12 mar 19

How the US out-EV'd the EU (and why it won't last)

While Europeans have made the mental switch to a post-fossil future, Americans continue to buy big, gas-guzzling trucks. Like most stereotypes, this one is false too. Last year, more electric vehicles (EVs) were sold in the US than in the EU. But still: don't count on America to lead the electric-vehicle revolution. Here's why.

In 2018, around 361,000 EVs – battery-electrics (BEVs) and plug-in hybrids (PHEVs) combined – were sold in the US, versus just 302,000 in the EU. It's the first time the Americans out-EV the Europeans, and this despite the perception that electric mobility is much more ingrained in Europe. So why was the reality different last year?

Tesla Model 3
First of all, let's not forget that the European figures exclude the best-performing country on the continent when it comes to electric vehicles. Last year, no less than 72,000 EVs were sold in Norway – firmly within Europe, but just outside the EU. 

And second, BEV sales were driven very much by Tesla's new Model 3, which on its own represented 68% of the annual total, with a surge towards the end of the year. That's because Tesla's federal tax credit was due to halve at the end of the year. 

That tax credit was established in 2010 by the Obama administration. Buyers can deduct  $7,500 from their income taxes in the year they buy a new EV. The federal tax credit applies to private consumers but also to lease companies, who can then pass on the saving by lowering monthly payments. It does not apply to used EVs. 

200,000 units
But those tax credits are not permanent: they phase out in the year following when an automaker's BEV and PHEV sales hit 200,000 units. 

  • Tesla reached that milestone in 2018, which means the tax break for its vehicles halved (to $3,750) at the start of 2019. It will be reduced to a quarter ($1,875) for the second half of the year and disappear entirely by 2020.
  • GM also hit the 200,000-mark in 2018, but nearer the end of the year. The tax break for its EVs (the Chevrolet Bolt, a BEV; and the Chevrolet Volt and Cadillac CTS, both PHEVs) will halve on 1 April of this year, drop to a quarter on 1 October and be eliminated on 31 March 2020.
  • Since 2010, Nissan has sold around 131,000 units of its Leaf in the US. It is expected to be the next automaker to hit the milestone, but not anytime soon.  

To compensate for the loss of its tax credits, Tesla recently dropped the sticker price for its vehicles in the US. It is unclear whether Chevrolet will do the same for its EVs – it would help keep them competitive with cheaper rivals like the Hyundai Kona Electric or the Kia Niro EV.

The US Congress has been debating whether to extend, modify or simply abolish the federal tax credits. Some argue that the credit phase-out based on sales figures penalises OEMs for getting a head start in electric mobility. 

Tax credits and rebates
But it's not just federal measures that drove EV sales in the US last year. Individual states – and even some cities – can and do add to the federal incentive, usually in the form of a tax credit or a cash rebate. Here's what's currently on offer:

  • California: up to $7,000, based on various programmes.
  • Connecticut: up to $2,000 rebate, based on battery range.
  • Colorado: a $5,000 tax credit for purchase, $2,500 for lease; set to drop to $2,500 for purchase and $1,200 for leasing in 2021.
  • Delaware: up to $3,500 rebate, based on vehicle price.
  • Louisiana: up to $1,500 income tax credit.
  • Maryland: up to $3,000 excise tax credit, based on battery range and vehicle price (currently on hold due to lack of funding).
  • Massachusetts: up to $1,500 rebate.
  • New York: up to $2,000 rebate, based on vehicle price.
  • Oregon: up to $5,000, based on battery capacity and income, from multiple programmes. 
  • Pennsylvania: Up to $2,000, based on battery capacity and vehicle price.

Tax credits are less interesting to people with low taxes: if there's no tax payable, there can be no tax credit. Rebates are payable regardless of whether the beneficiary pays tax.

Some localities offer financial assistance for installing a home charging unit, provide carpool-lane privileges to EVs or offer free and/or reserved parking spaces. 

ZEV Program
One influential piece of state legislation is California's Zero Emission Vehicle (ZEV) Program. The ZEV Program requires larger OEMs to offer specific numbers of the very cleanest cars available, using BEV, PHEV and hydrogen powertrains, among others. Thanks in part to the programme, more than 400,000 zero-emission vehicles and PHEVs have been registered in California since 2010. It is estimated that by 2025 about 8% new vehicle sales in California will be ZEVs and plug-in hybrids.

Section 177 of the 1970 Clean Air Act allows other states to adopt California's standards, as is the case with the ZEV Program. Nine so-called 'Section 177' states have already done so, i.e.: Connecticut, Maine, Maryland, Massachusetts, New York, New Jersey, Oregon, Rhode Island and Vermont. Together with California, these states represent nearly 30% of new-car sales in the US.

Ideological swings
However, with federal policy the hostage to wild ideological swings and state measures likely to remain chaotically diverse and, at least in some cases, chronically underfunded, the US system does not seem to be a winning model – at least not when it comes to EV adoption. 

China is forging ahead with a massive, state-mandated wave of electrification, and the Europeans are likely to defeat the Americans again when it comes to EV sales from 2020, considered by many a turning point, as this is the year in which both stricter emissions rules come into play and OEMs are set to release their broadest range of EVs yet. 

Authored by: Frank Jacobs