It’s time to end subsidies and put electric vehicles to the market test

Nearly every day we read that the future of private passenger transportation is electric and that its adoption is essential to winning the battle against climate change. For example, several weeks ago, Toyota — the world’s largest automaker — announced it would release six battery electric models (EVs) in 2020, and produce electrified versions of all Toyota vehicles by 2025. Still, it is not preordained that the bevy of electric cars being introduced by Toyota and other manufacturers will be a hit with consumers, especially here in the U.S.

Since 2010, purchasers of plug-in electric vehicles have been able to claim a federal tax credit ranging from $2,500 to $7,500, depending on the vehicle’s weight and battery capacity. Some state and local governments offer additional tax credits or rebates to EV purchasers, as well as low-cost charging rates and high-occupancy vehicle lane exemptions. However, at the end of this year the federal tax credit no longer will be available for purchases of EVs from manufacturers whose cumulative sales have exceeded 200,000 vehicles.

After 10 years of subsidies, EVs have captured a miniscule share of America’s passenger vehicle market. Total car and light truck sales since 2010 have exceeded 158 million; but of this total, only 1.2 million have been plug-ins. That’s less than 1 percent of sales — at a cost of approximately $8 billion to American taxpayers. 

Despite the inability of federal subsidies to boost electric vehicle demand significantly, pressure is building in Congress, with bi-partisan support mainly from senators of car manufacturing states, to reconfigure and extend the EV tax credits. The Driving America Forward Act, if passed into law, would raise all automakers’ available credits from 200,000 to 600,000 vehicles but lower the maximum credit to $7,000. The estimated revenue loss from the proposed extension is $11.4 billion over 10 years.

As in the past, future tax credits likely would do little to enhance consumer interest in electric vehicles. Most EVs cannot travel more than 250 miles on a full charge, a much shorter distance than a gasoline-powered car can travel on a full tank. What’s more, charging stations are few and far between, not to mention that recharging times can last an hour or more. 

Because of battery limitations, most electric vehicles today are small to medium-sized sedans.  But Americans no longer want these cars. As recently as 2014, sedans accounted for a majority of personal vehicles sales. Today, with consumers buying more SUVs, cross-overs, vans and pickups, sedans account for only one-third of auto sales. Indeed, Ford recently announced it would stop making all of its sedans with the exception of the Mustang and Focus hatchback.  Relatively inexpensive gasoline, along with the perceived safety of larger and heavier cars, is helping spur the move to larger vehicles that are not likely to be electrified anytime soon. 

There also is a growing recognition that EVs, despite the claims of their manufacturers and salespeople, are not really “zero emissions” vehicles. An account of the full environmental impact of an EV requires looking at the energy required to manufacture the vehicle, the production and transportation of rare earths that are used in its battery, the source of the electricity used to recharge the battery, and the cost of recycling the battery. From a “full-cycle” perspective, some internal combustion engines may be greener than some EVs.

Because cars and light trucks account for only 10 percent of all greenhouse gas emissions in the U.S., extending the electric vehicle subsidies will do little to reduce the carbon footprint of personal transportation. By contrast, improvements in fuel economy, along with the use of cleaner-burning gasoline and diesel, are more effective ways to reduce tailpipe emissions.

Bernard L. Weinstein is associate director of the Maguire Energy Institute and adjunct professor of business economics in the Cox School of Business at Southern Methodist University.