Business & Economy

Tax plan could pump the brakes on CA's electric car market

A Tesla Model S sedan plugged into a charging station outside of the Tesla Factory in Fremont.
A Tesla Model S sedan plugged into a charging station outside of the Tesla Factory in Fremont.
Justin Sullivan/Getty Images

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California is a hotbed for electric cars. But some advocates are worried that Congress is about to end a key tax incentive helping this market get up to speed. 

Currently, electric car buyers are eligible for a federal tax credit of up to $7,500, depending on the battery capacity of the car they choose. But the Republican tax bill unveiled last week aims to get rid of that Obama-era credit. 

The move would end a huge incentive for people like Los Angeles TV editor Austin Flack. He's been wanting to ditch his 2005 Honda Element for awhile. 

"I annoy a lot of people on Facebook about climate change," Flack said. "And this car actually gets pretty bad gas mileage. I thought if I could swing it, I'd like to try to jump to an electric car." 

In addition to the federal tax credit, California offers a $2,500 rebate for buying a 2017 electric vehicle. (When an individual leases an electric car, the tax credit goes to the leasing company, which can then pass it on to the customer in the form of a lower lease price.)

With that math in mind, Flack put his name on the waitlist for a Tesla Model 3, listed at $35,000. Tesla has told Flack his car will be ready to buy in the Spring of 2018. But now, he's not so sure he can keep waiting. 

The way the GOP bill is currently written, cars bought after New Year's Eve would no longer be eligible for the tax break. That pushed Flack and his wife to start shopping for a Chevy Bolt, a model the new parents could potentially buy before the end of the year.

Balancing daycare costs for a 10-month-old and the other expenses of living in a city like L.A., Flack said the tax credit is a big factor in fitting an electric car into his budget.

"Seventy-five hundred dollars is nothing to sneeze at," he said. "I'd feel kind of foolish if I ended up paying a lot more money because I didn't do it now." 

Electric car advocates say ending the federal credit would hit California particularly hard.

About half of all the electric cars on the roads in the United States have been sold in California, according to the Alliance of Automobile Manufacturers. And with companies like Tesla headquartered here, California is also a manufacturing hub for the industry.

Joel Levin, executive director of L.A.-based advocacy group Plug In America, believes electric cars will still eventually take over the market. But without federal support, he worries the U.S. could lag behind other countries investing in electric cars, like China and Germany. 

"If everyone is committing to this technology and we're not, the cars are going to be built somewhere else," Levin said. 

Car salesman Nowaz Mohiuddin at Glendale Nissan thinks that if the tax credit goes away, sales of the electric Nissan Leaf could plummet. 

"People who are in the market for this vehicle, they do their homework," he said. "They make sure they get the credit for up to $7,500, and then they come in."

The federal tax credit was always designed to eventually go away. Once car manufacturers sell 200,000 of their electric models, their eligibility would be gradually phased out. No electric vehicle makers have hit that threshold yet.