Subsidies for Electric Vehicles Favor the Wealthy

Electric vehicles are heavily subsidized by the federal, state, and local governments. Based on a study I just completed, the federal subsidies are worth over $42.7 billion to their recipients over the lifetime of the programs. They include the federal grant and loan programs for manufacturers, and the consumer tax credits worth $7,500 per consumer.

State and local governments also provide tax credits to purchase electric vehicles (up to $7,500 per consumer), subsidize investments in charging stations, and even offer perks such as access to HOV lanes, access to free vehicle charging, and free meter parking (in Hawaii).

Then there is California. California mandates that zero emission vehicles (ZEVs) must comprise a set percentage of the automobile market, along with the nine other states that have adopted California’s policy. Under current law, ZEVs must equal 22 percent of the market by 2025. All companies that do not sell their designated share must: pay a $5,000 fine per ZEV credit they are short; purchase credits from companies whose ZEV sales exceed their requirements; or sell ZEVs in California at lower prices to increase market share, possibly risking a financial loss. As many companies who fall short choose to purchase credits from companies whose ZEV sales exceed their requirement, the sales mandate has become a large subsidy to select electric vehicle manufacturers, such as Tesla who has earned $700 million in credit sales to date.

There are also distributional impacts from EV subsidies. IRS Statistics of Income data illustrate that, for the 2014 tax year, 78.7 percent ($207.1 million) of the federal consumer tax credits were received by households with an adjusted gross income (AGI) of $100,000 or above. A further 20.5 percent of the tax credits ($54.1 million) were received by households with an AGI between $50,000 and $100,000. Put differently, over 99 percent of the total tax credits went to households with an AGI above $50,000.

Putting it all together, the size of the EV subsidies are substantial, EV subsidies favor certain competitors over others, and the subsidies benefit upper-income households at the expense of lower-income households. These realities raise serious questions regarding the wisdom of the current subsidy policies.

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Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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