OEMs May Look for Other Finance Incentives as EV Tax Credit Ends

What will happen to sales and financing of electric vehicles when the $7,500 tax incentive from the U.S. government begins to phase out?

This is a question currently on the minds of a few major OEMs, including Tesla, Nissan Motors Co., and General Motors Co. The federal tax incentive, which has been in place since 2010, is available to the first 200,00 customers of each auto company before it will taper off, and the three aforementioned OEMs have already surpassed 100,000 vehicles sold, to date.

GM, in particular, is on pace to go through its tax credit allotment in late 2018 or early 2019, while Tesla has seen roughly 400,000 reservations for the Model 3, according to a published report.

The tax incentive has been, in part, a significant reason people have financed the electric vehicles compared to cheaper gasoline-powered vehicles, meaning that OEMs may have to come up with alternative incentives, such as rebates or low APR financing to make up for the lost tax credit.

The concern that EV sales and financing may drop is grounded in reason. In July 2015, Georgia — a state where 3.5% of all car sales were EVs — repealed its generous $5,000 tax credit and added a $200 registration fee on electric cars. Sales quickly tumbled. Tesla’s Model S sales fell after the elimination of the tax credit, but within a few months, bounced back to previous levels, while sales of the Nissan LEAF also tumbled from between 2,500 to 3,000 units per quarter to below 500 units, according to a published report.

Nissan declined to disclose future plans for special financing or rebates for when the carmaker reaches its 200,000 allotment, but it did recently partner with Xcel Energy to receive a $10,000 incentive for Xcel Energy customers who purchase a LEAF between March and June 2017, giving credence to idea that OEMs may become creative in finding ways to make up for the $7,500 tax credit loss.

“Make no doubt: EVs are here to stay … the Nissan LEAF will continue to lead the way in making electric vehicles — and the infrastructure to support all of them — attainable for the masses,” Tim Gallagher, Nissan’s senior manager of corporate communications, told Mobility Buzz. “Like others, we’ll monitor actions by all entities and react accordingly to maintain our leadership position.”

The major entity in question is Congress, since the tax incentive is part of the federal tax code and Congress has the ability to extend the credits once the program expires. And the position of Congress, or the current Trump administration, on the tax credit has been murky at best.

General Motors and Tesla did not respond to requests for comment, however, Tesla’s Chief Executive Elon Musk, has said that he supports getting rid of tax credit incentives, but only if other subsidies — like support for fossil fuel industries — are also repealed.

The elimination of the $7,500 tax credit will likely “kill” the electric vehicle market, according to Edmunds, an automotive e-commerce site. Meanwhile, others have argued that the case study of Georgia will not be seen on a national level.

“It’s hard to draw too much from Georgia because they had a very large incentive, and — at least in the Atlanta area — very low EV charging rates,” Dave Reichman, senior engineer at the Clean Vehicles Program at Union of Concerned Scientists, told Mobility Buzz. “Nissan [also] did a lot of marketing and outreach to make people aware and did their own lease specials.”

To learn more about the evolution of transportation, join us at the second annual Auto Finance Innovation 2017 conference, May 17-18 at the Hilton Bayfront in San Diego. Visit www.autofinanceinnovation.com to register or learn more.

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