Tax Credit Available for Plug-in Electric Vehicles

Posted on November 4, 2008 by LCT Staff - Also by this author - About the author

WASHINGTON, D.C. – The AP reported that plug-in electric vehicles from General Motors and Toyota are not expected to hit showrooms for more than a year, but when they arrive, the first buyers will be eligible for a tax credit that could reach $7,500.

The incentives, which received scant attention as part of the $700 billion bailout of the financial industry, are aimed at making the green vehicles more affordable. Plug-ins are expected to be more expensive than conventional hybrids, and the tax breaks will give dealers a better sales pitch when carmakers begin production during the next five years.

Toyota Motor Corp.'s plug-in hybrid is expected in showrooms in late 2009, and GM's Chevrolet Volt, an extended range plug-in electric car, is due in late 2010. General Motors Corp. is also introducing a plug-in version of the Saturn Vue in 2010, and Nissan Motor Co. plans to bring an electric vehicle to the U.S. by 2010.

"There's a series of vehicles coming to market in the next couple of years and I think the credits are going to do a lot to diminish that first hurdle," said Genevieve Cullen, vice president of the Electric Drive Transportation Association.

Under the new law, plug-in electric cars with at least a 4-kilowatt-hour battery pack will be eligible for a $2,500 credit, with an additional $417 for each additional kilowatt-hour of battery capacity, up to $7,500. GM expects the Volt will merit the maximum credit.

The vehicle credits were among several tax breaks included in the Senate version of the bailout bill to attract broad support in Congress. The credits will be available on plug-in electric vehicles sold after Dec. 31, so consumers will be able to take advantage when plug-ins from Toyota and GM hit showrooms.

The Tesla Roadster, an electric sports car that's already on sale, will be eligible for the full $7,500 tax credit, company officials said. The Roadster, which starts at $109,000, can travel 244 miles on a 3.5-hour charge.

Tesla's all-electric Model S sedan, which is expected to sell for $60,000 by mid-2011, is also expected to get the full tax credit under the current law, company officials said.

The $758 million in tax credits, which were developed by Sens. Orrin Hatch, R-Utah, and Maria Cantwell, D-Wash., and Reps. Dave Camp, R-Mich., and Jay Inslee, D-Wash., are similar to a tax program available since 2006 for buyers of gas-electric hybrids. Lawmakers based the plug-in tax breaks on the hybrid program but said the new incentives are more important in an age of expensive gasoline. The vehicles, which can be recharged by plugging into a standard wall outlet, hold the promise of running on battery power for short distances.

"New technology is always more expensive, and what we want to do is try to jump-start this new technology," Camp said. The hybrid incentives, which have given buyers tax breaks of up to $3,150, begin phasing out after an individual automaker sells 60,000 hybrids. Toyota reached that benchmark in late 2006 because of the success of the Prius, and Honda Motor Co. surpassed it earlier this year.

The plug-in tax credits will simply begin phasing out when the entire auto industry sells 250,000 of the vehicles, giving companies more reason to get their cars into showrooms before their rivals. The program is scheduled to end by 2015.

Tom Stricker, Toyota's director of technical and regulatory affairs, said this approach will "incentivize the manufacturers to get into the game because we're all working toward the same cap." GM has estimated that buyers of the Volt, which is designed to draw power from a 16-kilowatt-hour lithium ion battery for the first 40 miles, will qualify for the maximum credit of $7,500. The Volt, with a small gas engine to extend its range, is expected to cost $30,000 to $40,000.

GM spokesman Greg Martin said the vehicle's "propulsion system will be expensive. Tax incentives are an effective tool that helps make the upfront price equation for the consumer more attractive and can help spur early adoption of new technology."

Source: The Auto Channel

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