Sarah Holder is a staff writer at CityLab covering local policy, housing, labor, and technology.
With the EV tax credit on the chopping block and Tesla experiencing production delays, dreams of an electric future might prove elusive in the U.S.
On Thursday, Tesla CEO Elon Musk unveiled the EV maker’s latest marvel: a fully electric heavy-duty semi truck that can travel 400 miles within 30 minutes of charging, Musk says, with the same hauling capabilities as a typical 18-wheeler. The sleek rig also boasts the company’s semi-autonomous “Autopilot” feature, a centrally located driver’s seat, and lots of cupholders. As a surprise bonus, Musk also revealed a new sports car, a replacement for the company’s first offering, the Roadster. According the firm’s specs, the second-generation Roadster will be able to accelerate from 0 to 60 MPH in a neck-snapping sub-2 seconds and hit a top speed of more than 250 MPH.
Both the vehicles are just prototypes—it’s not clear when, or even if, production versions will hit the road, though Musk promises deliveries in 2019. But the flashy reveal of future offerings served to help eclipse the company’s present-day challenges, which are numerous. Production delays are dogging the firm’s new “entry level” Model 3 vehicles, which start at $35,000 before rebates. Tesla published its lowest-ever earning report in November, sending shareholders into a panic. Tesla stocks have plummeted 8.7 percent since the start of September. About 500,000 Model 3s have been reserved by customers, but only a fraction have been delivered. And it’s affordable vehicles like the Model 3 that are crucial to selling the broader consumer market on EVs.
Until relatively recently, it looked like automakers, lawmakers, and environmentalists were actually on the same page about something: the future would be electric. Last month, General Motors and Volvo announced plans to aggressively invest in huge fleets of electric models. Such moves dovetail with state policies in gigantic auto-buying markets like California, which in 2016 implemented tighter emissions caps and consumer incentivizes in order to boost the number of electric vehicles on the road to the millions by 2025. On the local level, a dozen cities, including Los Angeles (which was recently ranked the world’s leading metro in terms of EV adoption), have joined together to issue massive orders for electric buses.
But the federal government might have other ideas. Approved this month, the House’s plan to overhaul the federal tax code calls for the elimination of a federal tax credit for electric vehicle purchases—an incentive that for many consumers represents the difference between environmentally upgrading or sticking with their old, gas-powered SUV. The Senate’s bill, meanwhile, keeps it in. Automakers won’t know the EV tax credit’s fate until the end of December, when Congress promises a fully drafted tax reform plan on President Donald Trump’s desk.
Has the EV bubble suddenly sprung a leak?
What’s at stake
The contents of December’s finalized tax bill may be a mystery, but if it eliminates the tax credit that has until now propped up EV purchases, the electric future does look dimmer.
Under the current federal tax plan, consumers receive up to $7,500 in reimbursement every time they buy an electric vehicle. It’s an incentive designed to stimulate the demand side of the EV market, and to encourage manufacturers to keep building cars. All plug-in manufacturers are eligible to offer consumers the credit until they produce 200,000 vehicles, after which a 16- to 18-month phaseout begins. Nissan, GM, and Tesla are due to hit that threshold in 2018 or 2019. If the credit is eliminated at the start of tax year 2017, as the House bill proposes, then they would lose up to a full year of producing subsidized cars.
Although price tags on plug-ins are steadily shrinking, EVs are still significantly more expensive to manufacture than equivalent internal-combustion vehicles, so much so that automakers would be losing money on them without federal subsidies. Without an incentive pulling more buyers into the market, automakers could be left with two options: Charge more, or manufacture less.
That would be tough for consumers. Even though plug-ins usually pay for themselves over time—depending on how much owners drive and where they’re getting their juice—many would-be buyers have a hard time justifying their steeper upfront cost, especially with gas prices remaining low. “Cost is one of the biggest barriers to adoption for the electric lightweight vehicle sector,” said Marc Fenigstein, CEO of Alta Motors, an electric motorcycle manufacturer, in an email. “Our forecasts show that just a $3,000 rebate would increase purchase intent by 250 percent in the light duty space.” One of the most popular EVs on the market is the Chevy Volt, partly because the tax credit takes it from around $35,000 down to $26,000, right below the average price of a new car.
The post-rebate forecast looks especially gloomy for lower-income Americans, according to Thomas Ashley, vice president of policy at Greenlots, a provider of e-mobility and smart charging infrastructure. Households with less money to burn are all the less likely to spend extra on more environmentally friendly options. And in low-income communities, “those vehicle buying decisions last longer than in other communities that might be willing and able to turn over cars more quickly,” Ashley said.
Without incentives, EVs tend to sit on the sales lot. When Georgia removed its $5,000 electric vehicle rebate, sales fell from 1,400 a month to fewer than 100. Denmark rolled back their incentive program in 2015, and sales crashed. Scaling these failures up to make a national argument isn’t a perfect science: Denmark’s vehicle taxes are already much higher than that of the U.S., and Georgia’s state rebate also covered leases, which skewed some of their statistics. But the logic holds when comparing other U.S. states that offer extra incentives—like California, Delaware, and Colorado—with states that don’t. “ZEV [zero-emissions vehicle] states do get more models and marketing by the automakers,” Nic Lutsey, a policy expert at the International Council on Clean Transportation, told Wired.
