Larger Tax Breaks Could Amp Up Electric Vehicle Adoption in U.S.

As the number of eligible cars eclipses the projected IRS tax credit limit, some consider the economic impact of EV adoption credits.

With tax breaks up to $7,500 benefiting (at least) the first 200,000 electric vehicle owners in the United States, it is not surprising that many new car shoppers are becoming early adopters in the electric vehicle (or EV) market. But many are now questioning what will happen when these credits run dry. Will the electric cars continue to flourish, or will fossil fuel vehicles bounce back? 

If you’ve bought an electric car with at least a 5-kilowatt battery since 2010, you’ve been able to take advantage of the government’s tax credit. Its initial credit of $2,500 is then garnished by $417 for every additional kW, maxing out at $7,500. This means that your new Tesla might net you a substantial tax credit on your 2016 refund, if you haven’t already claimed it. One stipulation of the IRS code designated to provide this credit is that it will begin to be phased out for a brand after it sells 200,000 qualified vehicles in the United States. What is not clear is if the IRS will opt to renew these credits, or if they will fizzle out like a dim light bulb.

Many vehicle manufacturers are making it clear that their intentions are to move towards electricity or other alternative fuels like hydrogen. In fact, the surrounding buzz around most of the auto shows that have taken place is about EVs as a whole. BMW, Volkswagen, as well as numerous other manufacturers and startups are putting stock in plug-in tech. What is more astounding is the amount of investing that the North American infrastructure is receiving, in addition to the amount of new cars. BMW announced its intent to install up to 100 new charging stations, Volkswagen has promised nearly 450 new stations nationwide, and Nissan is setting up I-95 with charging from Washington D.C. to Boston, Massachusetts. All of this is to promote the adoption of the futuristic tech into American society.

Certain states have previously tried additional tax breaks for electric cars and have seen great success. Georgia, for example, once had an extremely strong presence in the EV market. The only state that outnumbered it? California. This is partly credited to Georgia’s decision to provide a state-level tax credit of $5,000 for zero-emission vehicles sold to residents. Residents rushed out to buy EVs, causing a 614 percent increase in registered vehicles in the 12-month span from March 2013 until March 2014. This slowly began to shrivel after Georgia opted to discontinue the credit in 2015; its share of EVs fell from 17 percent of national sales to a mere 2 percent after the change.

Number of EV Sales December 2010 - June 2013

Number of EV Sales December 2010 – June 2013

, via Energy.Gov

Given the shift in Georgia’s infrastructure and sales alone, one could predict the amount of EV sales could benefit significantly from governmental intervention in the form of credits. A “Cash For Clunkers”-type program could be a stimulus to get many to start buying electric and autonomous vehicles as they become more available to the public. However, the distributed financial cost to the taxpayers may have many opposed, as it is still debated to this day whether the original program was a success or economical blunder. More studies into the economic and environmental repercussions may shift the government (and car owners) into deciding one way or the other.