The federal tax incentive offered to buyers of electric vehicles in the US could disappear completely in the future, should a new federal tax bill become law. Currently, buyers are granted a deduction on their federal taxes of up to $7,500 when they purchase an electric vehicle, in addition to the tax credits offered by many individual states.
This could spell disaster for automakers such as Ford, which, spurred partly by federal Corporate Average Fuel Economy (CAFE) regulations, have started to bet big on electrified drivetrain technology. In December of 2015, Ford announced its intention to invest $4.5 billion into growing its selection of electrified vehicles by 13 models by the year 2020, including with an all-new pure-electric crossover. But lithium-ion battery technology is still relatively costly, which drives up EV sticker prices or forces automakers to take a hit on each unit sold. Without the federal tax credit, prices could become even less palatable to consumers, or automakers could be forced to take an even bigger hit.
To demonstrate just how much of an effect the tax incentives have, a recent Bloomberg article points to Georgia as an example. The state once offered incentives of up to $5,000 on electrified vehicles, but that credit was taken away in June, 2015. EV sales in the state rapidly plunged from around 1,400 EVs per month to about 100 or so.
Apart from the up front purchase cost of the automobile, there’s another deterrent to wider EV adoption from consumers: the relative inconvenience of ownership. Most of the US’ charging infrastructure is slow, and the total driving range of the average EV is well below that of the average gasoline-powered automobile, assuming a full battery vs. a full tank of fuel. Automakers like Ford are investing to address those shortcomings and inch toward offering EVs with convenience comparable to that of internal-combustion vehicles, but slower sales from the withdrawal of federal tax credits could stymie progress.