Do electric vehicle subsidies make sense?

The electric vehicle (EV) market in the US enjoys subsidies from the US taxpayer in so many ways they are almost uncountable. Rather than pick apart the Zero Emissions Vehicle credit and direct subsidies that are often hidden from the consumer, like when the taxpayers of Maryland paid the factory utility costs for Fisker, let’s just look at the most obvious and easily understood subsidies. That being the $7,500 federal EV tax credit and $2,500 state refund that most EV buyers are offered. Let’s ask ourselves why these subsidies are in place and if the reasons are sound.

The primary reason most people and state agencies give for these types of taxpayer funded subsidies is that without them the cars won’t sell. Meaning won’t sell at all, or won’t sell robustly enough for the manufacturers to consider the vehicles viable. At a recent clean transportation promotional event this month the Governor of the Commonwealth Massachusetts touted a new $2500 direct rebate to EV buyers. In a Worcester Telegram article explaining why these types of funding programs are necessary, John O'Dell, senior editor and green car expert at Edmunds.com (a publication we respect), was quoted as saying. "Anything that makes a purchase less expensive helps. Electric (vehicles) aren't selling as well as some hoped they would."

This statement is typical of the opinion of EV advocates, which is why it was well suited to the story about Mass. deciding to give EV buyers some money. However, is it factual? Are EVs not selling because they cost too much and will “Anything that makes the purchase less expensive help make EVs sell the way advocates hope?” Let’s look at the two leading electric cars in America.

The Tesla Model S and the Nissan Leaf are the number one and two top sellers of cars powered by only electricity. The Chevy Volt does well, and its sales are about equal to those two models, but it has a gasoline engine. Many argue it is not an electric vehicle, so we will skip it as an example. In any case, only these manufacturers have so far fully committed to making an EV and selling it in whatever volume customers will take. BMW's new i3 is coming to market this month. We expect it will be a huge success.

The Tesla Model S is described by company founder Elon Musk as the best car in the world. Not the best EV, the best car period. He also recently proudly announced he would not sell the Model S in China for the market price, but at a lower price because he wanted to be fair. According to the company’s website the car’s starting price, without navigation, with the shortest range battery, and the lowest power, is $71,070 including delivery charges (mandatory). You may have heard a lower number quoted, but that is always after the tax rebates and direct state tax rebates. The fully loaded Model S costs over $130,000. This is a supercar that can beat a 2014 Corvette Stingray in a drag race and at the same time be a luxury car that Tesla compares to the Mercedes Benz flagship model, the S-Class.

Currently the Tesla Model S has a waiting list of customers of one to six months. It has been that way now for three model years (sales started in 2012). People are literally lining up to buy the car at this very high price. In fact, Tesla says it is the number one selling car in its class based on total sales. We checked. They are correct. Yet, the car comes with a $7,500 tax break and many states feel the need to give Tesla buyers a direct rebate check for between $2,500 (California for example) and $5,000 (Georgia). Why? Tesla is selling all it can build in its state of the art factory and has a huge line of people waiting to get one.

The Nissan Leaf is a much more modest car and sells in the range that most cars do. Sales are robust. A couple examples of popular cars in its price range that it outsells include the Mazda Miata and Scion FR-S.

The 2014 Nissan Leaf starts at $28,980 (before the federal tax rebate) and with the top trim features it maxes out at about $36,920. The engine and battery are the same on the base and fancy version. So the difference between the base Leaf and the one with the super fancy bits is $7,940. That is more than the federal tax rebate. In effect, isn't the federal tax rebate to any buyer of that fancy Leaf simply a federal subsidy for the luxury package? By the way it includes a built-in navigation system, leather appointed seats (made from real cows), Bose premium audio, automatic headlights, upgraded alloy wheels, and a feature that Nissan calls “Carwings?”

If you think this story is simply EV bashing by a gas-car nut whose thinking is outside the norm, guess again. Green Auto Blog reports that California, the birthplace of EV subsidies, is considering putting a cap on the $2,500 it gives EV buyers. The cap proposed this week would be set at an MSRP of $60,000. That means it would only apply to two models of EVs. The Tesla Model S and the Cadillac ELR. The idea of stopping rebates for EVs that are expensive and/or sell well has now been put on the table by the very people who thought up this scheme.

Subsidizing the electric car so it can be viable is a reasonable concept. However, looking at the reality of the two top EVs in terms of sales, one is selling like gangbusters at prices most Americans can never dream of spending on a car, and the other outsells many popular car models and appears to have a luxury package almost exactly equal to the subsidies meant to make these cars affordable.

Here are some recent stories written by EV friendly websites about EV sales:
Electric Vehicles Speeding Toward 7% Of All Global Sales By 2020
Why U.S. electric vehicle sales are booming
Electric Car Sales Increased 228.88% In 2013