US Tax Credits Fail to Bridge Cost Gap for EVs and Hybrids
A Congressional Budget Office analysis presented in June 2013 found that even with federal tax credits, electric and hybrid vehicles remain more expensive to own than comparable petrol models.
Electric and hybrid vehicles remained out of reach for many US buyers in 2013, as federal tax credits failed to offset their higher lifetime costs compared with conventional petrol cars. The Congressional Budget Office (CBO) reported at the June Energy Information Administration conference that, based on 2011 prices, even the maximum $7,500 federal subsidy left EVs and plug-in hybrids more expensive over their lifetime.
Tax credits not enough to close the gap
The US government offered tax credits between $2,500 and $7,500 for buyers of new electric and plug-in hybrid vehicles, with the value depending on battery capacity. The CBO analysis concluded that, at 2011 price levels, these incentives were not sufficient to make EVs cost-competitive with petrol cars. According to the CBO, a tax credit of over $12,000 would be required to bring the total cost of ownership of a typical 16-kWh battery EV in line with a conventional compact car.
Battery costs were a key factor. In 2013, battery packs remained expensive and accounted for much of the price premium on electric vehicles. As a result, even with government support, buyers faced higher up-front prices and struggled to recoup the difference through fuel savings, especially when petrol prices were below $4 per gallon.
Automakers push ahead despite slow uptake
Despite the unfavourable economics, manufacturers continued to invest in electric and hybrid technology. The drive was fuelled partly by tightening emissions regulations and the expectation that battery costs would fall over time, eventually improving the business case for electrified vehicles. Industry analysts suggested that carmakers were preparing for a future in which technology improvements and higher fuel prices could make EVs and hybrids more attractive to mainstream buyers.
The CBO’s findings echoed concerns that the current level of government support was not enough to drive mass adoption. As of 2013, the US government’s stated goal of reaching one million EVs on the road by 2015 looked ambitious, given the cost barriers and slow sales volumes. For more on the government’s EV targets, seeUS government still targets 1 million EVs by 2015 despite slow sales.
Battery cost the main hurdle
Manufacturers and policymakers both identified battery cost as the main obstacle to lower EV prices. While some automakers were working on alternative battery chemistries and more efficient manufacturing processes, progress was incremental. For developments in battery technology, seeHonda develops rare earth-free magnets for hybrid EV motors.
