Electric Vehicle Prices Down, But Americans May Not Be Ready to Dump the Pump

Twitter Poll Says More Than 1/3 of Americans Still Want Their Gas Guzzlers

Electric Vehicle Prices Down - Nissan Leaf charging

A recent Bloomberg article made a bold claim: By 2038, electric vehicles could make up to one-third of all vehicles across the globe. In the United States alone, electric vehicles will make up to 58% of new car sales. Why?

“Lithium-ion battery prices are going to come down sooner and faster than most other people expect,” says Colin McKerracher, lead advanced-transportation analyst for Bloomberg New Energy Finance (BNEF).

The implication is that that buyers would purchase these green vehicles because they are less expensive. But are Americans really ready to dump their gas guzzlers?

Electric vehicle sales will surpass internal combustion engine sales by 2038

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Are Americans Ready to Give Up Their Gas Guzzlers?

The Zebra’s Twitter poll of 2,099 respondents suggests consumers are ready to go green and jump on the electric vehicle wagon.

Overall sales of new cars and trucks fell short in July. It was the seventh straight month in declines, leaving analysts to predict lower U.S. vehicle sales overall for 2017, following seven years of growth. However, sales of SUVs continue to climb. Edmunds.com reports the average price for a new SUV was 2% higher in July 2017 compared to the year before.

Fortunately, the auto industry has been keen to this trend and has begun introducing electric and hybrid SUVs and light trucks. There are at least 11 all-electric SUVs hitting the market by 2020 with ranges between 200 and 300 miles on one charge.

“If automakers want car shoppers to adopt green technology, they can’t just offer it exclusively in a little econobox,” said Edmunds Executive Director of Industry Analysis Jessica Caldwell. “While the styling of the iconic Prius used to be trendy, consumers today don’t necessarily want a vehicle whose design screams ‘green car.’ And as tastes have taken a dramatic turn away from passenger cars, and battery technology improves, automakers have an opportunity to drive adoption forward by offering electric powertrains in vehicles shoppers actually want.”

One automaker is ditching internal combustion engines altogether. Volvo made headlines in July when it announced plans phase out the internal combustion engine. All models introduced in 2019 will be fully electric or hybrids.

“Range Anxiety” and Electric Vehicle Infrastructure

Range anxiety is the “fear” that an electric vehicle may not have enough “juice” to take a person from point A to point B (or that there are no available charging stations nearby the destination), leaving drivers and their passengers at risk for being stranded. Some experts think this phenomenon is overblown. Researchers from MIT and the Santa Fe Institute found that “about 87 percent of people’s daily car energy use can be accomplished on one charge of an EV battery.” But that doesn’t stop people from worrying.

“Range anxiety is a major impediment to electric vehicle sales and the automakers have a very long ways to go to solve that issue,” says Fred Hubacker, Managing Director at Conway MacKenzie, who has been providing senior leadership, advisory, and business development services for companies in the automotive industry for the last three decades. “The infrastructure of readily available power stations to recharge electric vehicles is woefully inadequate at the present to support any meaningful increase in electric vehicles penetration.”

Fortunately, that could change soon. In November 2016, the Obama administration announced plans to accelerate the adoption of electric vehicles across the country. These 48 Alternative Fuel Corridors would cover nearly 25,000 miles in 35 states. For drivers of electric vehicles, this would mean having an EV charging station every 50 miles, easing drivers’ range anxiety.

Electric Vehicle Charging Corridor Map as of January 5, 2017
Source: The Federal Highway Administration (FHWA)

What About Electric Vehicle Tax Credits?

On the federal level, electric vehicle tax credits in the U.S. can range from $2,500 to $7,500 for new EV purchase. The size of the tax credit depends on the size of the vehicle and its battery capacity.

Additional tax credits may be available by states and local government entities. The price of a Tesla Model 3 starts at $35,000 – but is $27,500 with the federal tax credit. Coloradans can take advantage of an additional $5,000 rebate on top of that, bringing down the price to a much more affordable $22,500. However, some states are doing the opposite. In an article for Fortune, Rebecca Lindland (an executive analyst at Kelley Blue Book) writes, “While some states are offering incentives, a new trend is for those states to not only apply a salary cap to eligibility for a tax credit, but impose fees on electric vehicle owners to make up for not paying taxes on fuel.”

It’s also worth noting that the federal tax credits are limited only to the first 200,000 units a manufacturer sells in the U.S., and Tesla is fast approaching that limit. In fact, experts predict that tax credits for new Teslas will be exhausted sometime in mid-to-late 2018.

What happens when these tax credits go away? In Hong Kong, Tesla sales dropped when the government announced changes to tax credits available to customers who purchase electric vehicles. The new policy went into effect on April 1 and is expected to last until March 2018. The city capped the tax waiver at HK $97,500 ($12,500 USD) and it is only applicable to first-time owners. In Hong Kong, a Tesla Model S costs about $118,400 USD without the tax benefit – a significant increase from the price tag of $72,900 USD with the benefit. Prior to the change, there were 2,939 first-time Tesla registrations in March and around five times that number in February. In April? Zero.

Will we see the same trend in the U.S. when Tesla’s tax credits are no longer available? Only time will tell.

What do you think? Will Americans ditch gas-powered vehicles for electric vehicles in the next two decades? Tell us in the comments below.