Electric carmakers turn to Congress as tax credits dry up

Electric carmakers turn to Congress as tax credits dry up
© Greg Nash

The future of electric cars is in Congress’s hands, with lawmakers divided over whether to extend a popular tax credit.

Electric car manufacturers are only allowed to offer a federal tax break on their first 200,000 vehicles sold under a 2009 law, and many are now hitting that cap, most notably Tesla.

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That’s setting off a fight in Congress, where Democrats are eager to extend the breaks and help the growing electric car industry but Republicans hope to end what they see as an unnecessary subsidy.

“It’s crazy that we might allow the electric vehicle tax credit to run out just as the American electric vehicle market is starting to gain a foothold,” said Sen. Jeff MerkleyJeffrey (Jeff) Alan Merkley How to reform the federal electric vehicle tax credit Dem senator accuses Trump of aiding 'cover up' over Khashoggi Criminal justice reform splits 2020 Democrats MORE (D-Ore.), who leads a group of senators who introduced a bill last week that would lift the cap.

The bill, called the Electric Cars Act of 2018, is backed by Sens. Martin HeinrichMartin Trevor HeinrichManchin’s likely senior role on key energy panel rankles progressives Senate panel advances Trump’s energy nominee despite Dem objections Dems wonder if Sherrod Brown could be their magic man MORE (D-N.M.), Catherine Cortez MastoCatherine Marie Cortez MastoYemen resolution picks up crucial support in Senate Senate panel advances Trump’s energy nominee despite Dem objections The Hill's Morning Report — Presented by T-Mobile — Democratic race for Speaker turns nasty MORE (D-Nev.), Kamala HarrisKamala Devi HarrisBiden to discuss 2020 bid with family over holidays: report Kamala Harris on mortality rates of black mothers: 'We can solve' this Julián Castro launches exploratory committee for possible 2020 White House bid MORE (D-Calif.) and Cory BookerCory Anthony BookerPoll: Majority thinks Trump won't be reelected in 2020 Julián Castro launches exploratory committee for possible 2020 White House bid Gillum to speak at gathering of top Dem donors: report MORE (D-N.J.), among other Democrats.

It would extend the 2009 tax credit that helped popularize plug-in electric cars in their nascent days until December 2028.

Lawmakers are feeling intense pressure from the electric car industry to extend the 2009 tax credit.

Tesla and General Motors (GM), who are front-runners in the U.S. electric car manufacturing industry with their Model S and Chevrolet Volt vehicles,  respectively, are already feeling the constraints of the cap.

Tesla announced in July that it hit its 200,000-car threshold and will start phasing back the $7,500 federal tax credit it can offer to buyers. It’s reported that GM will also hit the cap by the end of this year.

“There are projected to be over 7 million electric vehicles on our roads by 2025, and I will keep fighting in Congress to promote electric vehicles and other innovative technologies that reduce the impact of global warming and strengthen our economy,” Cortez Masto said in a statement.

A similar bill was introduced in the House in June by Reps. Peter WelchPeter Francis Welch How to reform the federal electric vehicle tax credit Dem overtures to Trump on drug pricing worry pharma Dems warn party message lacks punch MORE (D-Vt.) and Jackie Rosen (D-Nev.) and backed by 14 other Democrats.

Most supporters of the two bills hail from California, a state that is both Tesla’s hub and on the front lines of promoting renewable energy.

The bills to extend the tax credit also have broad support among electric car manufacturers. Automakers new to the electric car industry, like BMW and Mercedes-Benz, are poised to benefit in the short-term with Tesla and GM running out of credits. But overall there is a belief that the industry needs the tax breaks extended to keep growing.

“Electrified vehicles are a small but growing segment of our business in the U.S. so, yes, BMW does support the legislation,” said Kenn Sparks, a company spokesman. 

“Electro-mobility will continue to grow in significance. In the next seven years, by 2025, BMW Group will offer 25 fully-electric and plug-in hybrid models in our worldwide lineup.”

