The Federal EV Tax Credit Structure MUST Go, Convince Me Otherwise

"shpuker" (shpuker) 11/15/2018 at 09:30 • Filed to: Electric Cars, EVs, Tesla, Chevy, bolt, Byton, Hyundai, Kona EV

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The United States electric vehicle tax credit system is haphazard, uncoordinated, and dumb. It has to go...

Disclaimers...
For sake of simplicity I’ll only be discussing this as it pertains to BEVs, hybrid vehicles won’t be considered
All numbers used in this are estimates and there are a few mismatched years of reference (all within the past 4 years), but they should be reasonably accurate (Ideally+/- 5%)
I happen to work within the electric vehicle industry so you may say I have a personal incentive to pitch an increase, I’ll do my best to keep things purely objective.

Let’s lay some baseline down before we get started, what are some of the main existing credits? I’ll use the following states in comparison to the US averages in order to attempt and draw some diversity in sampling.

United States Federal Credit = $7,500*

California State Credit = $2,500

Colorado State Credit = $5,000

New York State Credit = $2,000

Indiana State Credit = None

* Diminishes per manufacturers total sales

As you can see there is a wide range of incentives available, and none seem to be properly defined based on the necessity of promoting EV integration in any given state. So this is what I will attempt to do below, draw out a methodology for calculating a minimum incentive on a state-to-state basis which seeks to properly account for the differences in vehicle use and cost of operation.

I’ll begin by making one clear assertion...

Electric vehicle tax credits should exist to promote the transition to a more energy efficient transportation method

Under this assertion we have a clear metric we can look to work around, what is the increase in overall energy efficiency from switching from the average conventionally powered vehicle to an electric vehicle? Or rather what is the estimated full-life energy savings of operating an EV compared to the average vehicle in the United States?

Average Gas Vehicle Consumption = 0.58 kWh/km

Average Electric Vehicle Consumption = 0.20 kWh/km*

* This is a rough estimation, some new EVs actually come in under this mark

And if we considering an estimated percentage of US EV car sales vs total car sales in 2018 of 6%...

Arbitrated US Average Vehicle Consumption = 0.56 kWh/km

This starts to give us a true picture of the energy savings of driving an EV compared to the average national consumption rate, this will serve as the backbone metric for assertions that follow.

As our primary context metric on a state-to-state basis let’s consider the average distance traveled per year of these vehicles in each state respectively, for arguments sake I’ll use the metric of !!!error: Indecipherable SUB-paragraph formatting!!! .

US Average = 23,214 km

CA Average = 23,230 km

CO Average = 21,634 km

NY Average = 19,100 km

IN Average = 28,680 km

Which then gives an estimated average yearly consumption and estimated EV consumption of...

US Estimated Consumption...
Average = 13,000 kWh
EV = 4,643 kWh

CA Estimated Consumption...
Average = 13,009 kWh
EV = 4,646 kWh

CO Estimated Consumption...
Average = 12,115 kWh
EV = 4,327 kWh

NY Estimated Consumption...
Average = 10,696 kWh
EV = 3,820 kWh

IN Estimated Consumption...
Average = 16,061 kWh
EV = 5,736 kWh

And as a secondary cost metric per state consider the average energy cost in each state...

US Energy Cost = $0.12/kWh

CA Energy Cost = $0.15/kWh

CO Energy Cost = $0.11/kWh

NY Energy Cost = $0.18/kWh

IN Energy Cost = $0.11/kWh

Now this gives us everything necessary to give an estimated yearly operating cost difference for each EV, which I propose then comparing against the promised manufacturers warranty for the vehicle in question. As an example lets consider the Tesla Model 3's warranty period of 8 years, this gives us the following...

US Lifetime Operating Value = $7,880

CA Lifetime Operating Value = $10,183

CO Lifetime Operating Value = $7,084

NY Lifetime Operating Value = $9,617

IN Lifetime Operating Value = $8,629

Using this analysis as a basis my proposed credit would be to install a federal minimum credit that covers the estimated average cost nationwide, and to place a conditional* requirement on each state to install a credit that covers the difference as it pertains to their state.

The resulting minimum contributions would be as follows...

