Fossil Fuel Dependence: The Government’s Mixed Relationship with Electric Vehicles

The United States was recently awarded the distinction of being the only country on planet Earth that’s no longer apart of the Paris Climate Agreement. Despite being the last bastion of climate skepticism in the world, the United States has made great progress toward reducing its country-wide emissions and fosters one of the fastest growing solar industries worldwide.

The UK recently joined France and India in an effort to eliminate all fossil-fuel cars from being sold by 2040. Multiple bills have been passed around the chambers of California’s state assembly, although no formal action has been made as of yet. As many American states make the push to reduce emissions, a large focus remains on the transportation industry, which is responsible for 27% of total emissions.

This brings up a few question regarding electric vehicles (EV), such as how sustainable is their price model and how much leverage does the United States government have in propping up EV sales? This comes during a time where the Republican’s proposed tax plan could cut off tax rebates to EV consumers and put many EV manufacturers in peril.

EV Grants and Tax Incentives

In 2015, the Obama administration began allocating $1.5 billion in government grants to fund high-performance electric batteries and other electrical components required for a fully efficient EV. Another part of this plan also helped to fund startups with the infrastructure required to power EV transportation, such as electric charging stations and training for EV technicians.

States, such as California and New York, also subsidize EV manufacturing. Since 2011, the state of California has allocated over $463 million in tax rebates for EV purchases and is considering a plan that could significantly increase this number to $3 billion through 2030.

Right now, the biggest benefit that EV manufacturers enjoy is a federal tax credit ranging from $2,500 to $7,500 for each individual EV sold. This allows company like Toyota and Tesla to sell high-performance EVs at full price value while offering consumers a tax rebate they can cash in to save some money. The Republican tax plan would completely cut this tax-rebate, although it’s already expected to dry up for the companies that already use it.

The federal tax-credit for EVs is capped for each company and Toyota already reached its production ceiling with the Hybrid vehicle and Tesla is expected to reach its limit by early 2018.

California recently pledged to have 1.5 million zero-emission cars on the road by 2025, but how realistic is this plan without the proper tax incentives? Elon Musk recently made a press-conference where he pleaded for the removal of the federal tax-credit. Yet, as we look deeper into Tesla as a case study, how sustainable are EV price-models and are they cheap and accessible enough to meet Jerry Brown’s promises?

A Tesla Case-Study

In 2015, Reuters reported that Tesla, even with a federal tax rebate in place for each vehicle, was losing $4,000 on every new vehicle it manufactured. Tesla planned to improve its bottom line by massively upgrading its EV lineup with its Model 3 sedan. With an ambitious goal of manufacturing 500,000 per year, Tesla manufactured a little over 300 in September of this year.

In total, SpaceX, a conglomerate that consists of Tesla Motors, SolarCity Corp., and Space Exploration technologies Corp. has received over $4.9 billion in state and federal funds, matching half of Elon Musk’s own stake in these companies.

This brings up the question of how well Tesla Motors will fair without federal tax credit incentives and an incredibly cheap oil market. Whether the federal government’s tax incentives had led to malinvestment on Tesla’s part is largely unknown, but the outlook for both Jerry Brown and Elon Musk’s hopes to get more EVs on the road seems dim at the moment.

Tesla is being floated millions of dollars in outside funding and it may require even more borrowing or government help to finally sustain Tesla’s business model. We’ll have to wait and see if the Republican tax bill is passed and, if not, what happens when Tesla reaches its cap. It seems that while the demand is there for EVs, the price to manufacture and maintain their supply is simply too unaffordable.

Considering that the Trump administration is composed of individuals involved in big oil or actively hostile to the EPA, the dream of putting more EVs in the hands of everyday Americans seems unlikely. One technology to get excited about may actually be driverless vehicles, which have been shown to reduce emissions while providing safe transportation. Unfortunately, this technology too could be tied up with government bureaucracy.

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