Is it time to sunset tax credits for EV purchases? (Chevrolet)

Time to end the madness of EV sales subsidies

Electric vehicles have proven that they can sell themselves.

“Gotta-have” products and features sell themselves in this industry. More than 100 years ago, it didn’t take much coaxing for people to want a vehicle equipped with one of the new electric starters. If your daily driving began with the gritty hand-crank ritual, an e-starter was the high tech to have. Electric starters quickly became a gut-punch to the era’s nascent electric-vehicle (EV) industry, which lost a competitive advantage – particularly with female customers who had been a strong fan base. Once gasoline stations began springing up near and far, bringing even more convenience to the IC engine, EVs were doomed.

Decades later as competition intensified, “gotta-have” features were no longer enough to move the metal. The famous “buy a car, get a check” marketing schtick that 1980s Chrysler boss Lee Iacocca used (with wild success) to hawk K-cars unfortunately created a new consumer mindset: Pay me to buy your product. Putting “money on the hood” still rules retail sales, slowed only recently by vehicle shortages due to the COVID and computer-chip crises. The OEMs to have largely escaped the cash-back game make iconic, unique and compelling products that sell themselves. Have you ever seen the local Apple store use cash-back deals to sell iPhones and iPads? Me neither.

So, some questions. Why can’t EVs sell themselves yet? If they are indeed a “gotta-have” purchase, with well-publicized attributes such as low operating costs, zinging acceleration, zero tailpipe emissions, etc., why do they require another decade of purchase subsidies, at up to $12,500 per vehicle (as is being proposed within the $1.75 trillion U.S. federal budget bill) to sell them? The bill also would remove the 200,000-vehicle production cap that Tesla and GM have reached, ending their access to the tax credits. Does anyone believe that Tesla needs pay-me-to-buy-your-car support anymore? Does GM? And how are ongoing subsidized sales going to help drive the aggressive cost reduction actions that EVs desperately need at the design, engineering and sourcing levels?

A supplier friend reckons that the mostly Democrat legislators who are pushing to subsidize EVs through extended tax credits are angling for a backstage ploy to mandate the public to “do its part” in creating manufacturing scale for EV components and subsystems. The greater scale, although artificial, could help drive lower costs for batteries and electric drivelines. Or so the thinking goes.

The pay-me-to-buy-an-EV subsidies don’t end with new vehicles. The House bill also proposes a $1,250 to $2,500 tax credit, linked to battery capacity, for used EVs. The value of used EVs is highly inconsistent, based on vehicle age and battery capacity. A smarter and more effective use of tax breaks would be another “cash for clunkers” program aimed at turning over the average age of the U.S. car parc – 12 years old, according to IHS Markit – faster and getting people into newer, safer and more-efficient vehicles, no matter what’s under the hood.

But this isn’t market-based legislation, of course. There’s an additional $4,500 tax break for EVs manufactured in unionized U.S. plants which, as I’ve opined here previously, is supremely unfair to every OEM other than the former Detroit Three. And the bill doesn’t neglect a subsidy for electric-assist bicycles, even though nearly all are made in Taiwan. It includes a new tax credit worth $750 for single buyers, $1,500 for couples who file jointly, for e-bike purchases.

Where does this madness end? If EVs and e-bikes are truly “gotta-have” products, let their design, engineering and cost competitiveness win the market.

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