Proposed Federal EV Credit of $8,000

California EV Credit Minimum of $2,500

Colorado EV Credit Minimum of $0

New York EV Credit Minimum of $2,000

Indiana EV Credit Minimum of $1,000

* As far as the conditional nature of this proposed state-to-state credit minimum, I would propose setting targeted national take-rates and assessing each states compliance against that metric. In example California’s take-rate is around 10% while Indiana’s is only about 0.8%. I’ll avoid suggesting a specific correction method here as there are a number of factors that can keep this take-rate from increasing, but some sort of multiplier could be applied.

The true appeal of this style of standardized credit are it’s ability to follow a clear path of evolution as time goes on, accommodate state-to variations in cost of ownership, and account for manufacturer deviations. As an example consider the following deviating cases...

An electric vehicle operating in California with a warranty of 5 years
Federal EV Credit of $5,000, California State Credit Minimum of $1,500

An electric vehicle operating in Indiana with a warranty of 8 years but the federal take-rate is now 25%
Federal EV Credit of $6,500, Indiana State Credit Minimum of $500

I’ll cut myself off here, but convince me I’m wrong...

!!! UNKNOWN CONTENT TYPE !!!

Some possible improvements to method of calculation...

Calculation of Arbitrated Average Vehicle Consumption on a State-to-State Basis

Calculation of a True Electric Vehicle Average Consumption in place of the 0.20 kWh/km estimation on a per-vehicle basis to be used as a total sales metric against automakers to promote exceptionally efficient EVs. !!!error: Indecipherable SUB-paragraph formatting!!! !!!error: Indecipherable SUB-paragraph formatting!!!

This method doesn’t account for leasing, metrics like % lifespan over leasing period could be reviewed here

Tekamul > shpuker 11/15/2018 at 09:40

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*Hand up*

I have an electric motorcycle that is only used in Summer months, so about half my annual mileage, but its power needs are 100% met by my roof top solar (as are all my other electricity needs). Its efficiency is about 0.06 kWh/km.   What should my credit be?

Milky > shpuker 11/15/2018 at 09:43

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Is there any thing on the books that has flux built into it? I dont think the government has the ability to do that properly.

25 cents for each gallon is way easier than everything you wrote out.

Arrivederci > shpuker 11/15/2018 at 09:43

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Slightly off-topic question, that I bet you can answer off the top of your head.

How soon after moving to Colorado would I be able to claim the $5000 EV tax credit?  Meaning, if I moved there next week and bought an EV, could I claim it on my 2018 taxes that I submit in spring 2019?  Or would Colorado not give the credit until I’ve been paying Colorado taxes for an entire year?

deekster_caddy > shpuker 11/15/2018 at 09:44

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I’m replying now so we can continue this discussion later. I breezed through it as I’m on my way out the door. If I understand what you are saying, the fed incentive system is ok, the state system is wildly inconsistent. That’s true, but good luck forcing states to do something like this. That’s why the federal gov’t passed the regulations the way they did - not expecting states to do anything. Some states (like CA) recognize the importance of EVs to our future and are doing what they can to help. You can almost find that state to state incentives follow red/blue party lines... but even republicans like EVs.

I’m in MA and have TWO EVs now, well two PHEVs that qualified for the full fed credit. I bought my Volt in 2012 and used the fed credit, and this year we bought a Pacifica PHEV and will use the fed credit on our taxes, and already received our $2500 state rebate.

Will be back in a few hours to continue discussing. Load me up with questions if you want, I have been following this tale for years and understand it pretty well. I think I’m going to drive my ‘73 Buick around today. It gets 8 MPG city. ;)

WRXforScience > shpuker 11/15/2018 at 09:52

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When a critical mass of BEV’s is reached, they can be used as a distributed battery system to aid in large scale grid balancing and energy storage.

The nature of solar (PV solar especially) means that excess electricity is generated during the day (the ‘ duck graph ’ problem). If you have millions of BEV’s plugged in during work hours, they can store that excess electricity for later use and/or be used to balance the grid when generation temporarily dips (clouds or when the wind slows) .

The excess solar energy would otherwise need to be stored in large scale commercial batteries or dumped from the grid. This is ‘free’ energy that is just going to waste now. The increase in energy efficiency over an ICE vehicle is just a bonus.

