What Federal EV Incentives Should There Be, If Any?

Earlier this month a draft EV incentive plan proposed by the House Ways and Means committee has sought to dramatically boost the EV credits available to Americans, proposing some pretty significant changes that have not been without controversy. Highlights of the proposed plan, part of a $3.5 trillion social spending bill, include turning the $7500 tax rebate into a point-of-purchase discount, eliminating some of the hoops that need to be jumped through to actually receive cash back, while boosting the maximum credits that could be cut from the out-the-door price of an EV to $12,500.

The draft has also included some revised caps on the availability of credits tied to the purchase prices of various EV vehicles, effectively limiting the credits' availability to lower-priced vehicles and lower-income earners, setting a $55,000 price ceiling for electric sedans and a $69,000 ceiling for electric SUVs. This means that buyers of vehicles priced higher than those amounts won't be able to receive those credits, with the proposal also setting a $74,000 limit for trucks. The proposal also openly disfavors electric vehicles that are not union-made whether foreign or domestic, which would also make Tesla buyers ineligible for a pretty significant $4500 discount offered to buyers of union-made vehicles. Honda and Toyota EV buyers, among others, would also be adversely affected, as the two companies have pointed out in recent weeks.

This issue has received renewed interest as a number of US and foreign automakers have announced ambitious plans in the coming years to shift their lineups in favor of electric vehicles (albeit with a few notable holdouts and skeptics). However, year-over-year EV adoption rates in the US and elsewhere have not quite kept up with some of these plans by automakers to go electric-only in the coming years, despite a few notable boosts that have occurred mostly in wealthy, European countries over the past two years.

Still, it's difficult to ignore the reality that with EV sales in the US hovering below 2% nationally (BEV market share was 1.8% in 2020, with sales just over 250,000), annual EV sales rates would have to grow substantially each year to reach even 20% of the market by the end of the decade. And this could happen with or without government incentives, as skeptics of EV credits point out, suggesting that EV credits don't play as much of a role as market forces and consumer preferences themselves.

Indeed, that is a fear currently voiced by a number of industry observers and auto executives: EV sales in the US will attain some tepid rate of 17% or 19% by some point in the decade—growth that will itself require significant year-over-year gains—and then just halt at a plateau and sit there almost unchanged for years on end.

What federal EV purchase incentives should there be, if any, and to what price category of vehicles should they apply? Let us know your thoughts in the comments below.