Neither bill, though, has a Republican co-sponsor.

The credit doesn’t sit well with GOP lawmakers who see it as a handout propping up the electric car industry. Rather than extend the credits, Republicans would be happier seeing them eliminated.

“I wouldn’t be supportive of any legislation to extend the credits,” said Sen. Pat ToomeyPatrick (Pat) Joseph ToomeyOvernight Defense: Pick for South Korean envoy splits with Trump on nuclear threat | McCain blasts move to suspend Korean military exercises | White House defends Trump salute of North Korean general WH backpedals on Trump's 'due process' remark on guns Top GOP candidate drops out of Ohio Senate race MORE (R-Pa.) told The Hill.

“The government shouldn’t be interfering in people’s choices of vehicles based on the merits,” he added. “It shouldn’t be subsidizing one category of products at the expense of others.”

Sen. Bill CassidyWilliam (Bill) Morgan CassidyThe Year Ahead: Drug pricing efforts to test bipartisanship GOP balks at Trump drug pricing plan Overnight Defense: Senate rebukes Trump with Yemen vote | Mattis, Pompeo briefing fails to quell Senate concerns with Saudis | Graham demands CIA briefing on Khashoggi | Pentagon identifies three troops killed in Afghanistan MORE (R-La.) likened the credits to a bailout of Tesla. He said his biggest issue with the current system is the kind of buyer who benefits from the cut.

“I’m totally OK with the concept of electric cars, but what I don’t want is the guy getting a $100,000 vehicle on a credit on the back of a guy trying to make ends meet,” he said.

“That is a credit of lower-income Americans for higher-income Americans. The guy buying the Tesla can afford $100,000 for a car, but the person who is making $30,000 is out the credit. I actually look at those as a subsidy for the rather wealthy.”

The starting price for a 2018 Tesla Model S, the most popular model, is $74,500. The 2018 version of the Chevy Volt is $33,220.

Conservative groups are equally opposed to extending the tax credits, arguing that it’s time the electric car industry stood on its own.

“Once you get these subsidies, once you get these handouts, it’s like a drug almost. It’s very hard for them to wean themselves off it,” said Thomas Pyle, president of the Institute for Energy Research, about electric carmakers.

“They want to extend tax credits because automakers know that if the tax credit goes away the likelihood of someone buying this vehicle drops precipitously.”

The advocacy arms of Institute for Energy Research, the Heritage Foundation, the American Legislative Exchange Council and the Heartland Institute wrote a joint letter to Rep. Kevin BradyKevin Patrick BradyHouse Democrats poised to set a dangerous precedent with president’s tax returns IRS issues guidance aimed at limiting impact of tax on nonprofits' parking expenses On The Money: New director takes helm at troubled consumer agency | Trump’s economy teetering on trade tensions, volatile markets | Brexit crisis deepens | House report scolds Equifax over breach MORE (R-Texas), chairman of the House Ways and Means Committee, last week objecting to any efforts to expand the credit in any way.

In the letter, the groups pointed to a 2018 study that found that nearly 80 percent of the electric car tax credits filed in 2014 were given to households with an average income of $100,000 or higher.

“You look at ownership, income, racial breakdown — we are subsidizing rich, white guys to buy their toys,” Pyle told The Hill.

Brady is currently working on a “tax reform 2.0” package.

“We are still reviewing this legislation,” said a Ways and Means spokesman in a statement to The Hill. “But now that we have a new tax code built for the long term, it’s important to evaluate the need of tax extenders. Which is why the Committee has held multiple roundtables on extenders and their need this year.”

“Temporary measures are rarely good tax policy, and the Chairman believes we should only be taking steps that make our tax code even more pro-growth and simpler,” the spokesman added.

Myron Ebell, director of the Center for Energy and Environment at the Competitive Enterprise Institute (CEI), said Republicans don’t always follow through on eliminating green tax breaks. He called the debate over car credits a “test case.”

“How [the electric vehicle credit] ends up has consequences far beyond this particular subsidy.”