Will the EV income tax credit punish the pioneers?

We’re approaching the 7th anniversary of mass-produced plug-in vehicles. Although the $7,500 income tax credit was expected to get 1,000,000 plug-in vehicles on the road quickly, we’re only about 2/3 of the way there, in the U.S. market. As of the end of last month, there were 686,192 plug-in vehicles that had been sold, in the U.S. Every single year, sales have increased. We are on track this year to possibly hit the 200,000 unit mark for the first time in a single year (depending on how December goes). December, due to year end sales promotions and the nearness to tax time, is always a very high production month.

This got me thinking about the pioneers and the stragglers.

The tax credit begins to go away, once a manufacturer sells their 200,000th plug-in vehicle. Three manufacturers are already well over 100,000 units sold: Tesla Motors, General Motors and Nissan. These are the manufacturers that paved the way for all the newcomers we’ve been reading about, with great expectation. However, they may be punished for their risk taking. When these three manufacturers hit the magic 200K units, the newcomers will have a distinct price advantage, as their customers will still be able to get the full tax credit, while the customers of the more established PHEV manufacturers will suddenly lose half the tax credit, a few months later 3/4 of it and shortly after that, all of it.

My question: Was this the strategy of the stragglers?

In the darker places of my mind, I can see a boardroom, where the executives are saying, “Let them take the risk! We can sit back and see how things develop. If PHEVs take off, we’ll be late to the game, but we won’t have paid the price of educating the consumers about them. Better yet, when the other guys lose the tax credit, we’ll have an amazing price advantage over them, giving us a huge leg up, into the market!”

I have complained about the implementation of the tax credit before. There were so many ways it could have been a much better tool to stimulate sales. It probably would have been a better stimulus, if the tax credit had been available until the total sales of all PHEVs in the U.S. reached a benchmark. For instance, if the goal of one million PHEVs had also been used as the end of the tax credit, the incentive would be to ramp up production much more quickly. To the bold would go the spoils! Stragglers would have the same tax credit available, but by dragging their feet, fewer of their vehicles would have qualified for it, because the pioneers would have gobbled much of it up. There would have been a race to produce quickly. Instead, we seem to have incentivized caution and failure to innovate.

I’m proud of the risks taken by the Big Three of PHEVs, but I am concerned about how they’ll fare, once they lose the tax credit and have to compete with competitors who have prices thousands of dollars lower than what they can successfully provide.

Disclaimer: I have had five Chevy Volts in my household. I love the Volt & Bolt EV (and Spark EV, Cadillac ELR, Tesla Model S, etc) so much, I changed careers to promote them. Part of my concern is definitely self-serving: How will I be able to sell, once the playing field is so badly tilted against me?

9 thoughts on “Will the EV income tax credit punish the pioneers?

  1. Well, if the report by UBS is believed to be accurate, then GM probably makes pretty healthy profits on each Bolt (not considering R&D costs). After doing a teardown of the vehicle, they estimated about $29k to build each Bolt after parts, labor etc.

    And that is before considering ZEV credits in CARB states. GM will have 10s of thousands of credits it can sell to anti-EV automakers over the next several years. I am sure this will assist in recuperating R&D costs.

    And that is with only 30k pack and electronics order from LG. If they start increasing that number over the next two years, then prices on all components should drop as the bulk increases.

    This should hopefully give GM a lot of room to lower prices on the Bolt by the time tax credits run out completely in 2018.

    • I’m not sure I understood the 30K pack comment. Bolt EV has a 60kWh pack. I think GM keeps those ZEV credits to sell big SUVs, pickups and sports cars in the CARB states…

      • Sorry I meant likely ordering 30,000 battery packs from LG for the first year. 🙂

        LG basically said GM would build a little over 30,000 for 2017 and so far that looks to be an accurate number. By the end of the year, US sales + international sales + inventory will be about 30k Bolts produced this year. I think for the next two years GM will order more than that and will likely get better pricing.

        From what I understand, automakers need ZEV credits in order to continue selling vehicles in CARB states. So many compliance cars are sold in numbers just large enough to meet the requirements. But some automakers make no ZEV vehicles at all so they need to buy credits from other automakers that do. GM and Tesla will be selling their ZEV credits to other automakers like Subaru or Honda that have no real EVs on the market. GM will have way more ZEV credits than it needs to meet CARB requirements, so selling these makes them a little extra money on every Bolt sold in a Carb state.

  2. The cap needs to be moved up. How about a million vehicles?

    On another subject, you said in a recent email, “Premier Bolts are selling so fast we’re having a hard time keeping them in stock.”

    Just a month or two ago, it was reported in the EV media that Bolts were sitting on dealer lots unsold, the implication being that demand for them was lacking.

    Is the fact that you are selling them quickly a local phenomenon (due to your excellent salesmanship of course), or has demand picked up all over the country, and if the latter, what caused it?

    • I addressed that rumor here. The plant did go through an extended vacation shutdown, to reconfigure the assembly line to produce fewer Chevy Sonics and double the output of Bolt EVs.

  3. Thanks. I had forgotten that article.

    Upon reading it again, it will be interesting to see what happens to the Volt in 2020. My guess is that GM’s plug-in hybrid technology will live on, but perhaps in larger vehicles only like pickups and large SUVs.

  4. If a knowledgeable EV person went to every Chevrolet dealer in Texas inquiring about purchasing a Bolt, it would be interesting to know how many would have a knowledgeable salesperson and actually try to sell one instead of steering the customer to an ICE vehicle.

    My guess: Classic is one of four or five. Hell, maybe it’s the only one. That could be why you are selling so many.

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