The rapidly growing domestic EV market provides us with the unique opportunity to restore American leadership in automotive manufacturing, create good-paying jobs, reduce emissions, improve public health, and tackle climate change. The transportation sector accounts for one-third of the United States’ emissions. Therefore, it is no surprise that frontline communities, auto manufacturers, utility companies, and clean energy advocates understand that transitioning to electric vehicles (EVs) is a vital first step toward creating a cleaner and more resilient economy.
As consumers begin transitioning to EVs, there will be extensive opportunities for American automakers to grow this industry. President Biden recently signed Executive Order 14037, which set a target to ensure that half of all new vehicles sold in 2030 are zero-emission vehicles. This order reiterated the Biden Administration’s commitment to saving consumers money, improving public health, and reducing emissions.
Strong federal consumer incentives can accelerate that trend and ensure that a robust domestic manufacturing sector takes root here in the United States. Congress should reform the existing 30D tax credit to eliminate some of the deficiencies that have emerged since its inception over a decade ago. And, Congress should ensure that this tax credit is not impeded by restrictive means-tested requirements, like low manufacturer’s suggested retail price (MSRP) or adjusted gross income (AGI) caps. These limitations ignore the public benefits of EVs that leave everyone better off, and they would only serve to hinder EV adoption. It is imperative that we do not limit the emissions reduction and economic benefits that electrifying the transportation sector will bring.
EV Consumer Incentives
In 2008, Congress created the 30D tax credit to provide federal consumer incentives for passenger EVs. Consumer incentives like this tax credit are necessary because they expand the share of EVs on the road, which will deliver important environmental, public health, and economic benefits. These benefits do not accrue to just the first driver, either. Rather, they benefit all Americans by reducing greenhouse gas (GHG) emissions and air pollutants. EVs have zero tailpipe emissions, thereby reducing GHG emissions and deadly particulate matter pollution (PMP). In densely populated areas, vehicle tailpipe emissions occur at the ground level and are often linked to an increased prevalence of asthma, respiratory issues, and cancer. Additionally, as the electrical grid in communities becomes even cleaner in the coming years as more electricity is sourced from clean sources, EVs will be linked to even lower emissions per mile.
By encouraging car purchasers to buy EVs, consumer incentives also prime the used EV market. In recent years, 70% of car buyers purchased used vehicles rather than new vehicles. To become widely available in the used vehicle market, EVs must first make up a larger proportion of all new vehicles sold. As EVs make their way into secondary markets, they will also become cheaper over time. EVs have lower fuel and maintenance costs than gas-powered vehicles do because they don’t need oil changes or engine fluid replenishment, so these cost savings will continue to benefit drivers over the lifetime of the vehicle.
The 30D tax credit is the most targeted and effective federal policy aimed at accelerating consumer EV adoption, but it has several critical limitations. The 30D tax credit does not apply to used vehicles, is not delivered at the point-of-sale, and arbitrarily includes a per-manufacturer unit cap that has solely impacted domestic automakers.
Federal policymakers need to expand and reform the 30D tax credit to drive consumer adoption, significantly reduce emissions, and catalyze the advanced vehicle manufacturing sector. First, the credit should not be limited to a set number of sales per manufacturer – currently it is capped at 200,000 vehicles per manufacturer. Only domestic companies have reached the cap, which means that it unintentionally punishes leading domestic EV manufacturers, benefits foreign commercial interests, hurts American consumers who want to buy the most popular EV models, and hinders domestic EV adoption.
Additionally, the 30D credit should be reformed to apply at the point of sale, rather than months later when taxes are filed. A point-of-sale tax credit also allows consumers to immediately realize the full value of the credit, which makes it more equitable. Finally, consumer EV incentives should be applied to used vehicles – the largest market for consumers. Even though EV prices are rapidly decreasing, their higher upfront costs continue to be a barrier to adoption. Until EVs become widely adopted in the marketplace and are produced by domestic manufacturers at scale, federal tax credits remain necessary.
Another way EV adoption is stifled is by implementing adjusted gross income (AGI) limitations. These restrictive caps neglect the public health benefits of electrification and focus on the first driver, when we should instead be encouraging emissions reduction in every market segment and priming the secondary market of tomorrow with new car sales today. AGI caps only serve to slow EV adoption, and they leave lower-income consumers worse off because they limit the supply of used EVs and add income verification complications to the program, which could make it impossible to deliver the credits at the point of sale.
In addition, a manufacturer’s suggested retail price (MSRP) cap will similarly slow the growth of the EV market and limit innovation. We must recognize that the average new vehicle costs over $42,000. The average price of a full-size pickup truck – the best-selling market segment – is $51,000, and an average full-size SUV is $63,500. Additionally, it takes time for automakers to sufficiently scale up production of affordable EVs, just as it takes time for any company to efficiently produce new technologies at scale. We should reward automakers that are seeking to develop new and diverse models of emissions-reducing EVs – even if their sticker price is higher than an average new gas-powered vehicle at first – rather than disincentivize them by implementing low MSRP caps. Incentivizing the sale of all EV segments will more quickly cultivate a robust new and used EV market from which all income earners will be able to benefit.
The EV market will continue to grow domestically and globally – it is up to policymakers to decide how incentives can best contribute to bringing about the myriad public benefits that EVs bring to communities and the American economy. ZETA looks forward to Congress passing strong consumer incentives to prime the secondary market, expanding EV access to middle- and lower-income individuals.