Subsidies should help drive BEV sales and get us to this critical mass sooner.

Yowen - not necessarily not spaghetti and meatballs > WRXforScience 11/15/2018 at 10:00

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So essentially while an EV is expected to be plugged in for an 8 hour working day, it could be told “just make sure you get to at least 80% by the time I leave at 5pm”. That way during the day it’s free to contribute to the grid. That’d be very cool!

However, wear and tear on your battery would increase, how would owners be compensated for that?

The Dummy Gummy > shpuker 11/15/2018 at 10:03

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I l ook forward to your article on Federal Oil Tax Incentives Must Go .

punkgoose17 > shpuker 11/15/2018 at 10:03

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I am to exhausted to follow this. I saw a Mitsubishi Miev on Tuesday it was a major WTF moment.

AMGtech - now with more recalls! > Tekamul 11/15/2018 at 10:05

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*Dr. Evil 1,000,000 dollars gif*

LongbowMkII > deekster_caddy 11/15/2018 at 10:07

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You can’t even get Indiana to properly deal with an HIV outbreak much less logically deal with tax credits.

Thomas Donohue > punkgoose17 11/15/2018 at 10:11

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I was told there wasn’t going to be any math today.

WRXforScience > Yowen - not necessarily not spaghetti and meatballs 11/15/2018 at 10:22

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I’m not sure that battery life would be decreased, cell leveling is important for extending battery life so the process might be net positive to neutral. If not, the subsidy is the compensation.

Alternatively, if you’re at a charge point that would normally cost money then you could get credit for enabling ‘charge sharing’ (the same process could be used by businesses who offer free charging and they could recoup construction and operational costs).

Ideally, your parking lot at work, school, or your apartment complex would be covered with solar panels (bonus, covered parking!), your BEV is plugged in all day and charged by the panels (you might even get a fast charge from the other plugged in BEV’s that are already >80% charge) . Excess production is sold back to the grid (power meter runs backwards). Now, the Walmart down the road (or in another town entirely) might have some BEV charging stations but they don’t have enough solar panels to actually charge all the cars, so they’re being charged by your lot’s extra juice.

The symbiotic nature of BEV’s and solar makes it more efficient to add in extra solar production and the added cost incentives help encourage consumers and businesses to actually do it. As a bonus, when you get home in the summer and crank up the AC along with millions of others, your BEV that you just plugged into the grid could compensate for the increased electrical load.

Tekamul > AMGtech - now with more recalls! 11/15/2018 at 10:22

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DEAL!

Of course, if I reach the point that I’m paying a million dollars in taxes, everybody gets a cigar

AfromanGTO > shpuker 11/15/2018 at 10:30

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One thing I always find interesting is how the studies really don’t include rural areas. Or comparing different parts of states. The ease of EV usage in Atlanta may be one thing, but out in Ludowici or Andersonville it is completely different. There’s better public transportation in Miami than Orlando, but people can afford more EVs in Miami.

Yowen - not necessarily not spaghetti and meatballs > WRXforScience 11/15/2018 at 10:33

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All good points! I sure hope this will actually be a future possibility.

Dr. Zoidberg - RIP Oppo > LongbowMkII 11/15/2018 at 11:06

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Your expectations for Indiana are too high

npc58501 > shpuker 11/15/2018 at 12:39

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What about no tax incentives for anyone? None for oil, none for EV, none for corporations, none for individuals?

Why are we in the business of forcing different actions via taxation? It's far more trouble than it's worth.

nermal > shpuker 11/15/2018 at 14:31

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The point of the EV tax credits is to drive both innovation from manufacturers and adoption from consumers. It’s s’posed to go away entirely at some point. I see no point in changing anything, just let it fizzle out as intended. It’s working fine.

As it stands, the problem is going to switch to finding out a way to get $$$ from EV owners for funding bridges and roads and whatnot. Currently the states get that from fuel taxes. Since EVs don’t burn fuel, they aren’t contributing to the fund to fix the roads and bridges. Some states charge more for annual registrations, some don’t.

shpuker > Thomas Donohue 11/15/2018 at 17:57

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I made some code for ease of calculation if that’s better ;)

shpuker > Tekamul 11/16/2018 at 02:15

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If you assume full average annual mileage for all vehicles considered and calculate it out to $11,000 from the Federal credit... Yea that’s a loophole that probably needs a patch. Perhaps some sort of % Vehicle MSRP limit at say 30 %? That’s a tricky one.

