CBO: Even with subsidies, electric cars are still uncompetitive

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Michael Bastasch DCNF Managing Editor
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Federal subsidies for new electric cars still aren’t enough to make them competitive with conventional gas-powered cars and traditional hybrids, according to a new Congressional Budget Office report.

“Given current prices for vehicles and fuel, in most cases the existing tax credits do not fully offset the higher lifetime costs of an electric vehicle compared with those of an equivalent conventional vehicle or traditional hybrid,” says the report.

According to the CBO, these tax credits will cost $7.5 billion through 2019 and will have little to no effect on reducing gasoline consumption and lowering greenhouse gas emissions, at least in the short run — the ultimate goal of the tax credit.

“While we do not agree with all of the assumptions made and relied on in the report, CBO’s illustrations do show that tax incentives can help move electric drive into the mainstream and reduce gasoline use and emissions, while growing the industry,” said Brian Wynne, president of the Electric Drive Transportation Association in a statement.

The 2009 stimulus created a federal tax credit of up to $7,500 for those who buy new electric vehicles to make them more cost competitive and to encourage consumers to cut back on petroleum consumption and greenhouse gas emissions. Individual states have their own tax incentives as well.

In late 2010, automakers rolled out out a new generation of electric cars, including the Chevy Volt and Nissan Leaf. Only about 40,000 of these  electric vehicles have been sold since then out of a total of 15 million light-duty vehicles sold in the U.S.

Despite significant government support, the CBO concluded that more taxpayer dollars would have to be used to make these cars cost competitive in the marketplace.

For example, the current maximum $7,500 subsidy would need to be increased by 60 percent to make a plug-in hybrid car, like the Chevy Volt, competitive with an average fuel economy — 25 miles per gallon — conventional gas-powered car. That means a $12,000 subsidy for new plug-in hybrids.

An all-electric vehicle comes closer to being cost competitive with conventional vehicles than plug-in hybrids. However, limits on how far these cars can go before needing a recharge means they would require a 50 percent higher subsidy to make them cost competitive.

However, the CBO notes that a “larger tax credit is needed to make electric vehicles cost-competitive with higher-fuel-economy conventional vehicles.”

In early September, General Motors announced it was temporarily suspending production of the Chevy Volt after it sold more than 2,800 Volts in August — a record sales month.

GM has sold more than 13,000 Volts this year. However, this is far below GM’s goal of 35,000 to 40,000 Volts sold in 2012.

Furthermore, Reuters reports that GM is losing up to $49,000 on each Volt it builds, an estimate GM has disputed.

Nissan Leaf sales for the year are reportedly only a third of what Volt sales have been.

The CBO report also notes that even though “tax credits are generally not large enough to ensure that electric vehicles are cost-competitive,” they might be able to make them cost-effective in the coming years.

“A strong public-private investment in the emerging electric drive industry can provide important energy security, economic and environmental benefits to the U.S.,” said Wynne.

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