Last month the US EV tax credit expired completely for Tesla. I happened to get my Model 3 lease just under the wire, and actually saved something. The dealership was really busy in the credit’s last few days! The credit has clearly been a great success in kick-starting the electric vehicle industry, but how much has it actually cost?
The credit, which is called IRC 30D, was passed in 2009, and is $2500 for any car with a battery of 5 kWh or more, plus $417 for every kWh above 5 up to $5000. The amount per model is given here: Federal Tax Credits for All-Electric and Plug-in Hybrid Vehicles. Everything above 12 kWh gets the full $7500. Full EVs of decent range need at least 50 kWh, while plug-ins tend to have 8 to 16 kWh. The credit applies to the first 200,000 cars made by a company, and then gets cut in half to $3750 for the six month after that, to $1875 for the next six months, and then to zero. The credit was meant to encourage the design and marketing of these cars, but not be an open-ended subsidy.
So first let’s see how many EVs have been sold in the last 10 years. This data comes from the InsideEVs EV Sales Scorecard and I’ve put it all into this spreadsheet: EV Sales and Tax Credits. Here it is, sorted by the units sold in 2019:
The first major EVs, the Chevy Volt and Nissan Leaf, were introduced in 2011. The Volt was updated in 2016 but cancelled in 2019. The Leaf did well until it was superseded. Toyota introduced a plug-in Prius in 2017, which make it now #2. Tesla introduced the Model S in 2013, but sales exploded with the Model 3 in 2018. That was such a hit that it threw the growth curve off for 2018. There have been 57 EV models all told, of which 46 are still in production. Overall sales are doubling about every 2.5 years.
Given the raw sales and the credit per model, we can calculate what the total credit cost if everyone took it:
The biggest year was 2018 when at most $2.4 billion would have been granted. The actual amount could be much less, depending on how many people filed for it. Even that was only 0.06% of the US federal budget. The budget can’t even be tracked to that precision. It dropped in 2019 to $1.3B because the Tesla credit was way down. Chevrolet hit the 200K limit in April 2019, and its credit will expire in April 2020, so it was down too. Nissan has sold 140K all told, and Toyota and Ford are at 120K, so they’re not all that close.
The total credit available from 2011 to 2019 was $8.8B. Spread over 1.5M cars, that amounts to $6000 per car. Tesla has gotten a total subsidy of $3.1B, followed by Chevrolet at $1.5B, Nissan at $1.1B, BMW at $0.5B and Toyota at $0.5B.
The Trump Administration has proposed canceling the credit altogether, unsurprisingly, but it has been renewed every year. The House Democrats have proposed extending it to 600K units. That would mainly help GM, which has already exceeded the 200K limit, but will help Ford soon. All of the other companies have 2.1M cars left before they hit the limit.
This year a lot of new models will be introduced, so Tesla will get some real competition. The Kia Niro is the only one that’s close right now, because it’s bigger and significantly cheaper. GM has faded, as I’ve mentioned before, but VW is all in because they need to get over the scandal around their hacking of diesel emissions tests.
Overall, this credit has done exactly what it’s supposed to. It’s enabled the creation of a new category of cars, and they’ve sold about $70B worth so far. The whole world is converting over to EVs, and this helped. It’s been particularly important to the growth of Tesla, which was up to about $25B in sales for 2019. It’s the first successful new car company in the US since Jeep in 1941. After driving my Model 3 for a couple of weeks I can see why. It’s the fastest, smoothest car I’ve ever driven. It could use more space, and the touch screen is annoying, but once you’ve driven on juice, you never want to go back.