There has been a lot of talk in recent weeks about how long it will take the big guns of the EV world to hit the sales numbers that will trigger the slow demise of the Federal incentives. There is a growing fear that when the government cuts the $7,500 tax cut that EV sales will seriously hit the skids.
So, will that happen? We don’t think so, for a variety of reasons.
A massive drop in Chinese EV sales
The critics can point to a catastrophic drop in sales in China for BYD. The Far Eastern nation has cut its incentives and instead focused on forcing manufacturers to produce a certain percentage of EVs.
China’s government wanted to force a market a correction, saying that some of the smaller firms relied on incentives and it needs to let them fail. But that has hit the biggest EV manufacturer in China, too.
How does the Federal tax break phase out work?
So, on the face of it, cutting the grant could have a devastating impact on the likes of Tesla and GM. Both manufacturers could hit the government mandated figure of 200,000 sales in Q2 and that earns that the grants will be cut to $3,750 in Q3 for six months, followed by a further cut to $1,750. Six months later, the grant will be phased out entirely.
With pre-orders for the Model 3 topping 374,000 before it even launched and still going strong, the car is sold out until mid-2018. So, there’s no guarantee that you’ll get the full tax incentive if you lay down an order on Tesla’s website right now. With the Chevy Bolt, GM could hit the magic number at the same time.
So, what happens then? Does the sky fall in? Probably not.
Is the government incentive scheme fair?
You see the government incentive scheme is starting to look like bad planning. It looked reasonable at a time when all the major manufacturers were working on an electric future, but the simple fact is that Tesla and GM took a bold step and beat the competition to the punch. Now they are about to be placed at a competitive disadvantage for grasping the nettle and forcing the hand of the whole industry.
Put simply, that isn’t fair.
Tesla could conceivably have sold 200,000 electric cars before VW or Mercedes puts one in the showroom. In doing so it has helped push the cause of electric cars, reduced pollution and made great strides towards an autonomous future. At the same time at least one major rival was caught cheating on emissions tests and poisoning US citizens. Which one of these firms deserves a tax break?
Could Trump change the legislation?
The Federal incentive scheme was put in place by a previous administration, Donald Trump as hardly been shy about ripping up legislation and he is a businessman first and foremost.
Elon Musk is also an absolute master at leveraging grants and public opinion and you can bet your bottom dollar that he will be working feverishly for changes in the incentive scheme. GM could be a powerful ally and could offer concessions of its owns in terms of job creation to twist Trump’s arm.
It could simply be a stay of execution, but perhaps a fairer and clearer system would be to name a date when the tax break comes to an end. The last administration simply didn’t have the information at hand to name a solid date, but now we can. One simple cut-off point would force the other manufacturers’ hands and clear up a good deal of confusion with the Model 3 pre-orders.
We’d lay money on a major change to the incentive plan before too long. There will be grandstanding, there will be complaints and there will be sour grapes, but we think that’s the way it will play out.
EVs are just better these days
Even if it doesn’t, we think we’ve hit the tipping point where electric cars simply don’t need the big discount to compete with ICE machines. In the last year, the range has gone through the roof, the infrastructure has begun to resemble a working system and the Model 3 and GM Bolt went on sale.
Before the Model 3 launch, the only truly practical EV was the Model S, which is a seriously expensive proposition. Even then, uptake was on the increase and now we have two cars that are within reach for the masses.
Not only that, they have a longer range than almost every EV we have seen before. The Tesla has autonomous hardware and it promises to be every bit as revolutionary as the Model S and Model X before it. It will be fast, quiet, luxurious and efficient.
These aren’t just niche machines for tree huggers anymore, they’re actually better than the traditional competition.
A lot of big EV launches coming
We’ve got a busy year ahead, with the likes of VW, Mercedes and Jaguar set to put their first EVs on the road. So suddenly we’ll have options and a wealth of new technology that should make petrol-powered cars and even hybrids look increasingly irrelevant.
Technology will trickle down, too, and we’ll soon have a range of low-budget EVs that make the Model 3 and Bolt look seriously expensive. Expect great things from the likes of Kia, Suzuki and the price tag will be low enough that we simple don’t consider petrol as an option.
As the average driver covers 13,476 miles a year, according to the US Department of Transportation Federal Highway Administration (FHWA). Even at 35mpg that would still cost the average American $900 a year. With the Model S that would be a drop in the ocean, but with the Model 3 then the savings make a serious difference to the buying decision.
Maintenance costs are much lower with an EV, too, which will keep putting money back in your pocket.
Europe could ban ICE soon anyway
Add to that fact that Europe is making serious noises about banning sales of new ICE cars completely by 2030 and potentially even 2025. Germany has already passed a resolution and the EU is falling into line.
Of course, it depends how long you plan to keep the car, but there’s a real chance that the used ICE market is going to head into a tailspin as the industry reads the last rites to petrol. Eventually the same anxiety and fear of loss that stopped people buying an EV before will force them away from petrol engines.
We really don’t expect the Federal incentives to stay in place as they are right now. But even if they do, we’ve simply come too far for the sales of electronic vehicles to go off the rails.
EVs have hit critical mass already, there’s no turning back this tide anymore and there is simply no going back.