But the EV tax credit wasn’t just about getting more non-polluting cars on U.S roads: The secondary goal of the the EV tax was to “catalyze American leadership in what is to be the dominant automotive technology of this century,” said Feningstein. As China and Europe continue to expand their EV markets, rolling back consumer incentives in the U.S. could allow domestic automakers to fall back in the development race.
While the tax credit doesn’t impact all manufacturers evenly, some EV producers, like Tesla, are facing challenges of their own devising.
Even with a subsidy, the average middle-class consumer can’t afford Tesla’s most popular electric car, the Model S, which starts at $75,000 to the Chevy Volt’s $35,000. A post-incentive $69,000 Tesla is not much more attainable. Announced in July, Tesla’s Model 3 is intended to be a higher-volume model, matching the Volt’s $35,000 price and allowing this niche automaker to break into the mass market.
In July, Tesla announced plans to manufacture 5,000 of the highly anticipated Model 3s per week in 2017, and said they would reach 10,000 a week by 2018. That didn’t happen: By November, the goal had shifted to producing 5,000 a week by 2018. Tesla officials told investors that the 10,000-a-week projection would likely not be realistic. As spending ballooned, earnings plummeted: Tesla lost $671 million in the latest quarter, compared to about $300 million in the last. Investors were not happy to learn that, in three months, Tesla had only produced a total of 260 Model 3s.
Tesla’s current problems as a company are particular within the industry: Elon Musk is famous for his ambitious pronouncements, and the company has always been subject to short-term stock volatility. While their vehicles boast amazing engineering, the company has had trouble scaling up production—a reminder that the car business is massively complex, and the company’s longer-term success is anything but assured.
But Tesla’s troubles don’t spell doom for the electric dream writ large. “The EV market is much bigger than any one company,” said David Reichmuth, senior engineer in the Clean Vehicles Program with the Union of Concerned Scientists. “It’s not going to depend on [Tesla] alone.” Toyota produces 43 percent of EVs globally and will introduce a new EV family in 2020; GM says it will release 20 new models by 2023; and Volvo plans on going all-electric or hybrid by 2019.
Beyond the private car market, electrification marches on: In October, twelve major cities worldwide (including London, Paris, Los Angeles, Seattle, and Cape Town) agreed to buy only electric-powered buses by 2025. Zero Motorcycles, Vespa, and Energica are making electric motorcycles. And Tesla’s semi is just the latest in a string of electric truck announcements: Daimler announced its own heavy-duty e-truck in October, and its smaller Fuso eCanter light-duty hauler is already on the streets of New York City. Last August, Cummins promised that its Aeos heavy-duty electric truck would be roadworthy by 2019.
The trucking industry is certainly overdue for some innovation: In 2015, they accounted for 23 percent of all transportation emissions, but made up only 5 percent of the vehicles on the road. Tesla’s green hauler could be a game-changer, at least on paper: It will be able to go up to 500 miles on one full charge. The Cummins truck, for comparison, can only drive 100 miles.
Still, a wholesale electrification of long-haul trucking would take more than just a new fleet of electro-trucks: It would require a massive infrastructure investment, in order to complete a nationwide network of truck-stop-sized supercharging stations.
What should be done?
Of course, the electric dream was never as utopic as it sounded. “Electric vehicles aren’t absolutely, unequivocally good for the environment now,” said Stephen Holland, an associate professor at the University of North Carolina, Greensboro, who studies electric vehicle emissions. Coal-powered grids provide dirty electricity, sometimes in volumes large enough to outweigh the benefits of forgoing petroleum fuel. Batteries, meanwhile, consume rare and hard-to-mine minerals like lithium and cobalt. Above ground, the mineral resources to equip hundreds of thousands of new EVs simply don’t exist yet.
Still, EV advocates say, ending tax incentives will also tap the brakes on the innovation that makes grids cleaner, batteries stronger, and charging infrastructure (like eHighways, catenary wires, and roadside charging stations) more ubiquitous. “Without public adoption,” said Greg Rodriguez, a lawyer who specializes in new transportation technologies, “what’s the incentive to make them better?”
Absent federal incentives, federally regulated Corporate Average Fuel Economy standards could pressure companies to produce cars with higher fuel economy ratings. Obama’s EPA set their MPG goal at an average of 54.5 by 2025. The Trump administration promises to roll back that too, so it may fall on states to implement programs like California’s Zero Emission Vehicle mandate, which gives automakers credits for EVs sold in their state. By 2018, 2.5 percent of sales in the state must be ZEVs; and up to 8 percent by 2025.
If ZEV mandates were nationally replicated, gas-powered cars would find it hard to keep up. Recent studies released by the Union of Concerned Scientists and the University of Michigan calculate and compare cradle-to-grave emissions from EVs versus internal-combustion vehicles. Electric vehicles Nissan Leaf runs on 114 mpg; the Chevy Bolt on 119 mpg. To beat the minimal greenhouse gas impact of their EV peers, the average fossil-fuel car would need to achieve a fuel economy as high as 68 miles per gallon. That’s not a threshold that’s likely to be met in the current market, where the average vehicle in the U.S. hovers at 23 mpg.
Some experts think that, even if federal support for EVs died tomorrow, state and local policies, plus the industry’s considerable global momentum, will ultimately prevail. “Electric vehicles have hit a critical point where they’re seen as kind of feasible, cool, fun,” said Holland. The electric car is essentially unkillable; the only questions are when it arrives en mass—and who gets to lead the industry.
“These are better cars fundamentally,” said Reichmuth. “They’re cheaper to fuel, they’re better for the environment. And as an owner I can say: They’re better to drive.”