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Republican plan would axe EV tax break

The roll back of vital incentives would come just before a major push from carmakers to bring electric vehicles into the mainstream

The Republican proposal for sweeping changes to the American tax code holds some bad news for electric vehicles. The first draft of the law would eliminate the $7,500 federal tax credit that buyers of new EVs can claim, Bloomberg reports. This is a vital financial incentive for Tesla, Chevrolet and other EV manufacturers.

The bill would immediately repeal the tax credit, which was put into place in 2011 as part of president Barack Obama's post-financial crisis recovery plan. The timing could hardly be worse for the EV industry. Dozens of new EV models are due to hit the road in 2019 and 2020 as the world's top automakers enter into the market.

Many of these will be luxury vehicles aimed at buyers that can probably do without the tax credit. But automakers are also planning to release a number of more affordable options—EVs for the masses—that could see sales suffer if the tax credit is rolled back. Tesla is putting out its hotly-anticipated $35,000 Model 3 which will be able to go around 220 miles on a single charge. Chevrolet is bringing down the cost of its 200-mile Bolt EV to around the same level. Volvo, Nissan, Volkswagen and Ford are also bringing out their first vehicles with similar specs in the same price range.

The tax credit was always envisioned to end eventually. The existing legislation calls for the credit to slowly phase out for each manufacturer once it sells 200,000 qualified EVs in a single quarter. However, no manufacturer has yet come close to that level. Tesla, the top EV seller in the US, is likely to fall short of 200,000 vehicles for the whole of 2017. Even with EV sales growing at a brisk clip, the tax incentive would likely remain in place for most manufacturers well into the 2020s, without a legislative roll back.

Detroit's automakers still hold a lot of sway in Washington DC and they will no doubt mobilise an army of lobbyists to push back against the proposed EV tax change. If unsuccessful, the abrupt end to the tax credit would cast a shadow over the roll out of the first wave of more affordable EVs.

Tax incentives have been highly effective in encouraging the take up of electric vehicles. Norway is the case in point. EVs are generously subsidised in oil-rich Norway, where they are exempt from value-added taxes, which can account for 50% of the cost of a new car, and don't have to pay road tolls and can charge free. The package of incentives make EVs a more attractive buy than internal combustion cars, and as a result the EVs account for around a third of all new car sales, by far the largest share in the world.

In the US, California has been the leader. On top of the federal tax credit, California buyers can claim up to $2,500 in state tax benefits, are able to access high occupancy vehicle lanes, an attractive benefit on the state's traffic-choked roads, and can take advantage of a slew of other benefits. In the first quarter of 2017, EVs accounted for 5% of all new car sales in California, by far the highest in the country.

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