(I see the current federal value is 10% up to $2,500, this seems a bit off if the idea is to promote efficient transportation however)

shpuker > Milky 11/16/2018 at 02:20

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Yea that runs it into the dilemma of should the federal government be capable of doing this properly vs. is the federal government capable of doing this properly  

shpuker > WRXforScience 11/16/2018 at 02:24

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They very well could/should/will likely be integrated as a piece of some holistic grid-management concept, hopefully in the relatively near future. You do start running into the predicament of an “Unreliable Energy Store” which causes problems when looking to use EVs as a dedicated distributed resource though.

shpuker > WRXforScience 11/16/2018 at 02:29

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Regulating a true distributed system like you’re laying out becomes a bit of an insurmountable problem, but there are a number of other integration methods that would allow for this style of functionality

If you fancy a bit of light (lol) reading take a look at the SIDE report on this, they analyzed a few different versions of these micro-grid concepts

SIDE Report

shpuker > Arrivederci 11/16/2018 at 02:32

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Incentive is based on the sale & registration of the vehicle. So if you move to Colorado, get a house/apartment & license , and then buy an EV within the next month I don’t see anything that would keep you from taking advantage of this on your 2018 return (Disclaimer, not a tax expert)

shpuker > deekster_caddy 11/16/2018 at 02:51

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To a degree yea that about sums it up. However the kicker (and likely point of conflict if a similar route were actually taken) would be that these state incentives wouldn’t be optional in most cases. This would be a contested point for sure, but I believe one that in the coming years, or hopefully even months, will be more of a bi-partisan issue than it currently is (I mean, who doesn’t want more efficient, instant torque filled, transportation?)

Arrivederci > shpuker 11/16/2018 at 07:32

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Sweet - I’m not a tax expert either, but my concern was that you wouldn’t have paid enough Colorado taxes to receive the credit back if you bought something now and then filed in the spring.

I have a couple good friends moving there next week that already have a PHEV and want to add another car to their stable, and are very interested in EVs.  I’m just not sure to tell them to hold off until January or go ahead and pull the trigger as soon as they move.

WRXforScience > shpuker 11/16/2018 at 10:59

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That was an interesting report, I’d wager that there are places (like where I’m at in Texas) where AC instead of heating is the primary energy consumption that would have higher benefits from the types of integrated systems they discussed. PV panels in the winter at high latitudes are pretty much worse case scenarios.

None of this would be easy, and we’d need multiples of the minimum number of vehicles for this type of system to provide maximum benefit. Smart meters, advanced modeling/AI, and long overdue upgrades to the electrical grid should all help us towards realizing the potential of both the individual parts and the integrated system.

This is something that we could do now, with current technology. These types of integrated systems are both scientifically and economically feasible (economies of scale and reduce costs for PV panels and BEV’s should only reduce the payoff horizon).

I’d love to see more widespread government backed low/zero interest loans for investments in both/either distributed solar/efficiency upgrades (high efficiency heat pumps to replace AC/furnaces, insulation improvements, and other efficiency increasing upgrades with high initial costs but long term energy savings).

Hell, we could pay for the loans with higher taxes on dirtier energy sources and gasoline (with tax rebates for low income individuals/families to avoid an overly regressive tax system). Including the costs of the impacts of fossil fuels would both level the playing field for renewables and provide an economic impetus to become more efficient.

While we’re at it, lets invest in a new M oonshot/Manhattan Project with Fusion and/or new Nuclear power plant designs. 

deekster_caddy > shpuker 11/17/2018 at 12:37

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There are a few studies that show automotive gasoline use has started to drop by a measurable percentage. I love driving electric and the overall efficiency of EVs is higher than gas, but there are still issues to work out - and many of these will be solved as adoption increases. A bigger issue is overall transportation energy use, and in urban areas it’s something that will take massive public transportation system overhauls to address - and that’s expensive, and again requires large government spending, which is always a poisonous issue. But hopefully people will start voting for politicians who believe in science...