Unprecedented change is lingering on the horizon. While not here quite yet, it’s as if the entire world is sitting back and waiting in anticipation of a new electric dawn. Even to those outside the EV industry, it’s becoming clear that an electrification surge of great magnitude is quickly approaching. Now more than ever, the future for gas-powered cars looks dim.
In the United States, this new era will likely be ushered in by the Biden Administration’s Growing Renewable Energy and Efficiency Now (GREEN) Act. The proposed legislation will increase the cap for EV tax credits from 200,000 per company to 600,000. However, it will slightly reduce the incentive from the current rate of $7,500 to $7,000 after 200,000 sales.
After 600,000 vehicles, the tax credit will be reduced by 50 percent for the next quarter, after which it will end entirely. The GREEN Act also includes a clause for used EVs, allowing buyers to claim a credit up to $2,500 for vehicles less than $25,000 and at least two years old.
Tesla and General Motors especially stand to benefit from the GREEN Act, as both companies surpassed the 200,000-vehicle threshold in 2018 and will be granted 400,000 more vehicles a piece.
An Even Bolder Idea
While the GREEN Act will certainly compel more car buyers to choose electric – especially those drawn to industry titan Tesla or interested in any of the models on the way from GM, such as the much-anticipated 2022 Bolt EUV – it has its shortcomings. Notably, while increasing the credit cap will help Tesla and GM be more price competitive in the interim, it still punishes early innovation. The two builders will inevitably reach their thresholds again soon, especially as EV sales continue to rise, and they will once again lose sales to foreign makers.
The GREEN Act also primarily benefits those who earn enough to receive the full credit – at least $66,000 annually. Anyone making less than that may be in for a surprise when they file their taxes and receive only a fraction of the promised $7,000 back. Considering the bill is meant to target the middle class, this disparity is significant and may limit its overall impact on EV adoption.
Instead, Oregon Senator Jeff Merkely has proposed an alternate bill called the Electric Credit Access Ready at Sale (CARS) Act of 2021, which is co-sponsored by Bernie Sanders, Corey Booker, Jacky Rosen, Dave Schatz, and Patrick Leahy. The CARS Act would amend some of the GREEN Act’s shortcomings by eliminating manufacturer caps, instead allowing consumers to utilize the credit for the next 10 years with any carmaker.
Perhaps even more significantly, the CARS Act would make EVs more accessible to people in lower income brackets, allowing car buyers to spread the tax credit over five years, or use it at the dealership to immediately reduce the sticker price.
Implications for Adoption
One of the biggest barriers to EV adoption has been the higher upfront cost. When consumers are searching for a car at the dealership, they are generally not thinking about future savings in reduced maintenance costs; their monthly payment is the only figure that registers, and they choose the gas-powered car.
Now, however, EVs and conventional cars are pretty much at price parity. Last year, more than half of the new vehicles sold in the US cost over $40,000, with about a quarter of sales exceeding $50,000. (In 2012, more than half of new cars sold for less than $30,000.) Cars are becoming increasingly luxurious, and inexpensive new cars are becoming a thing of the past.
For comparison, the Tesla Model 3 has a base price of $36,990. Enter the $7,000 credit, and the new $30,000 price tag (before additional state incentives) is highly competitive against many new conventional vehicles. And while conventional cars are becoming more expensive by the year, EV manufacturers are constantly innovating and searching for ways to make their cars more affordable. Battery costs have already come down substantially, and Tesla is now shifting some cars to LFP batteries, which will lower the price even further. Experts predict upfront cost parity by 2024, and if the CARS Act passes, the $7,000 credit will still be in effect at that date, making EVs an even more appealing option for middle-class consumers.
And even though the GREEN Act is not quite as accommodating of the middle class, it would certainly accelerate adoption regardless. Seventy-five percent of EVs on the road today are leased instead of owned, and the tax credit would be applied to dealerships, lowering monthly lease rates. This may incentivize more middle class consumers to choose an EV when they are ready for their next lease, without worrying about the upfront cost.
Will It Pass?
With Democrats in control of the House and the Senate, it’s very likely that the GREEN Act will pass through Congress. Consumers are confident that it will at least: Car buyers are postponing their EV purchase in hopes of receiving the rebate, causing Tesla to cut prices on its Model 3 and Y, and Chevrolet on its Bolt lineup.
As for the CARS Act, the chances of it passing in its present form are slim to none. But that should not be cause for despair; that lawmakers are even considering such bold legislation is a promising sign for the future, and an amended version may make its way through Congress in the not-so-distant future.
But for now, we watch excitedly as the electric wave slowly grows into a tsunami. With federal support and increasing consumer interest, EVs are about to transition from the exception – reserved for those with enough cash in their pockets – to the norm. The future is unfolding before our eyes, and it looks bright green.