Nissan and Tesla, to make up their numbers.
There are big financial implications. If states continue mandating EV sales but the tax incentives disappear, carmakers will have to lower prices to get the sales volume required by state governments, Noble says. “Right now the EV market isn’t driven by natural demand,” he says. “If you remove the tax credit, then either the manufacturer eats it or sells fewer vehicles.”
We reached out to reps from Ford, GM and Tesla for comment on the proposal. If they respond we’ll update this post.
Update, 1:05 p.m.: GM has sent along a response:
Tax credits are an important customer benefit that can help accelerate the acceptance of electric vehicles. Because General Motors believes in an all-electric future, we will work with Congress to explore ways to maintain this incentive.